Hughes makes vehicle telematics equipment that provides roadside assistance, turn-by-turn navigation systems, automated maintenance reminders, and the like. General Motors Co. (NYSE: GM) offers the Hughes service under its OnStar brand. Other car makers using services provided by Hughes include Toyota Motor Corp. (NYSE: TM), BMW, Mercedes-Benz, Hyundai, Peugeot Citroen, and Rolls-Royce.

Hughes also offers a fleet product called Networkfleet whose competitors include Qualcomm Corp. (NASDAQ: QCOM) and Trimble Navigation Ltd. (NASDAQ: TRMB) in supplying after-market telematics services to long-haul trucking fleets.

In its announcement Verizon noted:

We expect M2M [machine-to-machine] and telematics to drive significant growth for Verizon … In powerful combination with Verizon’s global IP network, cloud, mobility and security solutions, Hughes Telematics’ flexible service-delivery platform has the potential to reach beyond the automotive and transportation realm to create new opportunities in mHealth, asset tracking and home automation.

Verizon’s shares are down about -1.3% at $41.11 in the pre-market, within a 52-week range of $32.28-$42.96.

Shares of Hughes will surely pop when over-the-counter trading opens this morning.

Paul Ausick

Clotamin is called a “specialized over-the-counter multivitamin product designed exclusively for use by patients also on the blood-thinner called Warfarin®” and it aims to help with the drug’s adverse drug and food interactions. In the world of OTC stocks, investors and momentum players rarely know what they are really getting with any certainty.  Most of these companies have limited financial backgrounds, limited operating histories, and often have inflated stories versus reality.  Is that the case with Sunpeaks?  Who knows, and for that matter who cares.  When you see a rally followed by a rapid cratering of this sort in a very short period of time it is obvious that there is a suitability issue that most investors should be avoiding.

Seeking Alpha pointed out the risks on Friday the 13th of all days this April showing a promotion outfit ran the stock up but how other promo-stocks have cratered in the past tied to the group.  When Seeking Alpha pointed out the risks the stock was at $1.80 and it ran up as high as $2.40 that next week.  The problem is that the same day there was the $2.40 print, the stock closed down at $0.93 on that day.  Shares tried to bounce but now the losses look severe.

Why does the term pump and dump come to mind here?  Maybe the company really is one of the exceptions, but we would again bring up suitability issues despite the millions of shares that trade each day.

Our hint here is simple.  By the time most investors find out about OTC stocks like this most of the money has already been made.  Please do not try to use a chart here for technical analysis looking for support and resistance even if the volume is millions upon millions shares per day.

This is what happens in penny stock heaven… or is it penny stock hell?

JON C. OGG

The SEC’s complaint was filed in the U.S. District Court for the District of Massachusetts and charges that an AutoChina senior executive and director Hui Kai Yan (a former AutoChina manager) and others fraudulently traded AutoChina’s stock to boost its daily trading volume.  This almost sounds like the “liquidity trader” strategy used by some day trading firms to boost their value in share volume back during and after the tech bubble a decade ago.

Today’s complaint goes back to October 2010 and the SEC has charged the defendants and others to have deposited more than $60 million into U.S.-based brokerage accounts which then engaged in hundreds of fraudulent trades over the next three months with a Hong Kong-based broker-dealer.

The fraudulent trades are said to have included matched orders selling from one account to another account at the same time and for the same price.  In short, they are wash trades which created no change of beneficial ownership of the shares. The SEC noted, “AutoChina and the other defendants engaged in the scheme after lenders offered AutoChina unfavorable terms for a stock-backed loan due to low trading volume in its stock.”

This is just one more instance where it sounds like the largest form of free speech in China comes from corporate officers talking up their companies to foreign investors who are willing to pay anything to get into the long-term Chinese growth story.

JON C. OGG

The EC is probably naive enough to believe its math.  It claims that this could approximately raise €57 billion every year and it wants to start this tax in January 2014.

