Hype helps and hype hurts. It is time to get ready for the pain.

After months of waiting for Obama’s “golden touch” to save Wall Street and the world, sentiment is turning against him and his plans.

The market is reacting sharply to the President’s moves today.

Investors woke to news of major Wall Street reforms coming later this week. As Washington tightens the screws on runaway prosperity, the average investor had better be prepared for less-than-stellar gains.

For my thoughts on the administration’s tweaking of the risk/reward system, see my earlier article.

But Obama likes to spread his attacks on multiple fronts. A divided enemy, he feels, is easier to defeat. By creating a buzz about reforming healthcare, he can slip by major financial regulations without making more than a few Section-B headlines.

As the nation turns its attention to another Washington-created crisis, the hype-filled stocks investors have been using to rack up profits are drying up quicker than a sun-backed worm. The tighter the contraction on the Street, the further the losers will drop.

Brace for impact

Sure, there are plenty of green-energy companies that will be successful over the next few years, but far too many of them are nothing more than financial experiments. They soared on post-election optimism. And now that reality is setting in, their investors are wondering what in the world they bought into. (A lot of voters are thinking the same thing).

The solar industry is showing its investors the optimal time to take profits and run has come and gone. Shares of some of the sector’s most popular companies are down by double-digit proportions today.

GT Solar (NASDAQ:SOLR) is down by nearly 13%. Evergreen Solar (NASDAQ:ESLR) is down by 10%. Real Goods Solar (NASDAQ:RSOL) is down by 9%. And even Asia’s players are getting hit, with China Sunergy (NASDAQ:CSUN) down by 8%.

From here, expect plenty of choppy action. Washington just launched a full-on healthcare offensive, which means Cap-and-Trade legislation, which is even more politically and economically charged will be pushed to a back burner.

If you want to stick with the sector, do your homework and do not make feel-good investments. Dissect balance sheets. Research product pipelines. And most importantly, ensure the company has more than enough liquidity to see it through what will likely be a tumultuous end of 2009 and 2010.

Solar energy represents great technology and will likely play some sort of role in our future energy prospects. But it is not the strongest investment. There are no clear winners. The industry is still in its infancy. And the hype is off the scale.

If you are sitting on big profits, now is the time to lock them in. Join the other sellers today and make a move to a more predictable, reliable sector.

Washington is moving on. So should you.

Source: The Solar Industry Puzzle is Missing a Few Pieces

CASH: Don’t sound too surprised now. Yep, IPO activity is at a good level. But we’re starting to see the quality deteriorate just a bit. Nothing too serious — but it’s something to keep an eye on.

JL: Can you explain the “quality” issue a little more? Does that mean we’re seeing more duds come to market?

CASH: Right, that’s part of it. When companies see that optimism is up and liquidity is flowing, it makes sense for them to try and raise capital while that window is open. Keep in mind that few people really expect this firm market to continue. So folks are trying to grab what they can, while they can.

JL: Makes sense. Anything else?

CASH: In addition to lower-quality companies, you’re also starting to see smaller companies tagging along. An example of this is Real Goods Solar (RSOL), a company that’s supposed to price its IPO this week. Because RSOL is so small — less than $20 million in revenues — they’re unable to attract the all-star underwriters. They have to use second-tier partners instead.

JL: So what effect will that have on the stock? If they’re small and putting fewer shares out there, it seems that might benefit the price, right? Keeping supply low to help the ‘ole S-and-D curve?

CASH: Don’t forget the other input for that curve…

JL: Never. Supply and demand is about the only useful thing I got out of college economics. So what do you see on the demand side?

CASH: Nothing.

JL: Nothing?

CASH: Nada. Zip. Zilch. Goose egg. Bagel. The big donut…

JL: I got it, I got it. But what does that mean exactly?

CASH: It’s means there’s just no demand — period. These underwriters (think names you’ve never heard of, like Equity, Canaccord Adams, & Broadpoint) don’t have anywhere near the footprint or the clout that, say, a Goldman Sachs, a Merrill Lynch, or a Morgan Stanley would bring. And so, while this might be a reasonably strong company with limited supply of stock, the underwriting machine is weak. They won’t be able to gin up enough interest for a good price pop.

JL: So do you short a name like this right out of the box?

CASH: Quite possibly. Although I’m a little uncomfortable being short a thin name in a hopeful market, even if the hope is fleeting. But it’s a possibility, and that brings us around to our topic for the day.

JL: Which is?

CASH: Shorting! Last week I said I’d bring a little balance to our banter. Today I wanted to give a little clearer picture as to how Cash McDash makes money on the “dark side.”

JL: Sweet, the dark side! Insert Darth Vader joke here. Can we talk about Jedi mind tricks, too?

CASH: Let’s not and say we did.

JL: Fair enough. Where should we begin?

CASH: Well, there are basically two different categories of short trades that I use. We can skim over the first and dig a little deeper into the second.

JL: Hold on! We’re just getting into the good stuff and you’re already skimming? Why don’t we take ‘em one at a time and get some more detail.

CASH: Because the first category of shorting doesn’t quite fit for this type of conversation. The trades are too specialized… Oftentimes they have to be executed very quickly, with very little notice, in order to lock in solid profits. I can tell you “how” that’s done, but if I tried throwing out picks in that area to a broad audience, it would be more trouble than it’s worth. I’m more interested in sharing that type of info with a small, select group of readers who are dead serious about their trading gains.

JL: Fair enough. So give us the Cliffs Notes then.

CASH: Well, the first way I make money on the short side is by selling underwriting dogs right from the beginning — “out of the box,” as you say. Because I’m so plugged in to that whole hidden process of taking companies public, I see what most others don’t. I know whether or not the demand is there, and I can get a very clear read on whether or not the underwriters have buyers for the stock.

JL: Hey, so you’re kind of like that guy Simon Cowell on American Idol or something. Except you, uh, judge new issues instead of wannabe pop stars.

CASH: Ugh. I’d rather be Darth Vader. But, yes, from time to time there are deals that are just destined to fail. And even although the public can sometimes get excited over these deals, my behind-the-scenes view makes it exceedingly clear that money is to be made on the short side.

JL: How about an example folks might recognize.