ESB Brain Wave

2007-08-21T06:13:00.000-07:00

Phantom's Scam Artist Resigns

2007-07-10T06:28:00.000-07:00

Finally some good news from Phantom Entertainment: Timothy Roberts has resigned from the board of directors to "pursue new business opportunities". Judging by his employment history, this means creating a new startup to bilk more naive investors. But if the SEC has their say, he will never get that chance as this resignation may mean the SEC is close to charging Mr. Roberts with securities fraud.

The SEC has an open case against Mr. Roberts for the infamous fax scam back in 2004 when Roberts profited over $400,000 in a few short trading days after Infinium Labs stock soared >10,000%. Michael Pickens, who was hired to send out these faxes promoting the now-defunct Phantom console, has since been jailed for other similar penny stock scams.

The stock is down 99.97% to $0.0005 since Timothy Roberts committed the crime.

Although this news may have come 3 years too late, it's the first step in becoming a legitimate company.

Also today, Phantom Entertainment announced a small funding deal that will aid in October's Lapboard launch. Back in April, Ione teamed up with PHEI to manufacture & distribute these gaming keyboards. This puts the launch in the hands of a more competent partner, which is great news considering PHEI's 0.000% batting average.

Could the future actually look promising for Phantom Entertainment? They have funding for the Lapboards, they have a competent manufacturing partner who is driving the launch, they have a pending Alienware order, and they no longer have the dark cloud overhead in the form of Timothy Roberts.

Let the iPhone Hysteria Begin

2007-06-26T18:00:00.000-07:00

The only email spam I consistently read comes from Apple. Every few weeks, they always manage to come out with some new iPod add-on that I must own. I think I’ve now spent over $1000 on accessories for my $179 video iPod.

Somehow this Apple spam consistently avoids the Bulk folder of my Yahoo! Mail account (while my girlfriend’s emails get flagged as spam. wtf?). Today’s message reminded me of this Friday’s iPhone launch. Being an Apple shareholder (AAPL), you’d think I would remember such an important date. But the iPhone hype has been on overdrive for so long that it’s easy to ignore when it dominates the headlines for 6 months.

Also today, Apple & its exclusive carrier AT&T announced 6 different service plans ranging from $59.99/mo for only 450 minutes to $219.99/mo for 6000 minutes. These monthly fees are on top of the $499 price tag for the 4GB model and $599 for the 8GB model based on a two-year service contract.

The $3000 Hobby (and Other iPhone Hurdles)

Judging by today’s selloff, I think potential customers are starting to realize how expensive the iPhone will be. If you sign the mid-range $99.99/mo service plan after purchasing the 8GB iPhone model, that alone will set you back $3000 during the two-year contract (without any accessories)!

Here’s a few other potential hurdles that could prevent the iPhone from exceeding its already lofty expectations:

You must be an AT&T customer to use the iPhone. With a market share of 20%, that means 80% of wireless customers must cancel their current contracts to sign with AT&T. Being a Sprint customer, I would have to pay a $175 cancellation on top of the $3000 price tag for the iPhone. AT&T’s exclusive contract runs through 2009.
Only 4 & 8GB of hard drive space? My tiny video iPod holds 30 GB for less than $200.
Recent surveys have shown that the majority of IT departments will not even consider the iPhone due to its PC incompatibilities & exclusive AT&T contract. That will dampen business spending & all but eliminate demand for the higher-tier contracts.

“Sell the News”

On Jan 9^th 2007, Steve Jobs announced the iPhone at the Macworld Conference & Expo. The stock has since been on fire rising 50% to $125, adding $30 billion to the company's market capitalization. Will the iPhone really hold that much value for Apple? This huge runup comes after a fantastic finish to 2006 after Apple’s stock bottomed out at $50 in October. Thus, nearly everyone holding Apple is sitting on huge gains.

Expect an Apple selloff following the iPhone launch. 3 similar mini-selloffs have occurred during this recent runup:

June 26^th: Apple announces 6 AT&T service plans for the iPhone. The stock drops 3% on investor concerns over the high prices.
June 11^th: Steve Jobs shows off the iPhone at Apple’s World Wide Developer's Conference. The stock falls 5% after investors saw no “surprises”.
March 20^th: Apple beats 4^th quarter analyst earnings & revenue estimates. The stock falls on profit taking.

Apple’s recent success has created impossible expectations. With all the mega-hype already priced into the stock, just meeting expectations will create a selloff. Longer-term investors need not worry because the future looks bright with Macs gaining market share & the iPods continuing their dominant foothold on the music industry.

Buying Your Way Into Heaven

2007-05-31T14:06:00.000-07:00

Interesting parallel from today's energy policy to 16th century Catholicism from Economist Dennis Gartman:

"CATECHISM CLASS: Raised as good Lutherans back in Ohio, we always understood how the selling of Indulgences helped bring the Catholic Church low in the 16th Century. Indulgences were the pieces of paper sold by the Pope that allowed 'sinners' to pay down their debts they had incurred through sinning. One could sin, buy an Indulgence from the Church, and go about one's life with a sense of having done something worthwhile for the building of more churches AND in curtailing one's time in purgatory or actually buying one's way into heaven. Indeed, we learned that one of the Popes of the age, Leo X, actually sold such large Indulgences, costing such large sums of money, that he was able to finance the rebuilding of St. Peter's Basilica. Having been to St. Peter's, in retrospect, perhaps this was not such a bad idea given the stunning beauty of the church.

"But the whole notion of Indulgences is being revisited these days by the new religion of global warming, for if we consider what Mr. Gore has recently done by buying carbon offsets from those who plant trees to offset his enormous carbon footprint, or knowing what Sen. Edwards has done by buying offsets to the electricity and energy needed to power his enormous home in Chapel Hill, N. Carolina, we are hard pressed to see where this practice differs from the 16th century selling of Indulgences.

"Parishioners in the 16th century bought their way out of Purgatory and/or Hell; 21st century tree-hugging energy users can buy their conscience clear by buying offsets. We look for arguments from our global warming friends out there."

Time to Double Short the Dow?

2007-05-15T18:09:00.000-07:00

The stock market continued its fantastic run in April finishing up 8.6% with the Dow industrials & Russell 3000 reaching all-time highs. Consider that it took seven years to move the 1,000 points from Dow 11,000 to 12,000. By comparison, the index required just over six months to run the next 1,000 points from Dow 12,000 to 13,000.

