IMAGINE IF YOU HAD THE CHANCE TO BUY A WAL-MART FRANCHISE IN MEXICO RIGHT WHEN IT FIRST OPENED ITS DOORS THERE AND ALL YOU NEEDED WAS A SMALL STAKE TO GET IN.

Hurry, we see this stock starting to make the turn NOW.
Big watch in effect for Novemver 15th, 2009!!!!

What a great guy this must be to send me this information and to be so concerned about my financial well-being! The truth is that you are now being presented with the bait for a pump and dump scam.

Pump and Dump definition:

This is a form of microcap (companies with small capitalizations, between $50 million and $300 million) stock fraud which attempts to artificially pump up the price of an equity through false, misleading or exaggerated statements. The perpetrators of this scheme, who already have a position in the stock, dump their securities after the hype has caused a higher share price. The victims then lose a considerable portion of their investment as the price then plummets.

Perhaps that fellow who sent the email wasn’t such a nice guy after all!

In the past, these schemes were initiated through cold calling but the internet has changed that and opened the doors for a new breed of fraudsters. They now have a cheaper, easier and faster way to reach huge numbers of unsuspecting victims. We must not let greed and temptation overtake our sense of reality. We know how to locate great investment opportunities through fundamental and technical analysis. This is a far superior approach than listening to “some guy” who we never met.

Oftentimes these scams take on a muti-level, more sophisticated form. There can be email and telemarketing campaigns supported by newsletters highlighting the company as a “hot stock pick.” Chat rooms are flooded with pleas for investors to “hurry-up and buy this red-hot stock.” Give me a ____________break (feel free to fill in the blank).

Why Micro Caps?:

This ploy works best with small, thinly traded companies called “penny stocks.” These are equities that trade at low price (under $5 per share) and market capitalization ( # of outstanding shares x share price). They usually trade over the counter through pink sheets and bulletin boards. They are considered high risk due to the lack of liquidity, large bid-ask spreads and limited analyst following and disclosure. There is also a class of even smaller companies called Nano Caps which have market capitalization under $50 million.

Impact on crooks and victims:

It is estimated that 15% of spam e-mail messages involve these pump and dump scams. Spammers could make a quick 6% return while victims typically lose 5% of their investment with 2 days and could very well lose all of their money. The SEC regards this problem as one of the most common internet frauds. This issue has encouraged the development of software programs to locate the spammers before they hurt hard-working investors. John Stark, the head of internet enforcement at the SEC, put out the following statement:  “This is basic lying, cheating and stealing and the message to anyone engaging in these shenanigans is they are going to get caught.”

Painting the Tape:

This is a related illegal action taken by some market manipulators wherein they buy and sell securities amongst themselves to create artificial trading activity which is then reported on the ticker tape. This may catch the attention of unsuspecting investors who perceive the high volume activity as institutional interest and take positions in the stock. The fraudsters then sell their own stock as the artificially inflated stock prices peak and retail investors take the hit. The SEC is all over this one as well.

Conclusion:

Forget about that Walmart in Mexico and let’s stick to our system of fundamental and technical analysis to locate our investment candidates. This will protect our hard-earned money and force those scammers to get real jobs just like the rest of us.

Flash Trading Update:

In keeping with today’s theme of leveling the playing field for Blue Collar Investors, I would like to update you on the subject of flash trading a subject I wrote about in an article on August 15th of this year. These orders use powerful computers to get a quick look (30 millisecond glance at the order before everyone else sees it) at what other investors are doing. The average trade can then be executed in less than 10 milliseconds with these potent computers.

According to Mary Shapiro, the chairwoman of the S.E.C., “Flash orders may create a two-tiered market by allowing only selected participants to access information about the best available prices for listed securities.” As a result, the S.E.C. proposed banning flash trading to balance the interests of long-term investors and short-term traders. Currently flash trading represents 2.8 percent of the 9 billion shares traded in the U.S. Senator Charles Schumer of NY predicts that “This proposal will once and for all get rid of flash trading.” Once again we see that the aftershocks of the sub-prime and Madoff debacles are resulting in a tougher stance by the S.E.C. which benefits  retail investors, including all Blue Collar Investors.

Last Weeks Economic News:

The recession is “likely over” stated Fed Chairman Ben Bernanke this past week. This opinion was supported by several positive economic reports. Retail sales reached their highest levels in three years (up 2.7% in August) to a large extent due to the Cash for Clunkers Program. Producer prices rose 1.7% in August easing fears of some economists of deflation concerns. For the 11th consecutive month businesses were able to trim their inventories, down another 1% in July. We also saw the first report of increased industrial production in back to back months since November/December. Also new home construction increased 1.5% in August and construction permits for housing rose 2.7% in August. Still weighing on the minds of many economists is the high unemployment rate. For the week, the S&P 500 rose 2.5% for a year-to-date return of 20.2%.

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