LDK Solar Cash Crisis

We tried a play on LDK Solar last month.  We tried to go long by selling puts at $7.  That would have been a good strategy for about a month as this was not a buy and hold stock.  The guys over at Greenstocks Central reported yesterday that the CEO is trying to come up with a new strategy for funding.

the CEO stated in an SEC filing, “If we do not successfully execute our liquidity plan, we face the risk of not being able to continue as a going concern.”

LDK Solar has dropped from over $9 to under $7 in the past two days.  This is a perfect example of why managing your sell stops is important.  Looking back at the chart some well placed trailing stops would have exited the position on Nov 24.  There was also a strong jump up on Dec 4 where setting a stop at $8.50 would have saved some profits.  The slow stochastic is showing an uptick in the %K line, but this may continue to sell down. 

RTK Good but Not Good Enough

Rentech, Inc (NYSE: RTK) announced revenue of $24.7 million compared to $74.6 million for the prior year.  This is a net income for the year of $3 million or $0.02/share.  Not too bad, but the street was not amused.  We entered a trade on this one at $1.54 at the end of November. Today we were stopped out at $1.59.

Rentech is a clean energy company that has been around for a very long time . They’re testing some interesting technology and seem to have a fairly repeatable process.  We’re still undecided about getting back in.  The debt-to-equity ratio is a little high but this still might be a good short term play with a tight sell stop.  There is support near 1.44 and 1.38 which might prove to be a good entry point in the future.  It’s also still above its 21 day SMA which is a good sign for now.


Spicy Eggplant Parmigiana with Hummus


1 Large Eggplant
1 pkg Sonny & Joe’s Brand Hummus Galilee
1 pkg McCormick Cajun Seafood Fry Mix
1 bottle Arrabbiata sauce
1 pkg Polly-O Whole Milk Mozzarella Cheese

Slice the eggplant lengthwise in thick slices.  A large eggplant should make at least 4 long portions.  Wet the eggplant using filtered water.  Sprinkle lightly with McCormick Cajun Seafood Fry Mix.  Prepare an iron skillet with olive oil and pan fry over medium heat for 2 minutes on each side.  Use enough olive oil to keep the pan moist.  The eggplant will absorb the olive oil quickly.

Place one slice of the eggplant in a casserole dish.  Cover liberally with Hummus Galilee, mozzarella cheese, and Arrabbiata sauce. Stack another slice of eggplant on top and repeat until you have used all the eggplant.  Bake at 350F for 20 minutes.

Protecting Your Customers and Profits From Your Employees

When operating business it is important that line management understands the direction executive officers and board have set for the company.  This includes high level policies and strategy which is communicated down to middle management, who in turn oversees business process and execution of work.  In order to properly operate a business the strategic, tactical and operational policies should be communicated and have signatures from all levels of employees.  Individual line managers should not be encouraged to “do their own thing” since this can endanger the company’s reputation and subject it and the executive suite to legal liability.

Today’s case study in poor corporate governance comes from Muvico Entertainment, LLC in Fort Lauderdale, FL.  At a theatre in Rosemont, IL Samantha Tumpach was arrested and held in jail for two nights.  What was her crime?  She was filming a birthday party at one of Muvico Entertainment’s theatres which isn’t a crime.  Filming her friends while the movie was running was the crime.  According to police she had less than 4 minutes of footage total.  Management at the theatre called the police and insisted that Tumpach go to jail for a felony.  The police seemed to think the theatre manager had overreacted, but apparently their operating policies do not allow them to refuse to arrest on the scene if the officer thinks the issue is trivial.  In such cases accuser must obtain a warrant have the suspect arrested later.  The judge handling her case released her on her own recognizance, which indicates he thinks it was a minor incident.  She may be facing up to 3 years of prison for having her camera on.  I doubt she will face any prison time since crimes involve motive and intent, neither of which exist here.

I would consider this to be a corporate bail out at the expense of the taxpayers.  Rather than sue Tumpach for damages using the company’s own funds, they decided to hoist the costs off on to the taxpayers.  Muvico Entertainment just gave the government an excuse to raise taxes on the surrounding businesses and residents.  Property and sales taxes fund the judicial system and the police department.  This adds one trivial case to the court system where police and judicial time could be used to fight violent crime.  Either you cut back on police and judicial services for trivial matters, or you hire more cops and judges to deal with both trivial and serious matters.  Muvico Entertainment is not the kind of neighbor I would want to have as a business or a resident, and certainly not one I would be a patron of.

The damage done to Muvico Entertainment’s reputation has mainly been in the media and on the internet.  People have been giving them 1 star ratings on Google Maps and Yelp which is going to hurt their sales when someone reads the review and sees a ton of 1 star ratings.  If they actually read the reviews they may dismiss the ratings or they may boycott the business based on poor decisions made by management.  There is nothing Muvico Entertainment can do to make these 1 star ratings disappear from Google or Yelp.  There is also nothing they can do to silence the blogosphere or the mainstream media.  In the end this may not hurt them financially, but their executive management has a large rotten egg splattered on their faces.