The effort from the European Commission in the financial transaction tax is dubbed “Making the financial sector pay its fair share.”  This may remind you of the Congressman DeFazio effort that crapped out here in the United States called “Let Wall Street Pay for the Restoration of Main Street.”  It took effort to kill that silly idea as well, but ultimately common sense prevailed over the killing of incentive.

The tax would be levied on all transactions on financial instruments between financial institutions when at least one party to the transaction is located in the European Union.   What is laughable beyond the proposal itself is that shares and bonds would be taxed at a rate of 0.1% and derivative contracts would be taxed at a rate of 0.01%.

Wait, a lower tax on DERIVATIVES???  How silly is this?  Investors buying or selling stocks would be taxed more than financial derivatives?  Ok, this moved from poor judgment to senseless!  If you include CDOs the argument might not be true, but financial derivative contracts between institutions brought on far more of the mess than stocks and bonds.

The Commission noted, “The financial transaction tax aims at taxing the 85% of financial transactions that take place between financial institutions. Citizens and businesses would not be taxed.” 

In short, this is taking the VAT to financial transactions.  The EC even says so itself.  The report noted, “The financial sector enjoys a tax advantage of approximately €18 billion per year because of VAT exemption on financial services. A new tax on the financial sector would ensure that financial institutions contribute to the cost of economic recovery and discourage risky and unproductive trading.”

We have said it before and will say it again.  This is nothing more than taxing incentive.  How will financial institutions trade when they know that they will be taxed even on trades that they lose money on?

Why citizens need to care about this is that if it does raise anywhere close to the desired amounts, what is to stop the lawmakers from deciding that every day citizens should get to participate in this tax as well?  That is not out of line.  If it moves, Europeans can figure a way to tax it.  Now they have figured out a way to tax incentive.

When the transactions between financial institutions dry up and when the banks and brokerages fire even more workers, the endgame will have seemed silly.  The banks of Europe are already under more pressure than they (and their shareholders) would want.  This is just one more gash into a bleeding patient.

Normally we would call this a strategy thought up by Mr. Dumas, but we worry that the lawmakers won’t truly get the pun.  This is an idea from “Mr. Dumba$$”…

Jon C. Ogg

Rather than support home ownership, the proposal is aimed at access to affordable quality housing. The change would virtually eliminate Federal National Mortgage Association, Fannie Mae (OTC: FNMA), and the Federal Home Loan Mortgage Corporation, Freddie Mac (OTC: FMCC). The goal is to reduce federal exposure what the Treasury report calls “fundamental flaws in the housing market that existed before the financial crisis.”

Under the Treasury plan, private markets become the primary source of mortgage loans and take on all the risk for losses. Stronger regulation regarding to capital reserve requirements for lenders and stronger underwriting standards that would require home buyers to hold more equity in their homes.

The Mortgage Bankers Association and other groups have proposed new entities with “an explicit, but limited, government guarantee of lower-risk mortgage-backed securities.” The guarantee would be funded by fees that would build a fund to protect taxpayers from a calamity similar to that which occurred in the home mortgage market two years ago.

The Treasury report offers a similar idea as one of three options to reforming the mortgage market. Under this option, the government would guarantee mortgages from a limited number of federal programs to creditworthy lower- and moderate-income borrowers. Such a program would raise mortgage rates and make it more difficult for US home buyers to afford a typical 30-year fixed mortgage. In addition, smaller lenders could be frozen out of the market, except for FHA loans which Treasury would like to see nearer to its historic 10%-15% market share of the total US mortgage market rather than the 30% share FHA currently holds.

But any sort of new entity backed by a government guarantee could grow to the same or bigger size as Fannie or Freddie. As the NYT points out, “What would stop the banks from assigning high-risk mortgages that they originated to these guarantors, once again leaving taxpayers to pay the freight if the loans go bad?”

