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The National Bureau of Economic Research effectively mastered the obvious Monday with the pronouncement that the U.S. economy is in a recession. Over the past 6 to 12 months, everyone from stockbrokers to street vendors have felt the pinch as the credit market dried up, jobs disappeared, and 401K’s were decimated. Although the average recession lasts 13 months, it’s becoming quite apparent that this most recent economic slowdown is anything but average.

So, as the Dow dips again and crude oil retreats below major psychological support at $50, a prolonged recession seems imminent. However, while the financial markets remain a collective mess, some public organizations are exhibiting their ability to thrive in troubled economic times and produce gains for investors. Two of which that I have identified in recent months are Pinnacle Energy Corp (PENC) and City Loan Inc. (CYLN)

PENC up 58% in 3 Days

Over the past 4 trading sessions, shares of Pinnacle Energy Corp. (OTCBB: PENC) have rebounded nearly 93% from their 52-week low of $.41 reached on 11/24. With regard to other bullish trends currently being exhibited by the stock, PENC is up  $.29 or 58% from its 11/25 close and has seen 10-day volume more than double.

Even though crude oil is now just about $100 cheaper per barrel than its July highs and gasoline is now priced above $2 per gallon in just 3 states, junior oil & gas exploration company PENC holds a great deal of future potential and investors are taking notice. The company continues to secure additional leases for crude oil and natural gas reserves and has publicly stated potential drilling plans through 2011 that include as many as 43 wells.

Pinnacle, which plans to commence drilling operations in 2009, recently announced a property acquisition expected to bolster its proven, probable and possible reserves of up to 214,000 barrels of oil and 839,000 Mcf of natural gas. With plans to soon expand its current reserve report to account for a 25% interest in a new 2,000-acre natural gas field in Pawnee County, Oklahoma, the market appears to be quite optimistic regarding Pinnacle’s future production prospects.

City Loan Inc: Flourishing in a Troubled Economy

A new corporate profile on City Loan, Inc. (OTCBB: CYLN) will soon be available at www.microstockprofit.com. I strongly suggest taking a look as the company employs a rather unique business model that is proving its ability to thrive in a down market. While the stock has struggled recently, I’m pretty confident that the company’s improving financials will translate into gains for investors down the road.

Although some may turn their nose up to the company’s bread and butter - high interest auto title loans - the strategy is proving to be quite lucrative. Despite the stock now trading at the low end of its 52-week range, business has never been better at CYLN. This was exemplified by recently reported record financial results that were highlighted by record quarterly revenues of $1.5M and net income of $177K.

The company provides investors with a multitude of compelling reasons to take a deeper look into its operations. Some of these include:

(1) CYLN employs a business model designed to capitalize on a “bad times” industry  which allows the company to benefit from a number of negative economic trends including: tightened credit markets, increased unemployment, and rising consumer debt;

(2) Anticipated 2008 un-audited revenue of $5.2M;

(3) Recently appointed CFO David Burke was Vice President of Citibank from 2004 to 2006 and Vice President of J.P. Morgan Chase & Co. from 2001 to 2003;

(4) Revenue of $1.3M for the quarter ending June 30, 2008, representing a 6% increase over the prior year period;

(5) Bad debt rate is less than one percent as credit card companies anticipate write-off rates of ten percent next quarter and the delinquency rate for one-to-four-unit residential properties reaches 6.41% at the end of Q2 2008;

(6) Employment of extremely profitable, yet potentially predatory business model that utilizes an introductory interest rate of 25%, which can mature into a triple digit APR if a loan is not paid back in full after 30 days; and

(7) The company aspires to increase exposure of its auto title loan product and keep overhead low through collaboration with the more than 13,000 non-bank financial service companies and 13,000 pawnshops throughout the U.S.

Net-Net

As the economy continues to flounder, why not take a closer look at two small caps proving their resilience to negative external trends and now trading at prices significantly lower than their logically attainable and surpassable 52-week highs?

With PENC showing promise for another green close on Tuesday and CYLN exhibiting potential for longer-term gains, I firmly believe that a few hours of research on both companies could pay off dearly in the future.

By Jack M. Guttentag “The Mortgage Professor”

Posted on Monday, November 10, 2008, 12:00AM

Like all disasters, the financial crisis has its share of beneficiaries who profit from it. The hard-money lenders, who lend strictly on the basis of collateral, have profited from the financial meltdown. These

non-institutional lenders require a lot less paperwork than institutions because they don’t worry about whether or not borrowers can afford the payments, or whether or not they are creditworthy. They don’t bother with income, employment, or credit reports.