Turning bearish during this prolonged rally may sound foolish, but the market appears oblivious to the bevy of economic woes. Remember Warren Buffet’s mantra: “be fearful when others are greedy and to be greedy only when others are fearful.”

Just take a look at this week’s economic data:

Housing starts at 7-year low
Existing home sales largest one-month drop in 18 years
GDP growth slowest in 4 years
US Dollar at all-time low versus the Euro
Consumer spending weakest in 6 months
Consumer sentiment fallen 3 straight months to 9-month low

We haven’t experienced this much blind optimism since President Bush hung the “Mission Accomplished” banner on the USS Abraham Lincoln 4 years ago. Indices have continued to reach new highs on solid 1^st quarter earnings & expectations of a Fed rate cut. But the lack of catalysts in May should hurt the markets while investors take profits.

Evidence is starting to show that Smart Money is beginning to watch from the sidelines. “Sell in May and go away'' is a well-known Wall Street strategy as the month historically struggles. Inflationary pressures & $4 gasoline may keep the streak alive.

Call me crazy, but I entered a large position in the ProShares UltraShort Dow30 ETF (DXD). It is essentially the double inverse of the Dow Index. In other words if the DOW falls 5%, the ETF gains 10%. You can see how risky this position is! I also purchased oil futures (USO) last month with the expectation of a return to $70. And increased my holdings in First Trust’s 9% Yield ETF (FHI).

I still hold roughly half of my portfolio in equities, but all of them are from the cheaper Nasdaq. While the S&P, Russell & DOW all are at or near all-time highs, the Nasdaq still remains 50% off its 2000 highs. So if this rally continues, I should stay even.

Join the Poker Player Alliance

2007-04-30T13:41:00.000-07:00

Dear Eric,

This is Mike Sexton, and I want you to get involved to help support the great game of poker. I am sure that it isn't news to you that the federal government passed a law last year to restrict online poker sites from offering real money play. I believe it is possible to change the legal landscape. That's where the Poker Players Alliance (PPA) comes in. I have been personally involved with the Poker Players Alliance, and believe you should too.

The PPA is a grassroots movement, consisting of poker players like us, who would like to change the law. Our goal is simple - to change the ban, and allow us to play poker on-line, on licensed and regulated sites. I believe that poker is a game of skill, and a game that is part of the American fabric, and that licensed and regulated online sites can offer fair and secure online poker. I support the efforts of the Poker Players Alliance and I have arranged to sponsor a free PPA membership for you. Please CLICK HERE to join me and add your voice to millions of other poker players who will be heard by Congress.

Your part in this is simple. Just sign up now for this free offer (if you clicked in the above paragraph, you have joined), and the PPA will be sending you regular newsletters to keep you informed of what you can do to help bring back poker. The PPA is preparing to launch a massive lobbying campaign in support of new legislation that will be introduced shortly in Washington D.C. By joining now, we can send a message to our lawmakers to make sure that they know about our love of online poker and desire to bring it back.

Our mission will not be easy - or cheap. Lobbying for reform is an expensive process, and our efforts will not succeed overnight. The PPA is a not-for-profit organization, and your contributions go directly into lobbying efforts. If you can, please support our shared interest further with a donation.

If you are already a member, do not worry, you can upgrade your membership to a fully paid membership, or better by clicking here. Rest assured that your privacy rights will be secure with PPA. Your personal information will not be shared with anyone. I hope that you will join us in this effort. The time to make it happen is now.

For more information about the PPA and what is happening, visit www.pokerplayersalliance.org.

Sincerely,
Mike Sexton

Phantom's Pump & Dump

2007-04-20T10:52:00.000-07:00

Since Tuesday's post, Phantom Entertainment has already dropped more than 64% from its highs. The timing of the press release was ~~fraudulent~~ curious considering the company missed their quarterly filing deadline the very next day. Phantom is now in non-compliance status & has been relegated to the pink sheets. I'll be interested to see how many insiders sold during the rally.

Phantom delays their Lapboard 6 more months - Stock quadruples

2007-04-17T11:03:00.000-07:00

The pink sheet market is a different beast where Market Efficiency theory usually does not apply. For example, take today's press release from our friends at Phantom Entertainment (formally known as Infinium Labs). In their announcement, Phantom released 4 pieces of bad news:

The Lapboard has been delayed 2 additional quarters
Phantom has given up the rights to their only product to instead collect royalties
They have "switched" manufacturers (Ione/Itron)
They have all but left the US markets & have instead entered Asia

In addition, it fails to comment on the company's lack of funding which has been the main reason why the stock has fallen more than 90% the past year. Just last month the company decided to double the number of shares, slashing the current shareholders piece of the pie in half. But these shares are only worth a couple million even after today's rally. Last quarter's cash burn was much more than this amount.

So how did the stock react? It quadrupled from .0006 to .0024! How can this be? First of all, PHEI is an extremely low volume stock that can be moved with great momentum after any news or pickup in volume. But the rally has more to do with the creative way the PR was written. At first glance, it seems very positive. But read into the details & you will see that the real news could send the stock plummeting the next few days:

"PHEI announced today it has entered into a major, multi-product licensing agreement with Ione Technology Inc."
Meaning: We have no funds to build the Lapboard & have sold the rights to another company. Instead, we will receive 5% royalties if it is ever built. It's their problem now! (Ione Technology is actually the same company as Itron, the previous manufacturer. They changed the company name to Itron in 2003. Fradulent?)

"The agreement allows Ione Technology to market an Ione wireless lapboard and Ione wireless laser mouse in markets throughout Asia"
Meaning: We no longer have any credibility in the US markets. Asia has no idea who we are!

"Phantom Entertainment will manufacture the Phantom Wireless Lapboard and Phantom Wireless Mouse throughout the United States and Europe"
Meaning: Even though we have promised this for 3 years and still have no funds to build it, we still plan on launching the Lapboard. Otherwise, we have no reason to still be collecting our gigantic salaries!

"We anticipate Ione Technology will begin production and distribution of the Ione wireless lapboard and Ione wireless laser mouse in the third quarter of 2007"
Meaning: We are delaying the Lapboard for the 6th time so that our investors stick around for another several months (it was originally slated for a 2004 launch date).

