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Thats the thing, we have seen companies that have NEVER been attacked by shorts and have NO short interest at all suffer tragically these past few months. We have seen companies which were attacked by shorts, responded in one way or another, have had no auditor problems and are also suffering.
I'm not arguing that shorts have not found fraud -- They certainly have. But I haven't heard them attack many companies and yet they are insanely cheap.
Have frauds attacked BSPM?
Have frauds attacked SIHI? (I remember something about this one, but I forget...)
Have shorts attacked CCCL?
Have shorts attacked TRIT?
Have shorts attacked SOKF?
Have shorts attacked CNYD?
etc etc etc. Many of those have almost no short interest in fact.
Then you have companies like YONG which seem to be winning against the short attack. You also have companies like GFRE which got attacked, responded decently, and things could still go either way (IMO)...
Some of the names listed above may turn out to have problems -- I'm not saying they don't and would not be surprised (I simply don't know on something like CNYD even though i've seen two of their touristic spots and their video-on-the-train segment). I'm just saying we can't use the same brush that we apply to SCEI/SBAY/CEU/CHNG on them without company-specific research proving something is really wrong with operations.
-Fernando
Thats the thing, fear levels are so high that many companies are driven into the 'its a fraud' mindset by investors when they may not WARRANT such a categorization. The problem is that it is incredibly difficult for a company to do anything to convince people its not a fraud once it enters that category in someone's mind.
Fear is certainly warranted, given the proven frauds we have found so far. Thus the fear arose from reality, as you indicate. But it is very easy for fear to gain momentum and get out of hand, not based on reality. Specially when you have a very motivated group of people making tons of money by spreading that fear to its maximum potential (ie: shorts).
-Fernando
Oh, I definitely agree with regards to names like SCEI, CEU, CHNG and SBAY. With some names the risk level is so high that most people would not touch it regardless of the potential level of reward. The whole 'Throwing good money away' scenario.
But just like you have those names on one side, and companies like YONG/TRIT/CCCL/SOKF/etc on the other side... You have a heck of a lot in the middle -- Some leaning towards the 'better' side and some leaning towards the 'total trash' side.
Let me do an analogy. These companies are like a really bad neighborhood and we have some drug dealers like SCEI/CEU/CHNG/SBAY. We can't really pick someone randomly off the street in that neighborhood and treat them like drug dealers with no other information :)...At the same time, I would not feel comfortable walking down the street in that neighborhood without police escort or bodyguards (ie: DD!)!
Thats why I'm saying the situations are very name specific and we need to judge each company individually.
-Fernando
Exactly, Gary. Fear is a very powerful force -- Thats for sure. The question that arises for me is, what is the point of 'maximum fear'. Have we hit it yet? Are we damn close?
At some point fear maxes out and then can go down from there. You would need a constant stream of horrific news to maintain such an elevated level of fear -- Lack of such news alone will lead to calmer weather.
-Fernando
Thats where we disagree. At some point any level of 'discomfort' investors may have with a company will be built into the price -- and then it will stabilize and bounce. That price-level will vary from stock to stock depending on specific situations.
Its all a matter of risk/reward. Once the reward gets high enough, the risk will be compensated for. So there is no need for companies to change behavior for a bottom to be established, IMO. The question is, at what price level will that bottom happen -- and this is where everybody has their own opinions. Some will say P/E of 2, some will say cash-on-hand, some will say 0. Nobody knows for sure.
Personally with the lack of borrow-ability for so many names (since shorts have maxed it out), incredibly low P/E's, starting to see lots of buybacks and insider buys... I think we are much closer to a true bottom than before. Thats why i'm long some names which I like, otherwise i'd be all cash :).
-Fernando
GFRE: That news is probably not public knowledge yet since it was derived from a Chinese source. Wait till the company announces details for there to be a reaction in the stock, IMO.
It also depends on the timeframe for when this new project will contribute revenue...Investors right now don't care if something is more than a year out :).
-Fernando
Which China stocks did that? Not that I would expect a +10% move in one day without giving up SOME of that move before the end-of-day. I see a heck of a lot more +5% type china stocks today than otherwise.