It’s still early to predict winners and losers here, but it’s not too early to handicap the race. Under any program that raises equity requirements and mortgage rates, potential homeowners face a significant disadvantage. So do small mortgage lenders. Large banks could profit if they are willing to purchase mortgage loans from the small lenders and securitize the loans with minimum federal guarantees. But this would raise mortgage rates even more, driving down the number of borrowers, and make the pool of mortgages available for securitization too small to be profitable.

Mortgage lenders want something like the system that currently exists, and are willing to take reduced, but still explicit, federal guarantees in order to get what they want. If the small lenders can garner enough support from the big banks, they might get what they want. But it’s not a sure thing.

Paul Ausick

Ambac shares rallied some 32% to $0.78 today on more than 50 million shares after reports that Ambac was withdrawing more than $6 billion in claims that the company had filed against Lehman Brothers (LEHMQ).  There are still no assurances that it survives per our prior comments, but the news flow is currently acting more in favor of Ambac rather than against it.

Last week the company filed suit against Bank of America Corporation (NYSE: BAC) and its Countrywide unit over mortgage-backed security losses.  The mortgages were over $16.7 billion in mortgage-backed securities with allegations that Countrywide fraudulently induced Ambac to insure the mortgages.  Ambac’s ground for claims: 97% of about 6,500 loans reviewed that were spread over 12 different securitizations did not conform to the lender’s underwriting standards as many of those loans were made to borrowers who had limited or no ability to pay their mortgages.  All those liar loans and NINJA loans.  That suit against BofA did not bring about any solid gains, and shares were around $0.56 on September 29.

An issue still against Ambac from last month is that Freddie Mac reportedly joined a group of hedge funds in litigation as creditors against Ambac with claims that it owns about $4.5 billion of mortgage-backed securities that are insured by Ambac.

Frankly, getting sued by Freddie Mac (or Fannie Mae) is something that seems a sham on the surface.  Everyone from the borrowers to the lenders to the regulators and politicians all had their hand in the housing bubble.  Bond insurers and bond ratings agencies ended up offering little of value, but hearing that either Fannie Mae or Freddie Mac are getting involved now is almost ludicrous.  If anyone on the institutional side of the equation has the most blame of all, it would be a close race over whether it was Fannie or Freddie as the first and second catalyst as the endless enablers and promoters.

Today’s news alone did not save Ambac and there have to be many more stars that align for Ambac to be able to even attempt a real recovery or turnaround, but this is proof in the world of trading that even a hint of good news can cause one massive rally in a company this troubled.

JON C. OGG

If you couldn’t tell by the name, this is an alternative energy company making fuel or biocrude.  It is a renewable energy company that is licensing and deploying a biomass production platform in the global energy and agriculture markets. Its proprietary technology uses light and environmental management systems and it claims to allow customer licensees to grow aquatic microorganisms at about four-times the natural growth rates. It also notes that this enables the commercial-scale production of two end-products: a fuel feedstock and a protein, biocrude and protein products.

In short, PetroAlgae licenses a commercial micro-crop technology system that enables the production of green diesel and a high-value protein food source in an environmentally beneficial manner.  PetroAlgae said in the prospectus that it believes the end-products produced will remain commercially viable even if crude oil prices went as low as $20 per barrel; and it noted that the profitability of its license units is not dependent on government subsidies nor is it dependent upon historically high oil prices.

This is a developing company that is still in the infancy stages.  The underwriting group is rather large, so this is going to be treated as a true IPO despite the OTC Bulletin Board status.  Goldman Sachs, UBS Investment Bank, and Citi are listed as the joint book-runners, and others in the syndicate are Baird, Cowen & Co., and Piper Jaffray.  With an underwriting group this large and with this caliber of names, PetroAlgae is likely going to be given a lot of interest from Main Street and Wall Street.

The company announced just in July that it has “engaged a global business consulting and internal audit firm” to assist it in complying with the Sarbanes-Oxley requirements.