Read the rest of this entry »

Capitalizing on Negative Consumer Trends

Did you know that American consumer borrowing recently experienced its largest month-over-month percentage decrease ever? It’s no secret that the era of easy credit in America has come to an abrupt end.  In today’s edition, we’d like to touch on one of our portfolio companies that is benefiting significantly from the end of an era and America’s frozen credit market. Hey, at least somebody is.

The recent record dip in consumer borrowing and rise in U.S. unemployment has undermined a long established quid pro quo of lending.  However, in its wake, it has also created a massive opportunity for providers of new and innovative loan products such as City Loan Inc. (OTCBB: CYLN). CYLN is an emerging provider of auto title loans that grant short-term credit based on the value of a one’s automobile. While not so glamorous by nature, auto title loans are quickly gaining popularity in today’s turbulent economic environment due to their quick and convenient nature.

U.S. consumer credit dropped by nearly $8 billion during August, the first decrease in a decade and the worst fall since related statistics first began being compiled in 1943. Moreover, roughly 460,000 Americans are now losing their jobs each week, leaving more than 6% of the U.S. workforce out of work today. To make matters even worse, the credit market is frozen rock solid.

A recent Federal Reserve bank survey shows that 83% of major credit card issuers tightened their lending standards during the 3rd quarter of 2008, a whopping increase from 45% during the previous quarter. For consumers, oftentimes those with a good credit score; this means reduced credit limits, increased interest rates, and even canceled cards.

Emergencies happen to everyone. However, financial remedies are becoming increasingly harder to come by for people from all walks of life. So, while auto title loans used to be issued largely to the unemployed or those with bad credit, with the credit market sealed up tighter than a drum everyone from doctors to stock brokers are now utilizing them at a record clip.

So, How Could This Possibly Benefit CYLN?

While no data currently exists with regard to the size of the auto title loan market because it has been largely unregulated to date, most assessments that I’ve come across peg it at roughly ¼ the size of the $40 billion payday loan market, or a robust $10 billion.

As the credit market becomes increasingly constricted, Americans are finding it harder than ever to access capital in a pinch.

These situations can include but surely aren’t limited to instances in which the small business owner can’t quite make payroll for the month or is confronted with some out of the blue but essential costs that weren’t planned for when the annual budget was drawn up. This could also include times when a family car needs a new transmission, the child requires a spur of the moment surgery not covered by insurance, or a roof springs a leak during the first storm of the winter.  In all of these cases, a 30-day title loan can be a lifesaver for many.

Highly profitable yet potentially predatory business model

CYLN undertakes a number of precautions to minimize risk in a day and age where consumers have compiled roughly $1 trillion in credit card debt which has risen nearly 75% over the past decade while real wages have increased just 4% and mortgage related debt has skyrocketed to $10 trillion.

Firstly, the company bases the principal of its loans on between 25% to 50% of the market value of the recipient’s automobile. In addition, auto title lenders typically charge a monthly interest rate of 25% on the principal, which quickly turns into a 300% APL if the loan is not paid off in its entirety after the first month.

So, in theory, a $600 loan turns into a $750 loan after month #1 if not paid off in full. In the “Wild West of lending” City Loan could potentially receive far more than the principal amount over a 6-month period and still end up owning the car if the recipient is unable to make the balloon payment on the principal after six months of just paying the interest. As you can see, this is an unbelievably profitable, although potentially predatory, business model.

Furthermore, to avoid the scammers. CYLN equips the leveraged automobile with a GPS tracking device that helps them locate and repossess the vehicle with minimal effort. In order to prevent removal of the LoJack-like (http://www.lojack.com/) apparatus, City Loan utilizes a minuscule contraption that by the company’s account is nearly impossible to locate. Field workers implant the device in different parts of the automobile to prevent loan recipients from conspiring together to locate and remove the GPS system.

Essentially, by issuing the loan only on a small percentage of the auto’s book value, constructing the loan terms to be extremely favorable to the lender, and protecting the investment with a state-of-the-art locating system, CYLN creates an extremely profitable and low risk opportunity for itself. Quite frankly, this is one of the most ingenious lending practices I’ve ever come across. If only the sub-prime folks could have been so wise.
Expansion via Pawn Shop Partnership.