As you can see, with a little creativity (and borderline fraud) you can turn any bad news into an optimistic-sounding announcement. It's not difficult to predict how the stock will perform the next couple days once this becomes obvious to the current investors... sell before it's too late!

Finding a Gem Amid the Subprime Debacle

2007-03-12T18:10:00.000-07:00

After the refi boom of 2003, mortgage lenders were forced to get creative to keep their loan volume steady. New riskier products such as interest-only & stated income loans allowed those with credit difficulties the ability to purchase a home. If thes e products weren’t risky e nough, subprime specialists we re bringing in barrels of cash by lending to those with credit scores in the 400s. Why take all the risk? High risk = high margins.

But in recent weeks, several lenders have warned what many observers had been predicting for months:

Borrowers that took out interest-only loans have been unable to make payment after the “teaser” period runs out.
Companies that allowed borrowers to “state” their income (without verification) now realize that applicants grossly exaggerate their income over 50% of the time.
And worst of all, defaults in the subprime arena have been much higher than expected forcing a record 1 out of every 200 American homes into foreclosure.

It's been an ugly couple of weeks for the mortgage sector. The hardest hit have been those subprime specialists such as New Century & Accredited Home Lenders who have seen their funding caught off after warning of massive defaults. Their charts say it all:

From an investing perspective, view this as a healthy cleansing of the weaker mortgage companies. When the dust settles, the stronger lenders should emerge with less competition as more subprime shops go into bankruptcy.

The pressure has been felt industrywide, even affecting those companies with minimal subprime exposure such as Countrywide, Washington Mutual, American Home Mortgage & Suntrust. This recent selloff presents a great opportunity to invest in these oversold cash cows.

American Home Mortgage

My #1 recommendation would be American Home Mortgage. AHM has seen its shares halved to $19 in the last month despite having less than 1% subprime exposure. In an Operations Update last week, AHM released its pipeline data showing only 5% of its loans having credit scores less than 620.

In addition to being oversold, AHM has amazing fundamentals.

4 P/E Ratio
Operating Margin: 46%
20% insider ownership
$400 million in cash (40% of market cap)
Return on Equity: 22%
2006 EPS: 4.96/share

And most important of all, because AHM is a REIT, it must payout a certain percentage of its income in the form of dividends. During this 50% fall in share price, AHM has seen its dividend payout rise to 19%! If you’re afraid this dividend will be cut, consider that AHM has been steadily increasing its payout every quarter and has over $400 million in cash.

In summary, the selloff has left AHM with excellent appreciation potential and an eye-popping yield of 19%. With less competition after this subprime reshuffling, the stronger lenders will emerge more powerful than ever.

DOW Sheds 500

2007-02-27T13:10:00.000-08:00

Is this finally the end of the Goldilocks Economy that all of us pessimists (aka realists) have been predicting? The Dow Jones Industrial Average fell over 500 points at one point during today's trading session. Fear poured over from the Chinese stock market which fell in excess of 8% during last night's trading. Durable good numbers came in this morning at -8% while analysts were predicting only a 3% fall. And to top it off, geopolitical concerns increased as a Taliban suicide bomber failed in his Dick Cheney assassination attempt. All this created the largest single day drop in 6 years.

Slower growth, geopolitical concerns... just as predicted.

Here's a look at how my Bear picks performed today during the stock market crash:

DOG: +3.27%
DXD: +6.10%
FHI: -0.73%
USO: -1.63%
BEARX: +2.53%
PBW: -5.78% (but up 20% in the last month!)

Not too bad. I hold 4 of these 6 in my cautious portfolio, but my equity exposure is still around 70%. While this was an ugly day for the Bulls, I don't expect this kind of volatility to be the norm. I truly believe the markets are in equilibrium with chances of a recession at 50/50 - no crash, no Bull mania. Don't panic!

***UPDATE***
It turns out that Dow Jones admitted to a "calculation error" around 2:00 EST Tuesday that artificially created a 200-point drop in the Industrial Average in a 60-second period. Thus, the DOW was not actually down as much as 540 points like it appeared. Their trading system had difficulties handling the massive sell orders that occurred in such a short span.

Even though this was an artificial drop, it caused a real panic that caused the markets to sell off even more (in my opinion). So the artificial drop became a real drop when perception became reality.

The markets did recover on Wednesday, but sank 200 more points on Thursday & Friday.

Ideas for a Bear Market

2007-01-19T16:08:00.000-08:00

As I outlined last week, I’m not too confident in equities for 2007. If you're on the same side of the fence, it may be time to reduce your equity exposure. Here are some investments that should perform well in a bear market:

Bond Funds
Stick more of your money in bonds. If the futures trading activity is any indication, there is a much higher probability of a Fed cut this year than a rate hike. When interest rates are going down, the prices of bonds rise.

My recommendation would be First Trust’s Strategic High Income Fund (NYSE: FHI). FHI is a high-yield bond fund with an astounding 9.2% dividend yield! If rates do indeed fall, you will gain both appreciation and dividends. If it stays flat, you’ll still realize a 9.2% gain while the stock market struggles. And because it’s an ETF, you have several advantages over traditional mutual funds: you can buy & sell like a stock, fund expenses are much lower, dividends are paid monthly, there are no redemption fees for investing less than 1 year, and you are not dealing with a 3rd party.

Short Funds
If you are 100% convinced that the stock market will crash in 2007, check out ProShares family of Short Funds (some call them the “Un-American” funds). These ETFs are designed to move in opposition to the major indices such as the Dow, Nasdaq, S&P500 & MidCap400.

For example, if the Dow Index falls 10% in 2007, the Short Dow30 Fund (NYSE:DOG) will gain 10%. Even more confident of a down market? ProShares also offers “Ultra” Short funds that move 2x in the opposite direction. For example, if the Dow falls 10%, your UltraShort Dow30 Fund (NYSE:DXD) will gain 20%! As you may have guessed, these funds struggled during 2006’s bull market losing 13% and 26%, respectively.

Be aware that the UltraShort Funds are VERY risky and should not be markup a large percentage of your portfolio unless you are either Nostradamus or executing a short-term trade. For example, if the US invades Iran or there is another domestic terrorist attack, the UltraShort funds could protect your holdings while the predictable selloff occurs.