The fact is, selling any pops has been working so many people continue with that behavior. As always with a pattern, it will work until it stops working :). Nobody can say when that 'stops working' point will be -- One can only guess. Personally I think we are close to that 'turnover point' but others may disagree.
-Fernando
Certainly seems prudent for *all* analysts to get out of the way and wait for facts versus putting out their necks on the chopping block.
-Fernando
Yep, Rato mentioned OGX to me as well :).
-Fernando
Your response was much better than mine :D.
Its listed in Brazil's exchange. The pink sheet is simply a way for American investors to get access to it without buying internationally.
-Fernando
Ok, thats it guys. I'm going to delete every single space-wide post (positive or negative) that I see from now on in this CGS board.
If you feel you must post such generalizations, please do so on the China Stock board.
Company specific items only from now on please. If anyone has a problem with that, talk to ChinaStockPicker and have him remove me as a Moderator :).
I'm simply tiered of hearing the exact same thing over and over again, enough is enough.
-Fernando
Brian, it is a very different thing to say there are 15 "legit companies" and to say that 285 are frauds. For most of those, we simply do not know with any decent probability whatsoever.
It is impossible, literally so, to be 100% sure of any company.
How many of these 300 companies have been PROVEN to be frauds? A few were halted by the SEC, a few admitted to fraud, a few have been halted and are under investigations by their boards. Many have been attacked by shorts. Even if you add all those up, it does not constitute a majority of the space.
There are many many companies which I would not touch at all -- The risk being too high. I could be wrong though and certainly do not call all of them frauds.
There are also many I am uncertain about, thinking it could go either way. Depending on the evaluation, short term catalysts, etc, I would be willing to own some of these.
There are a very few I am semi-comfortable with owning long term.
I find it disingenuous to have anyone declare 285 out of 300 to be frauds (and especially when they say they are being lenient with that categorization) when certainly not that many have been proven to be frauds. The fat lady has NOT sung for these companies yet.
Take UTA, a name with risk who has been attacked before. You had written it off as a fraud, right? Did you expect them to get the 10-K out and remain on the NYSE? I suspect that came as a surprise. Of course, this not mean there is nothing wrong with the company, but it does go to show how quickly many in this space are now jumping to categorize someone as being a fraud -- Often with lackluster proof.
Take YONG for example. A few weeks before Morgan Stanley did its decision to invest, with the increasing short interest and declining stock price -- Didn't you think they were 90% probably a fraud? (Many were starting to anyhow). Obviously that probability is much lower now.
Thats all i'm saying. Be careful not to become so convinced as to become too polarized and one-sided.
Many companies, I expect, will turn out to have problems of one kind or another. I also expect many of those with problems (like CBEH, etc etc) to go through a tough period but ultimately have value for their shareholders. Maybe only 70%, maybe 50%, maybe 30% of what we think currently they are worth for some -- But I expect many will not go dark and will resurge at some point.
TXIC is one example of a company with real assets that has problems with related-party 'discounts' in China for example. They replaced the CFO, they got rid of their american-based CEO -- But they are still reporting and are getting back on track with filings. The stock has been stable for many months, actually going up a bit lately. This company might well stage a comeback at some point in the markets.
Many companies which we are now writting off completely may become like TXIC on the road to recovery (or so it seems, I don't own TXIC). Others will become a RINO.
With regards to institutions, most of these companies have had very little participation from non-hedge fund types. Certainly I know many hedgies who are salivating on going long some of these companies as they get cheaper and cheaper -- Some have dipped their toes, others are waiting for better timing. With many names removed from the space and others being much cheaper, the remaining market-cap in the Chinese RTO pool will be much much reduced - requiring many many less owners to sustain price. Once you start seeing some sustained bottoms in these names, I think you will find there will definitely be buying interest out there.
-Fernando
Yeah I know they still model for 65% in their presentation -- Maybe they are hoping this new fracking method being introduced will bring them back inline with that.
Don't get me wrong, I think buying it now and holding till they report Q4 will provide a good return to investors -- Especially if they can hit their oil production exit-rate that they project by the end of the year... At least if Oil does not go down much further...The netbacks are quite high for the quality of oil produced but this producer definitely suffers more than most from any drop in oil price.