CYLN aspires to increase exposure of its auto title loan product and keep overhead low via collaboration with pawnshop operators owning brick & mortar locations. After announcing a relationship with Abes Pawn Shop in Santa Clarita, California last week, CYLN is back in the news today boasting a similar alliance with Inland Empire (CA) lender Pay Day Advance Stores. Given the current economic climate in the U.S., this certainly appears to be the most efficient growth strategy that the company could employ. Moreover, City Loan’s new partners seem excited about what their relationships could soon yield.

Commenting on the deal announced today, a representative from Pay Day Advance’s parent company, Empire Marketing Media stated “We have 5 locations throughout the Inland Empire and with the addition of our Car Title Lending partnership with City Loan, this product helps us create new revenue streams. We project that, by partnering with City Loan, we will generate another $250,000 annually in new loan business”.
Net - Net

Unfortunately, in today’s tumultuous economic environment, consumers are increasingly being forced to leverage key assets including automobiles and households to secure loans during times of need. Fortunately for them, lenders such as City Loan Inc. (OTCBB: CYLN) are expanding throughout the country and offering products that help meet their needs in a quick and convenient manner.

As household wealth and consumer credit options wane in the coming months due to the ongoing recession, CYLN’s revenue and profit margin should triumph. Check back soon for a hot-off-the-presses corporate profile on the company as well as more newsletter and blog commentary on why we think CYLN is one to watch in 2008 and beyond.

City Loan Inc. (OTCBB: CYLN) plays in one of the most interesting credit markets that I’ve ever come across.

The company provides loans to consumers and takes their automobiles as collateral. Think you’re gonna drive off into the sunset with their dough? The joke’s on you, Jack. CYLN.ob equips each car that it issues a loan on with a state-of-the art GPS system that directs the good ole repo man right to your front doorstep should you neglect to pay up. Read the rest of this entry »

OTCBB: Total Dollar Volume by Year (2000 - 2007)

Here’s a comparative look at the total dollar value of all securities traded on t

he OTC Bulletin Board over the past 7 yrs - courtesy of the OTCBB itself - (chart to right).

As the chart indicates, dollar value dipped below $44 billion for the first time in ‘07 since ‘03. This is no bombshell since the economy has been shaky at best as of late.

The OTCBB also provides a graphic depiction of the monthly dollar value of securities traded on the exchange from 8/07 to 8/08 (chart below to left), which is also quite interesting in my opinion.

OTCBB: Total Dollar Volume by Month

 (August 2007 - August 2008)

As depicted by the chart to the right, total dollar volume has been dropping considerably over the past year with August figures representing a nearly 60% decrease. In addition, total share volume is down almost 20%. So, things have certainly been better for the exchange in past months.

While the overall Bulletin Board exchange may have seen better days, there are still a great number of compelling plays in this arena and a great deal of money to be made in playing BB Stocks.

Here’s a few examples of some recent small cap success stories that should have you watching the exchange despite it being down overall from many angles:

Quest Minerals & Mining Corp. (OTCBB: QMNM) recent advanced more than 4,000% in just 3 trading sessions, running from $.0016 to $.075 from 6/18 to 6/23. Roughly every $1,000 invested at the recent low yielded profits of approximately $43,000. Not bad for three days of pointing and clicking.

City Loan Inc. (OTCBB: CYLN) advanced near 3,2000% Tuesday on 30K shares traded and followed up that performance today gaining 50% or $.05 on modest volume of 2.679. CYLN is now showing potential to reach higher highs as its financial situation improves and the company pushes forward with aggressive expansion plans. As I’ve mentioned previously CYLN operates in the somber, but prosperous auto title loan industry and could transform itself into a national market leader if growth objectives are met over the next 12-24 months.

Quantum Technologies (OTCBB: QTWW) ran from $.50 on 1/30 to more than $3.00 in July for +500% gains on sheer future potential despite a horrendous bottom line, for now at least. 

Biophan Technologies, Inc. (OTCBB: BIPH) - a medical device company focussed on treatment of acute heart failure - gained 212% or nearly $.02 Wednesday on news it recently eliminated $2.3M in dilutive financing .

Location Based Technologies (OTCBB: LBAS) - a provider of personal location solutions - has seen its stock price surge from the $1.50 range back in July of ‘07 to a recent high of $10.61 this past summer for gains exceeding 600%.