A more conservative play is the Prudent Bear Fund (BEARX) which invests in a variety of securities that perform well in down markets: short sales, futures, CDs, value stocks. I’ve held this mutual fund for roughly 6 months, and despite the huge run in the stock market, it’s held up pretty well. Plus it pays a nice dividend. This is by far the most widely-held bear fund & is actively managed, unlike most ETFs.

Energy and Defense
Energy and Defense-related stocks generally perform well in bear markets. Energy stocks have been struggling the last several months as the price of oil has fallen over 35% from its peak of $78.40 last summer. There were 3 key reasons for this fall:

· Unusually warm winter weather
· Absence of geopolitical risks
· Concern whether OPEC can control rising inventories

But oil appears to have reached a bottom as it was met with huge resistance at the key $50 level this week. Bullish sentiment from veteran investor T. Boone Pickens helped oil when he was quoted in The Wall Street Journal as predicting an average price of $70 a barrel in 2007. I would recommend the US Oil Fund ETF (NYSE:USO) that follows the price of crude without having to deal with futures contracts. Otherwise, the Oil Service Holders ETF (NYSE:OIH) is a more diversified basket of energy stocks that should perform well in a bear market & as oil recovers.

Also take a look at alternative energies. At Tuesday's State of the Union Address, President Bush is set to unveil his strategy to confront global climate change and work toward energy independence. PowerShares WilderHill Clean Energy Fund (AMEX:PBW) is an ETF that includes solar power, ethanol, wind & carbon energy stocks. With Bush finally admitting our "oil addiction" and the Democrats getting serious about global warming, these stocks should see increased exposure & possibly government funding.

Defense stocks have also been struggling as geopolitical conflict has been relatively quiet (with the exception of Iraq). Any conflicts with Iran, North Korea, Afghanistan, Venezuela or Syria (just to name a few) would aid defense-related spending. Also keep in mind President Bush is approaching his final year in office. Remember what his father did during the last few months of his Presidency?

Democrat-Related Stocks
One warning with Energy & Defense-related stocks: these normally do not perform as well when Democrats hold office. With the Democrats holding majorities in both the House & Senate, more focus could go to alternative energy, stem cell & biotech companies. But this may not happen until Bush leaves office and loses veto power. If a Democrat wins the Presidency next year, avoid health care, defense, pharmaceutical & oil companies.

Bearish in 2007

2007-01-03T17:28:00.000-08:00

I’m officially bearish on the stock market. Equities plowed forward in the 2nd half of 2006 despite slowing growth, rising interest rates, inflation concerns, falling housing prices, a weakening dollar & an inverted yield curve. To me, this sounds too eerily similar to 2000.

So why the rally? 3 reasons:

1) Oil prices have been steadily falling since last summer
2) Corporate earnings continue to rise despite a slowing economy
3) Most investors believe the Fed will cut interest rates in 2007

The 3rd point was the most important (and most intriguing). Every time a bearish set of economic data was released in late 2006, the stock market shrugged it off since it heightened expectations of a Fed rate cut in 2007 (which stimulates growth). On the other hand, when positive data was released, the market still rallied. Thus, the stock market was going to rally no matter what the news!!!

This year should be different due to (a dirty word for investors) STAGFLATION. Yesterday’s Fed minutes indicated the presence of this double whammy: slowing growth AND rising inflation. These 2 phenomena rarely work in opposition. What this means is that the economy is slowing, but the Fed is unlikely to cut rates as long as inflation is an issue. This is very bad for the stock market and, to a lesser extent, the bond market.

The inverted yield curve (where short-term rates are higher than long-term rates) is also still an issue. In 1996, authors Estrella and Mishkin released a famous Fed study that developed a probability table about how likely a recession would be 4 quarters later, given a particular level of the yield curve spread. Their study accurately predicted the stock market crash in 2001 when the yield curve was inverted one year earlier.

The last few months, the spread between the 3-month & 10-year bonds has been -0.40% indicating a ~40% chance of a recession.

Even barring a full-fledged bear market, it's notable that the Dow has now gone over 1000 trading days without even a 10% correction. The current advance is among the 3 longest uncorrected advances on record. The table below indicates all prior instances where the Dow advanced more than 600 trading days without a 10% correction, along with the price/peak earnings ratio of the S&P 500 and the 10-year Treasury bond yield at the market high, and the extent of the ensuing decline.

This rally cannot ignore all these deteriorating economic conditions forever! If you think the stock market will keep plugging along, you’re certainly not alone. But several of the current bearish economic indicators must disappear for this to happen.

In a few days, I’ll share my “Bearish” stock & bond picks for 2007 that should perform well in a struggling environment (if you agree with my predictions!)

$0 Commissions at Bank of America

2006-11-28T16:35:00.000-08:00

For those of you who invest online, this is great news. For those of you who do not, maybe you should start!

Bank of America, the 2nd largest US Bank, announced last week that it will allow investors to make up to 30 free online equity trades per month if they deposit at least $25,000.

Will paying for online trades be a thing of the past? Due to industry consolidation the last few years, commission charges at Ameritrade, Scottrade, Charles Schwab & E*Trade have been gradually coming down. But Bank of America's curveball could run the smaller pureplay trading companies out of business.

After the BofA news, competing online discounters fell more than 10%. But this could be just the beginning of an industry-wide slump.

Bank of America is so gigantic in size ($250 Billion) and diversified across many channels of business that it can afford not to charge these commissions. But so far, all competitors have indicated they will not be matching the $0 trading fees. Will this last long? Probably not. The larger competitors such as Schwab & E*Trade will have to follow suit in order to keep existing customers.

The smaller pureplay trading companies, on the otherhand, may struggle to survive. For them, the trading fee is their primary source of revenue. Since they cannot afford to match this move, I believe the industry consolidation will continue. Ameritrade & Scottrade will most likely be gobbled up by these more diversified banking companies.

I know I will be looking to switch! Every year I probably pay around at least $500 in commission charges on my Ameritrade account. This of course eats away at one's annual return. Here's where you sign up.