The company noted in the prospectus that “a customer licensee could generate revenue of approximately $350 million annually per standard license unit and earn a pre-tax unlevered internal rate of return of approximately 30%, based on certain assumptions…” Remember, this is “could” rather than “has.”  The company has no significant history of revenues, operating or net income, cash flows or the other financial performance metrics.  It noted, “To date, we have not been profitable and have incurred significant losses and cash flow deficits. For the fiscal years ended December 31, 2009, 2008, and 2007, we reported net losses of $30.3 million, $20.0 million, $8.3 million, respectively, and negative cash flow from operating activities of $27.6 million, $11.8 million, and $4.7 million, respectively.”

The company noted also that its “current and prospective customer licensees” primarily comprise large oil companies, independent refiners, power companies and multinational agriculture companies.  These should have the ability to rapidly deploy one or more standard license units, with each license unit consisting of a 5,000 hectare micro-crop production facility.  It also claims that it has developed “a strong pipeline of over 300 additional prospective customer licensees that have indicated an interest in the development and construction of approximately 500 license units in over 40 countries.”

Private equity entities managed by Laurus Capital Management, LLC, Valens Capital Management, LLC and their affiliates are the primary shareholders.  The PetroAlgae.com website also lists Foster Wheeler AG (NASDAQ: FWLT) as one of its partners to create end-to-end biomass-to-fuel solutions.

On August 4, 2010, PetroTech Holdings Corp. funded $1,000,000.00 to PA LLC, PetroAlgae Inc.’s operating subsidiary, under the terms of a secured term note and the proceeds of this loan were earmarked specifically for working capital purposes.  PA LLC to pay PetroTech Holdings, on June 30, 2012, the $1 million, plus 12% interest per year.

The company’s presentation is here.

You can join our free daily email distribution list to hear more about dividend trends, analyst upgrades and downgrades, top day trader and active trader alerts, news on Buffett and other investment gurus, IPOs, secondary offerings, private equity, and more.

JON C. OGG

YRC noted in a press release this morning that its adjusted EBITDA is now expected to be $35 million to $45 million.  That excludes the YRC Logistics segment, which will now be reported as discontinued operations. Adjusted EBITDA would be between $24 million to $36 million with that operation.  More importantly, the company says this figure exceeds the $5 million covenant level required by its credit agreement and would compare to adjusted EBITDA in Q1 of a loss of $53 million.  Tonnage per day in Q2 for YRC National was up 11% to 27,000 while YRC Regional was up 15.2% 26,900 compared to Q2.

As far as liquidity, the company said its June 30 cash balance was roughly $142 million.  After including its unused restricted revolver reserves of $129 million and unrestricted availability of $8 million, its total liquidity is roughly $279 million (up from $241 million a quarter ago).

The company also said that it expects to record an $83 million non-cash reduction to its equity-based compensation expense related to its March 2010 union equity-based awards, which reflects “the adjusted fair value of these awards which were re-measured as of the June 29, 2010 shareholder meeting when shareholders formally approved the issuance of union stock options to replace previously issued union stock appreciation rights.” It was in the first quarter that YRC recorded a $108 million non-cash charge related to the same March 2010 union equity-based awards.

The notion that cash and liquidity is now higher is one that will help for now.  Thew problem is that, while circumstances are different, YRC finds itself almost in the situation that SIRIUS XM Radio Inc. (NASDAQ: SIRI) found itself in back at the depths of the early 2009 market plunge.

The big difference is that SIRIUS does not have the union issues that YRC has (or had).  But YRC is still running its business on an EBITDA basis to the public.  After the crash of 2008 to 2009, investors are very reluctant to play in companies which are losing money.  Earnings before interest, taxes, depreciation, and amortization are great except that you can’t survive on that basis alone.

Having a stock that gets a delisting notice is one thing.  SIRIUS had a delisting notice, and it said it would rectify the issue through price.  Oddly enough, it did not have to complete its reverse stock split to do so.  YRC received a delisting notice on price earlier in the year and our original indications were that YRC would do a reverse split before the end of June.  It is July now and the stock is still down at $0.16 even after a huge percentage gain this morning.  The last day that YRC shares were above $1.00 was on January 15, 2010.