-Fernando
PBG: The current first year base decline rates are actually higher than expected from what I read (when I was doing my DD). AFAIK, they had modeled (going off memory now) for a 65% drop the first year and have been getting a 75% drop (Numbers might be off some but I am pretty sure the actual decline rate was 10% above their models). I read something about a new fracking method they hope will help with that but it hasn't been rolled out yet.
-Fernando
OGX definitely has strong long term prospects but there are also short term catalysts I am very much looking forward to:
1) Start of oil production later this year.
2) Farm out of a land block to establish true value in marketplace.
3) Conversion of 3C oil assets into 1/2C and 1/2P.
Here is a link to the farmout thing:
http://www.sfgate.com/cgi-bin/article.cgi?f=/g/a/2011/06/16/bloomberg1376-LMXU5L1A74E901-2VA4T33UDAI0K7P6TLT9B8NGJS.DTL
-Fernando
I prefer OGXPY (or OGXP3 in the Bovespa) over PGB personally. Higher quality oil to be produced and will have much lower break-even price on extraction.
Thats not to say I did not like PGB, I just want to watch them a bit longer to see if they have controlled the well depletion rate (Its way too high for the first year, above their own predictions and that lower production base after 1 year has big repercussions on the economics of the well as depletion continues). They supposedly have a new fracking method that will help some with water filtration but promises don't mean squat till I see it working (and have measures of the exact impact) :).
-Fernando
Its simply a matter of probability, Suntzu. I use as many sources of information as I can get (long or short). Many people are now doing on-the-ground DD on companies -- The ones that come back positive with that OTG are MUCH less risky than others and yet are trading at similar multiples around 2 (CCCL for example). That 'baby out with the bathwater' creates opportunity to find gems among the rubble.
The sentiment is so negative right now that it is very easy to write off every single Chinese company forever -- But frankly that will mean you will miss out on HUGE money making opportunities in the next 12 months (IMO).
I read the CHBT attacks from a LONG time ago and would not have touched it with a 100 foot pole. I hated SCEI in 2009 for their dilution and it did not surprise me at ALL that it had big problems. YUII surprised myself and even Geo! (They were doing DD to go long it).
Nothing is 100% safe but you can try to minimize risk. When the potential upside is so large, it is worthwhile IMO. This is not to say anyone should invest all their money on these companies, for gods sake -- But sprinkling money here and there on attractive risk/reward situations backed by on-the-ground DD seems smart to me.
I own YONG for example -- But I certainly have not bet the farm on it. I simply like the risk/reward -- People just can't forget that EVERYTHING has risk (not just Chinese companies), investors just need to be able to manage it properly.
I have not given up on UTA at all btw, they got their 10-K out and the website alexa rankings (and google website trends) support their business is significant and booming. Certainly a risky name but also not a proven fraud in my mind.
The way I protect myself against 'space' weakness is by going long a few companies I like and shorting others I do not like. That way you are protected if the entire space gets cheaper (ie: more baby out with the bathwater) and still have attractive entry points in the names you like.
-Fernando
I think you can go farther than that, Brian. Based on your market predictions, you probably don't like anything period right now...Chinese or not ;)...Except for maybe 1-2 exceptions ;).
-Fernando
YUII: I don't mean to interview a farmer, common. A buy of 11 breeder farms has to have a paper trail, ownership changing hands (which is logged with government) and contracts/etc. That paper trail can be checked. Heck, just like how PUDA showed selling of ownership through documentation.
-Fernando
Shouldn't this be easy to verify? They say they spent the 12M (mostly) and acquired 11 farms in March/April of 2010. That should not be hard to check and it would show whether the CEO is lying or not on this issue too.
-Fernando
GeoInvesting will be coming out with a number of reports in the 'overall positive' variety soon actually.
Two that Maj has talked about on the boards will get longer-type reports and 6 will get summary-DD type.
This was a post by Maj on Geo:
"Drexion, ratobranco, chinastockpicker, mucsleman, traderfan.