The Odd Couple: Alienware & the Phantom

2006-10-27T16:10:00.000-07:00

Where would this blog be without Infinium Labs? The soap opera just won't die. On Monday, Phantom Entertainment (aka Infinium Labs, the company that never brought you the Phantom console) announced that Alienware has ordered the Phantom Lapboard for its PC gear product line & Media Center PCs.

The Phantom Lapboard is a wireless keyboard & laser mouse combo that enables users to work or play games up to 30 feet away from your system. Check out a quick demo from this month's DigitalLife conference:

This is (shockingly) good news for 2 reasons. First off, it appeared the November launch was in jeopardy. In an interview last week, CEO Greg Koler indicated that the Lapboards had not yet been manufactured. Second and most important, this is the first time in 2 years that Phantom Entertainment has partnered with a legitimate, well-respected company. Alienware is one of the most popular gaming manufacturers in the business; so popular, in fact, that it was bought out by Dell Computers earlier this year in a deal exceeding $1 billion. Alienware moves product, and including the Lapboard with its gaming machines means plenty of potential revenue for Phantom Entertainment.

From an investing point of view, this may be an excellent risk/reward play with PHEI's stock down 90% (not a mistype) for the year. The stock is priced with the expectation that Phantom Entertainment will not survive into 2007 (much less ever launch a product). If the Lapboard hits the shelves in the coming weeks, $.02 should be an easy target.

Although this is appears to be great news for Phantom Entertainment, as always we'll believe it when we see it! With no funding, we're not exactly sure how they will come up with the funds to build the Lapboards. Preorders are being taken on Phantom.net, but credit cards are not being charged until the product is delivered. Hopefully PHEI is following Alienware's original business model of "Pay first, build later".

I've contacted Phantom Entertainment's PR department at pr@phantom.net with these concerns and will post their response if one is ever received. Cross your fingers!

Game Over

2006-10-13T19:31:00.000-07:00

He did it. As expected, President Bush today sign the dotted line banning online gambling. What am I supposed to do now? Read a book? Leave the apartment? Get real...

PartyPoker has already stopped taking bets from American players (read the official press release here)! It allows you to login to the site, but does not let you enter any cash games. You are able to take out the cash in your account only if it exceeds $100, but only in the form of a check.

PokerStars announced today they would continue taking U.S. bets saying the U.S. gaming ban does not cover poker. In addition, I received emails from UltimateBet, FullTilt & Bodog indicating they were "Business As Usual".

PartyPoker's withdrawal is surprising considering the hurdles the ban must still pass. The ban clearly violates U.S. agreements with the WTO. Also, the government has 270 days to write regulations and start enforcement. U.S. banks and other credit card issuers can be restricted easily. But third parties outside U.S. jurisdiction — notably a company called NETeller — take electronic transfers from banks and pass them to gambling sites. How do you stop them?

I have a feeling this story is not over just yet. Voice your outrage & send a letter to your local representative by clicking here. Or sign the online petition against the ban.

Congress Passes Bill Banning Online Gambling

2006-10-03T16:02:00.000-07:00

$8 billion: The amount wiped off the value of online gambling shares on Monday after the U.S. Congress passed legislation to ban Internet gaming.

Not since the cancellation of Seinfeld have I cried so much over a news story.

I heard "the news" last night after returning home from a poker-plagued weekend in Denver. There, I was surrounded by a bunch of poker fanatics, even a few professionals. After talking poker for 3 straight days & taking 2nd place in a tournament with these studs, I was finally getting the poker itch back - this after playing virtually every single day the last 4 years before burning out this summer. But this time I was ready to up-the-stakes with my newfound enthusiasm.

Then the bombshell...

Congress yesterday passed a law banning the use of credit cards, checks and electronic fund transfers for Internet gaming basically making it impossible for American citizens to gamble online. We’re not just talking poker, but all forms of internet gambling excluding horse racing. President Bush is expected to sign the Unlawful Internet Gambling Enforcement Act in a few weeks.

I discussed the hypocrisy when the bill was originally proposed in the House back in July. But not one single person, including myself, took the bill seriously! Thus, the surprise passage threw the online gambling industry into a tailspin Monday. Shares of publicly traded companies PartyGaming, Sportingbet and 888 Holdings tumbled in heavy trading on the London Stock Exchange, wiping out nearly $8 billion in market value. The companies immediately announced they would stop taking bets from the millions of active U.S. customers as soon as Bush signs the proposed law.

This news hurts a lot of people: investors saw 50% of their investment sliced in one day, professional online gamblers saw their career ripped away, and the online gaming companies saw the majority of their players banned. Is this fair?

It reminds me of the city-wide smoking ban in my hometown of Madison, Wisconsin. Many of the affected bars & restaurants never recovered after the ban took effect. Should they have seen this coming? The government is essentially telling us what we can & cannot do in our private time. Alcohol good, smoking bad. Lotteries & horse racing good, poker & sports gambling bad.

Don’t panic yet. Many poker players are already preparing for ways to skirt around the law. Setting up offshore bank accounts may be a way to continue gambling online through these foreign websites. The gaming sites themselves are also going to offer gold & silver as an alternative to paying out in cash…

Remember how the music industry reacted too slowly to the mp3 revolution? If they would have embraced the technology instead of resisting it, both record labels & artists would be in much better shape today. In this instance, if the government would have learned to tax & regulate online gambling, both gamblers and the government would be happy.

(To sign an online petition against this ban, click here)

Gentlemen, Stop Your Engines

2006-09-21T15:41:00.000-07:00

CNN just released a piece titled "11 Big Ideas That Will Change Everything." Most inventions were internet-based and didn't seem that important. Then I read an article on a very secretive company called EEStor that is manufacturing a car engine battery that is aiming to replace combustion engines.

The introduction made me quite skeptical since electric cars have been thrown to the wayside due to lack of power/endurance and recharging time. But EEStor is different. Instead of trying to summarize, I've attached the entire article below.

EEStor's new automotive power source could eliminate the need for the combustion engine - and for oil.

By Erick Schonfeld and Jeanette Borzo, Business 2.0

The Innovation: A ceramic power source for electric cars that could blow away the combustion engine

The Disrupted: Oil companies and carmakers that don't climb aboard

Forget hybrids and hydrogen-powered vehicles. EEStor, a stealth company in Cedar Park, Texas, is working on an "energy storage" device that could finally give the internal combustion engine a run for its money -- and begin saving us from our oil addiction. "To call it a battery discredits it," says Ian Clifford, the CEO of Toronto-based electric car company Feel Good Cars, which plans to incorporate EEStor's technology in vehicles by 2008.