How do you prevent this kind of embarrassment in your business?  Define your company policies and train your employees.  In this case a policy stating that all arrests on behalf of the company must be approved by middle or executive management could have avoided this situation. There is also a question of ethics involved here.  Executive management of any company should have a code of ethics policy which forbids employees from taking payoffs from vendors.  In most cases your company may have a policy prohibiting employees with buying authority from taking free lunch, golf games, or sports tickets from their suppliers. If you don’t have a code of ethics policy in your business, you should get one approved.  Many publicly traded companies publish their code of ethics policy.  You can use one of those as a starting point.

The MPAA is offering a $500 bounty to any movie theatre employee that calls the police on a person operating a video camera in the movie theatre.  The MPAA bounty presents an incredible opportunity for a public relations nightmare and conflict of interest.  If you have a code of ethics policy it would be a good idea to use this situation as another example of prohibited behavior.  It definitely creates a conflict of interest between your employees and your customers and in my opinion is no different than a buyer taking a bribe from a supplier to become the vendor of choice.  Businesses should place the customer at a higher value than their suppliers.  Customers provide revenue, while suppliers contribute to expenses. If one movie studio goes out of business due to bootlegging there are others to buy your content from.  If your customers organize a boycott because you value your suppliers more than them you may be the one out of business.

UPDATE: After checking some MSM sources it appears that Muvico Entertainment is encouraging its employees to screw over their customers. 

"The motion picture industry has encouraged theater owners to adopt a ‘zero-tolerance’ policy prohibiting the video or audio recording of any portion of a movie," Muvico Entertainment, which oversees the theater, told HLN’s "Prime News."

What happens now? Muvico Entertainment says it’s up to local police to determine Tumpach’s future.

Zero-tolerance equals zero-commonsense.  I guess they collected their $500 bounty and are proud of themselves for it. 

It isn't easy funding Green

Cleantech has been on a roll lately.  Venture capital in the sector is up 46% to $965 Million.  The US Department of Energy announced $3.4 Billion in grants for smart-grid programs.  There are also $2.4 Billion in grants for plug-in electric-vehicle battery manufacturing.  One would think that this is absolutely great for green.


A123 Systems and Detroit Edison managed to land $5 Million for battery research.  There was quite a jump up in price from $14.97 all the way to $17.49 at its highest.


The Cleantech revolution has left some out in the cold.  Evergreen Solar recently got beat down prior to earnings and is going to shut down their manufacturing facilities in Massachusetts.  Guess where the new jobs will be located?  China.  Nevermind the fact that they received $58 million from the state taxpayers, and a portion of that was funded by the bail out–I mean Economic Stimulus Plan.

Green has a different ROI than IT.  Some are predicting 15-18 years to get a return, while IT is geared to provide a return in 5-7 years.  What we are seeing is a trend to invest in IT driven green initiatives such as the smart grid or to get into other green investments later in the life of the company.   Solar manufacturing is suffering right now because of an over supply with low demand.  If you’re starting a green energy company the safest place to find funding will be in software that contributes to the green economy.

Hot Topic is Not so Hot

Hot Topic is on fire and not in a good way.  It’s burning like Timothy Geithner’s behind at a Congressional hearing.  Earnings are down 21%, margins are shrinking, and Marilyn Manson has not had a hit album in years.  Citi says to reduce your expectations and expect a target price of around $5, down from $7.   Analysts are saying that the women’s clothing line will under sell through 1Q10. Their Twilight line of products didn’t create enough buzz to satisfy the analysts.  That’s a very bad sign of things to come.

The stock plummeted from slightly below $7  all the way to $5.57 today.  We arrived late to the game today and SHORTED this one at $5.64 and our T-Stop executed at $5.60. HOTT went up to about $5.80 from there and did its usual flat line (how goth).  HOTT Feb 10 5 PUTs (UHONA) are at Ask $0.45 right now.  If you believe the analysts this could be a good play for a bad Christmas earnings season.  We’re going to stay away from HOTT until Q4 earnings and then SHORT them again.

Not a real big win today, but we had our shot at kicking the emo kid while he was down.

Hot Topic 2 day chart
Hot Topic 2 day chart

LDK Solar Up and Away

LDK Solar had a nice bump up 20% today.  They have plans to sell a 15% ownership stake in its 15,000 metric ton (MT) annualized capacity polysilicon plant in Xinyu City.  China. Jiangxi International Trust and Investment Co., Ltd. has agreed to purchase this interest for approximately RMB1.5 billion (equivalent to approximately US$219 million).  The cash infusion was one factor that seemed to help their stock price for the day.  There were several entry opportunities for a day trade as this only kept going up today.  Instead of buying LONG I decided to sell several $7 PUT options hoping to enter on the lunch time pull back, but LDK kept going up.  Options expire in 2 days so this play wasn’t the best, but there’s no downside in it which is what we’re looking for.

LDK Solar 2009-11-18