YRC cannot even sell shares to raise capital.  With a $164 million market cap and a share price of $0.16, how much could the company raise?  Would shareholders take a theoretical 75% dilution with the hope of raising $300 million in an equity sale?

As seen with SIRIUS, YRC needs a strong deep-pocketed investor just like John Malone.  The investor would have to work something out acceptable with creditors today that are already in line, and the investor would most likely have to be on good terms and in good standing with YRC’s union-owner group.  That makes snagging a white knight investor that much more difficult.

The reverse split we were expecting, per our notes earlier this year, was in a range of 1-for-25 down to 1-for-5.  The problem is that companies that get a delisting for price alone generally go to at least $2.00 to be more than double the limit at NASDAQ (and NYSE).  Even to get to $1.00 today, the company would need a 1-for-6 reverse split ratio.  That means a 1-for-12 is implied, if not more.

The last option is that YRC can stop the break-up process of getting units out of the company.  An outright sale  is probably still possible, even if revenues fell to $5.28 billion in 2009 versus $8.94 billion in 2008 and $9.62 billion in 2007.  Thomson Reuters has estimates of $4.69 billion for 2010 revenues and $4.97 billion for 2011 revenues.  SIRIUS has yet to reach $1 billion in revenues per quarter.  SIRIUS XM was also at the point that a buyer was an option, but the Malone investment was an investment that gave control over the company if things continued to get out of hand.  A similar structure would be needed here.

Then there is the Chapter 11 bankruptcy option.  This is the Holy Hand Grenade of Antioch scenario.  Public stockholders would get wiped out.  The bondholders would be left to fight over the value, and presumably the unions would then get to have an even larger say in the operations of the company after the bankruptcy.  It goes without saying that bondholders usually do not want to be behind a union when it comes to who gets what in a bankruptcy reorganization.  A union-owner under today’s administration and labor stance might have much higher standing as a creditor in any bankruptcy reorganization than in other sectors.   A reorganization under bankruptcy protection was a very real possibility in part of 2008 and into 2009 at SIRIUS XM, and regardless of today’s move it is a real possibility at YRC Worldwide.

The good news is that YRC might actually be able to manage its debt.  Key on ‘might.’  There are no assurances, but its trucking fleet and its real property and equipment is still valued at $1.775 billion as of the end of March.  At $0.60 on the dollar, YRC could still hopefully have $1 billion to pledge to existing debtholders and to raise for new debt to delay maturities and give it added liquidity ahead.  There is still much work to be done, and occasionally kids playing Monopoly do come back from when they start mortgaging their properties to pay their rent.

After an hour of trading, YRC Worldwide shares are up almost 40% and challenging the $0.16 price on more than 63 million shares.

This is still a very challenged and stretched situation, and it is still one that can end very badly even for new holders today.  At $0.16 per share, the price today is more reflective of a lottery ticket rather than a stock with real value.

Stay tuned.