EEStor's device is not technically a battery because no chemicals are involved. In fact, it contains no hazardous materials whatsoever. Yet it acts like a battery in that it stores electricity. If it works as it's supposed to, it will charge up in five minutes and provide enough energy to drive 500 miles on about $9 worth of electricity. At today's gas prices, covering that distance can cost $60 or more; the EEStor device would power a car for the equivalent of about 45 cents a gallon.

And we mean power a car. "A four-passenger sedan will drive like a Ferrari," Clifford predicts. In contrast, his first electric car, the Zenn, which debuted in August and is powered by a more conventional battery, can't go much faster than a moped and takes hours to charge.

The cost of the engine itself depends on how much energy it can store; an EEStor-powered engine with a range roughly equivalent to that of a gasoline-powered car would cost about $5,200. That's a slight premium over the cost of the gas engine and the other parts the device would replace -- the gas tank, exhaust system, and drivetrain. But getting rid of the need to buy gas should more than make up for the extra cost of an EEStor-powered car.

EEStor is tight-lipped about its device and how it manages to pack such a punch. According to a patent issued in April, the device is made of a ceramic powder coated with aluminum oxide and glass. A bank of these ceramic batteries could be used at "electrical energy stations" where people on the road could charge up.

EEStor is backed by VC firm Kleiner Perkins Caufield & Byers, and the company's founders are engineers Richard Weir and Carl Nelson. CEO Weir, a former IBM-er, won't comment, but his son, Tom, an EEStor VP, acknowledges, "That is pretty much why we are here today, to compete with the internal combustion engine." He also hints that his engine technology is not just for the small passenger vehicles that Clifford is aiming at, but could easily replace the 300-horsepower brutes in today's SUVs. That would make it appealing to automakers like GM (Charts) and Ford (Charts), who are seeing sales of their gas-guzzling SUVs and pickup trucks begin to tank because of exorbitant fuel prices.

Amazon Taking On Netflix

2006-09-08T16:30:00.000-07:00

The "Unbox"

Amazon (AMZN) officially launched its much-anticipated movie download service today, directly competing with Netflix (NFLX) and other movie services. Dubbed "Amazon Unbox", the online store will sell movies from $7.99 to $14.99 to be downloaded directly to your computer. In addition, Amazon will also sell television shows for $1.99 per episode and rent movies for $3.99.

The advantages are obvious. With a high-speed internet connection, you can download movies in a fairly short amount of time instead of waiting a few days for your movie to arrive via snail mail, as is the case with Netflix. In fact, with progressive downloading, viewers can start watching the video just a few minutes after the download begins (like the buffered videos on YouTube).

These downloaded movies are forever yours. But due to copyright restrictions, you cannot yet burn these movies onto DVD/CD (although I'm sure the geeks are already preparing work-arounds).

The Netflix Advantage

Google & Apple are expected to launch similar services in the next couple months. Should Netflix be worried? Not yet.

There's one glaring concern: who wants to watch movies on a computer? The reason that sites like YouTube have become so popular is because the streams are entertainingly short, not 2 hours long. Although computer screens are getting progressively bigger, they still cannot compete with the larger television screens (especially HDTVs).

High-speed internet connections will also be a huge hurdle. For many, Netflix is an cheap alternative to high-priced cable. These cost-conscious consumers most likely do not have expensive high-speed internet in the first place! With most movies approaching 1 gigabyte in size, average connections will take hours, if not days, to download an entire movie (assuming there are no interruptions!).

The $3.99 price tag for movie rentals is also inferior to comparable Netflix plans. I currently pay $12.99/month for the unlimited 2 DVDs at-a-time plan. This normally equates to 10 movies rentals per month, or roughly $1.29 a movie. Is it really worth an extra $2.70 per movie to download from Amazon?

In the past year, Netflix has been displaying very high customer loyalty with low churn rates. With the popular “Friends” network and an average movie queue over 50, it will be tough for Amazon to steal away customers from Netflix.

If Walmart & Blockbuster failed to take on Netflix, why will it be any different for Amazon?

Phantom Entertainment Launches Online Store

2006-08-15T09:43:00.000-07:00

Lapboard Selling for $129.95 – Verdict: Not For Serious Gamers

The Phantom is here! No not the console, but a keyboard. Phantom Entertainment (OTC:PHEI), formerly known as Infinium Labs, launched its new website and online store to support the marketing and sales of the Phantom Lapboard, a wireless gaming keyboard.

Phantom.net is already taking preorders for the Lapboard despite the fact that the company has yet to secure funding to manufacture the keyboards. That’s right, the Lapboard you just ordered does not yet exist! Phantom Entertainment also delayed the launch of their gaming keyboard until November. These postponements may continue until funding is secured.

To make matters worse, Phantom Entertainment seems to have missed the mark on pricing their gaming keyboard. At a posh $129.95, the Lapboard will by far be the most expensive gaming keyboard out on the market. In contrast, the Saitek Eclipse, Ideazon ZBoard and Wolfking are all selling for around $50. The top-selling Logitech G15 is selling for just $57 on Amazon.com.

The Lapboard is wireless, but otherwise pales in comparison to the other gaming keyboards already on the market. The Lapboard does not yet have any macros, a must for hard-core gamers. The keys are not backlit for playing in the dark. And most surprisingly, there is no LCD screen for keeping track of in-game stats and other pertinent information.

The obvious question becomes, why the $129.95 price tag? Without the must-have gaming features, the Lapboard acts more like a regular wireless keyboard for casual surfers. We'd pass.

The market agrees. Despite the supposed launch looming in a couple months, the stock has yet to break the $.02 mark. With another 600,000,000 diluted shares authorized to sell at the last shareholder meeting, we’d stay away from this company until significant funding is secured. Until then, it should float back to subpenny territory.

August's Props Betting

2006-08-07T11:59:00.000-07:00

Time for some new Props betting!

April's picks went 5 for 6 netting $254 if you laid down a Ben Franklin on each one: Whitney Houston didn't get arrested, the iPod Shuffle is still here, the Fed raised rates by 0.25% & the PSP2 has yet to be released. The only pick that went awry was Ace Young not winning American Idol, but that was a looong shot at 40/1. Although the "male" bet cashed in after my boy Taylor Hicks won.

I guess I need to watch more TV! Online sportsbooks are overflowing with television props bets. Unfortunately, I don't watch Hell's Kitchen, The Next Top Model, Last Comic Standing, So You Think You Can Dance, etc.

Doesn't anyone watch HBO anymore? Why can't we bet on events like:

-What ethnic group will Larry David offend in the first 30 seconds of Season 6 of Curb Your Enthusiasm?
-How many "motherf*cking cocksuckers" will be uttered in Deadwood episode 30?
-How many episodes before Entourage's Johnny Drama actually gets a part in a movie?

I'd be rich. Anyways, here's the picks:

Will Communist Cuban President Fidel Castro reassume control of Cuba by October 31st, 2006?

Yes -160
No +120

Send your "Get Well Soon" cards to our buddy Fidel! Bet yes. Bodog hasn't pulled this one yet despite Cuba's VP stating he expects Castro to be back in office "within weeks." This bet has 7 weeks until it expires, plenty of time for the Commie to recover. The "fine print" is even more favorable for the "Yes" bets: If Fidel Castro passes away before October 31st, 2006, all wagers will be graded as No Action. (I'm not Communist, I swear)

Odds to win the NFL 2007 Super Bowl

Arizona Cardinals 25/1
Atlanta Falcons 30/1
Baltimore Ravens 20/1
Buffalo Bills 100/1
Carolina Panthers 12/1
Chicago Bears 17/1
Cincinnati Bengals 20/1
Cleveland Browns 70/1
Dallas Cowboys 8/1
Denver Broncos 12/1
Detroit Lions 45/1
Green Bay Packers 40/1
Houston Texans 105/1
Indianapolis Colts 6/1
Jacksonville Jaguars 30/1
Kansas City Chiefs 18/1
Miami Dolphins 18/1
Minnesota Vikings 33/1
New England Patriots 8/1
New Orleans Saints 80/1
New York Giants 16/1
New York Jets 90/1
Oakland Raiders 80/1
Philadelphia Eagles 20/1
Pittsburgh Steelers 10/1
San Diego Chargers 18/1
San Francisco 49ers 150/1
Seattle Seahawks 11/1
St.Louis Rams 65/1
Tampa Bay Buccaneers 30/1
Tennessee Titans 105/1
Washington Redskins 15/1

Stay away from any AFC team in Super Bowl future bets. They are by far the superior conference once again. Thus, it will be difficult for either the Patriots, Steelers, Colts, Chargers, Dolphins, Bengals, or Broncos to make it to the Super Bowl.

For a better value, try the weaker NFC conference. The clear favorites are the Seahawks, Cowboys & Panthers. This year's sexy pick is the Cowboys with the acquisition of Terrell Owens. But stay away! They appear to be the most overrated team of all at 8/1. Do people forget how awful their defense was last year, and that Drew Bledsoe is still their quarterback?!

Take the Carolina Panthers at a modest 12/1. They may be the most balanced team in the NFL and have an excellent shot of not only making the Superbowl, but giving the AFC representative a run for their money.

Remember it's all about a good value, not who you actually think will win!

What will the FOMC decide to do with the Fed Funds rate when meeting on August 8?

Leave at 5.25% -170
Increase of .25 basis pt. +200
Increase of .50 basis pt. +500

For the first time in 2 years, futures traders believe the Fed will finally stop raising rates. While they're probably right, paying out only -170 doesn't give you enough. I'd take the +200 on another 0.25% rate hike. With probabilities on another rate hike around 35-40%, doubling your money is a great deal.

Will Microsoft's (MSFT) stock price go below $20/share in 2006?

Yes +120
No -140

No!!! While it's true that Microsoft has been struggling with Windows delays, lawsuits, and emerging competition from Google, all the downside risks appear to be already priced in the stock. MSFT current trades for ~$24. Going below $20 in 5 months would be a 20% drop. When you consider Microsoft is currently valued $250 billion as a company, that drop would equate to losing over $50 billion in market capitalization! Not gonna happen.

House OKs Bill to Ban Internet Gambling

2006-07-12T13:48:00.000-07:00

Congress voted 317-93 yesterday in favor of legislation that attempts to kill Internet gambling by cutting off the flow of money. The bill would prohibit banks and credit card companies from funneling money from American gamblers to Internet gambling sites. It also would allow law enforcement officials to work with Internet providers to block access to gambling Web sites.

Supporters of a ban say the Internet's widespread availability makes it too easy to gamble, creating betting addictions and financial problems. Critics of the ban believe that it would be wiser to regulate online gambling and collect taxes on the $12 billion industry.

Predictably, online gambling stocks didn't take the news well. Shares of PartyGaming (LSE:PRTY), which owns Party Poker, plummeted 24% on the London Stock Exchange.

Short-Sighted & Hypocritical

The bill would exempt state-run lotteries and horse racing. In other words, Congress believes there is "good gambling" vs "bad gambling". Lottery good, poker bad.

In reality, state-run lotteries have the lowest payout of any possible gambling propositions. Most only pay around 55 cents on the dollar. By comparison, online poker sites and casinos payout roughly 95 on the dollar! And they want to exempt the lottery?

Despite these terrible payouts, lotteries are by far the most popular form of gambling. Over 50 percent of adult Americans play legal lotteries in lottery states. Two-thirds of these play regularly, which means that about one-third of the adults are regular players. The poor, minority, undereducated, and middle-aged are all more likely to play.

And are current online gamblers going to stop cold turkey? Of course not. Their money will instead be shifted to brick & mortar casinos, horse tracks, lotteries and old-fashioned bookies. The gambling will continue, just not online. Maybe that's what Congress wants?

Clearly it is unfair to allow online lotteries and internet betting on horse racing to flourish while cracking down on other kinds of sports betting, casino games and card games.

Is It Time to Pick a New Hobby?

Not yet. The bill will likely never pass through the Senate. Not only is the Bill a low priority going into an election year, it's filled with smoke and mirrors. With most online gambling sites being offshore, legislation is nearly impossible. In addition, it will be nearly impossible for credit card companies to know whether or not a company is an online gambling site. Gambling web sites usually use other names to avoid detection during money transfers.