JON C. OGG

FANNIE MAE

Common Stock
Old Ticker: FNM
New Ticker: FNMA

Preferred Stock, Series F
Old Ticker: FNMPRF
New Ticker: FNMAP

Preferred Stock, Series G
Old Ticker: FNMPRG
New Ticker: FNMAO

Preferred Stock, Series H
Old Ticker: FNMPRH
New Ticker: FNMAM

Preferred Stock, Series I
Old Ticker: FNMPRI
New Ticker: FNMAG

Preferred Stock, Series L
Old Ticker: FNMPRL
New Ticker: FNMAN

Preferred Stock, Series M
Old Ticker: FNMPRM
New Ticker: FNMAL

Preferred Stock, Series N
Old Ticker: FNMPRN
New Ticker: FNMAK

Preferred Stock, Series P
Old Ticker: FNMPRP
New Ticker: FNMAH

Preferred Stock, Series Q
Old Ticker: FNMPRQ
New Ticker: FNMAI

Preferred Stock, Series R
Old Ticker: FNMPRR
New Ticker: FNMAJ

Preferred Stock, Series S
Old Ticker: FNMPRS
New Ticker: FNMAS

Preferred Stock, Series T
Old Ticker: FNMPRT
New Ticker: FNMAT

Preferred Stock, Series 2008-1
Old Ticker: FNA
New Ticker: FANIP

FREDDIE MAC

Common Stock
Old Ticker: FRE
New Ticker: FMCC

1996 Variable Rate
Old Ticker: FRE.prB
New Ticker: FMCCI

5% (1998)
Old Ticker: FRE.prF
New Ticker: FMCKK

1998 Variable Rate
Old Ticker: FRE.prG
New Ticker: FMCCG

5.1% (1998)
Old Ticker: FRE.prH
New Ticker: FMCCH

5.79% (1999)
Old Ticker: FRE.prK
New Ticker: FMCCK

1999 Variable Rate
Old Ticker: FRE.prL
New Ticker: FMCCL

2001 Variable Rate (Jan)
Old Ticker: FRE.prM
New Ticker: FMCCM

2001 Variable Rate (Mar)
Old Ticker: FRE.prN
New Ticker: FMCCN

5.81% (2001)
Old Ticker: FRE.prO
New Ticker: FMCCO

6% (2001)
Old Ticker: FRE.prP
New Ticker: FMCCP

2001 Variable Rate (May)
Old Ticker: FRE.prQ
New Ticker: FMCCJ

5.7% (2001)
Old Ticker: FRE.prR
New Ticker: FMCKP

2006 Variable Rate
Old Ticker: FRE.prS
New Ticker: FMCCS

6.42% (2006)
Old Ticker: FRE.prT
New Ticker: FMCCT

5.9% (2006)
Old Ticker: FRE.prU
New Ticker: FMCKO

5.57% (2007)
Old Ticker: FRE.prV
New Ticker: FMCKM

5.66% (2007)
Old Ticker: FRE.prW
New Ticker: FMCKN

6.02% (2007)
Old Ticker: FRE.prX
New Ticker: FMCKL

6.55% (2007)
Old Ticker: FRE.prY
New Ticker: FMCKI

2007 Fixed-to-Floating Rate
Old Ticker: FRE.prZ
New Ticker: FMCKJ

If you got stuck in the Fannie Mae or Freddie Mac common or preferred shares before the delisting from the NYSE, you might want to consider saving this page or printing the page out and keeping it for your records.  Once stocks migrate off the NYSE or even NASDAQ for a permanent journey on the OTC Bulletin Board or the Pink Sheets, these often become more and more difficult to find for investors.

We noted over and over for quite some length of time that Fannie (and Freddie) would have a long slow demise into nothingness.  This is not quite bankruptcy.  This is also not quite nothingness, it is somewhere in between Purgatory and Limbo.

It is now the year 2010.  In 2011 and 2012, and maybe beyond, many will still be trying to figure out how to track down their tickers for write-offs and outright losses when it comes to Fannie Mae and Freddie Mac.

JON C. OGG

The share price has fallen below the NYSE’s continued listing standard, and the requirement is that the average closing price of a listed common stock has to be at least $1.00 per share over a consecutive 30 trading-day period.  Shares closed at $0.66 today, after a near 3% gain, but the last date that Ambac even closed above that poor $1.00 mark was June 8.

Ambac is not being booted off of the exchange just yet.  The company has six months from the date of the NYSE notice to obtain a closing share price and 30 trading-day average share price of at least $1.00 to avoid the ultimate delisting.  The company can also ask for exceptions and/or extensions, and sometimes the exchange grants waivers.

Ambac will continue to see its common stock trade on the NYSE during this period, and Ambac said in the release that it has notified the exchange that it intends “to cure the price deficiency.”

The easy way out is of course the reverse stock split.  If not, the company can seek alternatives and sell off or close down certain operations that are adding to the losses.   There is another common theme companies sometimes try… turning on their press release machines.

It is no secret as to why Ambac was on our list of brands which are likely to disappear.

JON C. OGG