With the bill unlikely to continue its momentum, it may be a good time to pickup the online gambling stocks that saw their shares tumble yesterday for the short term (unless you’re an American citizen. We cannot own these shares since gambling is “illegal”).

Hillary the Favorite

2006-07-06T07:11:00.000-07:00

For Sportsbooks, it's never too early to take our money.

Bodog has just released the early odds on the 2008 Democratic Presidential nominee. Who’s the overwhelming favorite? Hillary Clinton of course; not surprising considering she is the only prominent Democrat to provide the slightest hint of running up to this point (and the media pops the question every chance they get).

No odds have been released on the GOP side.

Who will be the Democratic Presidential nominee in 2008?

Sen. Hillary Clinton 5/6

Former Vice President Al Gore 3/1

Former Sen. John Edwards 19/5
Sen. John Kerry 5/1
Gov. Bill Richardson 8/1
Former Gov. Mark Warner 10/1
Sen. Russ Feingold 10/1
Sen. Joseph Biden 13/1

Sen. Evan Bayh 14/1
Sen. Barack Obama 15/1
Sen. Joe Lieberman 15/1
Gov. Tom Vilsack 22/1

General Wesley Clark 33/1
Sen. Christopher Dodd 35/1
Former Sen. Mike Gravel 40/1

Sen. Barbara Boxer 45/1
Former Sen. Tom Daschle 45/1

Rep. Dennis Kucinich 50/1

Gov. Phil Bredesen 50/1
Gov. Brian Schweitzer 55/1
Sen. Blanche Lincoln 60/1
Gov. Joe Manchin 60/1
Gov. Mike Easley 65/1
Reverend Al Sharpton 70/1

They Don’t Make Trees at BP

2006-06-29T07:32:00.000-07:00

BP has pulled off one of the greatest marketing campaigns in history. Over the last decade, British Petroleum has transformed from an antiquated oil and gas company into an energy powerhouse through several successful acquisitions while “embracing the green movement years before it was cool in the executive suite” according to its CEO Lord Browne.

Recall all the Exxon boycotts during the past year? BP was thought to be the environmentally-friendly alternative to purchase our gasoline.

But it’s becoming apparent that “embracing the green movement” simply involved placing cheery ads about BP's environmental awareness across the nation’s newspapers, while replacing the old BP gas station signs with happier bright signs including green flowery buds implying environmental harmony.

Otherwise, BP’s gas stations and drilling practices appear to operate in the exact same fashion as before (to the detriment of the environment of course).

Greens were so in love with BP’s effective marketing campaign and sunny new gas station signs that “Vanity Fair” featured CEO Lord Browne in its environmental issue alongside fellow greens Al Gore and Julia Roberts.

But the real man behind the curtain is about to be exposed. BP has recently come under heavy pressure for illegal price manipulation and several damaging accidents at its plants.

The Reality

This week, the Commodity Futures Trading Commission and the Justice Department accused BP traders of secretly trying to corner part of the US propane market to “Enron-type proportions.” The CFTC says senior BP management provided its "advice and consent" for an operation that purposely drove up the energy costs of millions of Americans from 2003-2004. A former BP trader has admitted to participating in the alleged conspiracy, and several confiscated audiotapes have backed this claim.

On top of that, BP has been in hot water over a series of refinery accidents and explosions, and its safety record and practices are under investigation.

Not good timing on BP’s part. These illegal activities come at a time when increasing gasoline prices have become a burning political issue this election year. And these concerns are not likely to go away. Just last month, Steven Hawking warned that our days on Earth are numbered, and suggested moving to the moon, Mars and other neighboring stars in the next 10 to 20 years!

It’s amazing what an effective (and deceitful) marketing campaign can cover up.

Too Busy To Write...

2006-06-22T12:11:00.000-07:00

Is Short Selling Un-American?

2006-06-15T14:39:00.000-07:00

I've been bearish on the US stock market for a few months now. Even after the latest 10% slice in the NASDAQ index, I still feel nervous about the near-term prospects of the market as a hole. Interest rates continue to rise, oil prices are at record highs, political turmoil is not going away, budget deficits continue to inflate, and the US trade deficits break records with every passing quarter. But worst of all, in my opinion, is the inevitable housing crash. Keep in mind that housing construction & related industries employ nearly 10% of workers in this country!

Is anything going right?

All this negativity led me to a few interesting "Bear Funds". These mutual funds perform well as stocks decline. The most interesting appears to be the Leuthold Grizzly Short Fund. It's the only current mutual fund that has short positions in 100% of its holdings. As you might imagine, the fund has not performed very well the last few years since the market has recovered from the internet bubble of 2001. But this could be the perfect hedge against a declining stock market for the next couple years, or in any market for that matter.

The largest bearish fund is the Prudent Bear Fund. Similar to the Grizzly Fund, it also engages in some short selling, but not exclusively. Prudent also holds futures & options contracts to profit from market declines. These activities have led to positive gains even during the last few years of the bull market.

But short selling is not as accepted of a practice as it used to be. What was already a difficult and sometimes gut-wrenching strategy has only gotten harder in recent years. Nowadays, more of the companies that short sellers target are fighting back with lawsuits. They also mount sophisticated public relations campaigns against shorts.

And if that weren't enough, there's a new crop of newsletters designed to "squeeze" short sellers. In a short squeeze, investors aim to buy so much stock that the supply used for borrowing dries up and the broker recalls shares already lent out. To return stock, short sellers have to buy them back, forcing the price up. As the stock rises, it can spur other shorts to have to cover their positions, fueling further gains.

Is this criticism warranted? Not at all. It may seem Un-American to profit from a stock's decline, but short sellers help keep valuations of stocks accurate and ensure that capital is allocated more efficiently to the most upstanding companies. There's usually a reason why a company is being heavy shorted: because short sellers see problems on the horizon that the company's investors do not. Enron was heavy shorted before it began its implosion.

Overstock.com (OSTK), one of the companies that is suing its shorting counterparts, has been struggling to keep up with its lofty projections, yet continues to blame the short sellers for its stock's decline.

But until this bad stigma passes, it may be a little more risky to invest in these Bear Funds.