Thinks it is time that we coordinate with Geo members to pick one ChinaHybrid to investigate that we really want to go to long on and collaborate the OTGDD process. we are in the process of creating a wish list that may help us. I envision two types of scenarios:
1. Re pricing of risk premium via P/E expansion regardless of growth outlook (p/e of 2 to 5).
2. Re pricing of risk premium via P/E expansion and EPS growth for situations where near term non dilutive growth is in the cards. (p/e of 5+).
Let's discuss in the ask bob board.. We need to be clear that we do not know how this will play out and that we will remain vigilant of fraudulent practices in the space. (there are still a few more that need to be flushed out)."
-Fernando
I listened to part of the CC, what supposedly happened was the Dajiang farm purchase never happened in 2009 (Deal fell through supposedly). The company saved the 12M and spent it in March 2010 in buying 11 farms (Still planning on using rest of money to buy 2 more) and those 11 farms started contributing revenue in Q4 2010 supposedly.
CEO apologizing for not disclosing things properly, saying he did not 'understand capital markets well', etc etc...
Heh.
-Fernando
HRBN: Shouldn't you just buy some $20 calls expiring in say December then...They cost like 30-35 cents and if the takeout happens you make a 13 bagger ;). Plenty of leverage and not alot of capital-at-risk required. If your right and the stock surges to $10+ at any time in the next month, these calls would do great too.
-Fernando
LPH: Wow, its moved nicely since my nibble-sized buys around $1.3. I just sold my shares now though. Enough profit for 2-3 days :D. I'll look to rebuy on a pullback for the potential acquisition event.
Thanks R&R! My suspicious self makes me wonder why R&R (who loves to do research reports for people planning to raise money) chose this moment to cover LPH. Hopefully its the benign interpretation and they are just trying to get LPH up to $3 so they get their financing-fees.
-Fernando
CCCL: It definitely looks like the seller is gone since yesterday (Had absolutely no selling pressure and a super-low volume day yesterday -- ending with a positive day when the market was way down!).
Looks to be the same today with buyers pushing back anybody willing to sell, buying mostly at the ask.
<---Happy.
-Fernando
There are many others as well now who are having CEO's buy in various amounts.
LIWA has been buying, TSTC's CEO has bought like $600k so far, CCCL insiders bought some in the low 4's, etc.
Heck we even see some insider buying from SIHI and BSPM lately.
The important thing to watch will be if the buying continues :).
-Fernando
Telecoms: Hmm, thanks...This is what GRRF had to say about Q2 during their Q1 PR --
"Guidance for Second Quarter 2011
For the second quarter of 2011, GrenTech forecasts revenue to be in the range of RMB380.0 million to RMB425.0 million. "
This was their Q2 revenue last year:
"Second Quarter 2009 Financial Highlights
• Total revenue increased by 127.1% year-over-year to RMB423.2 million"
This was their GUIDANCE for Q2 during Q1 of 2010:
"Guidance for Second Quarter 2010
Management estimates that revenue for the second quarter of 2010 will be in the range of RMB350 million and RMB380 million. "
If that 'under promise' trend continues by the same percentage, Q2 2011 revenues should come in around 450-473M RMB.
-Fernando
Well, I know DLA Piper is still working with CCME as a client as of a few days ago (and PWC is still engaged). I called them and spoke to the lawyer in charge of the account to confirm. As expected, of course, the lawyer would not say anything specific -- But he was able to confirm CCME is a client.
Happy now? Not that hard to verify these things :).
Your certainly correct in us not knowing the exact ROLE that DLA-Piper and PWC are playing -- But let us not question the fact that they are currently involved.
-Fernando
Disclosure: I have no position in CCME at this time.
CNTF: Hey, look at the bright side. If it has been trading at cash for 2 years and they never spend their cash... That means at a P/E below 4, you can just buy and hold as they accumulate cash getting a 20-25% yearly return as the cash piles higher per share? ;).
Hehe... Makes you wonder how far the stock would fall if they ever invested that cash in an acquisition or something -- Since the market does not seem to care about the EPS of the company and just makes it trade at cash levels.
-Fernando
Yep, loving those buys in the low 4's when we pulled back :D. Gotta skate to where the puck is GOING!
Up we go, think we break $10 by year end?
-Fernando
SIHI: More selling from the "ex-wife" to come?
On May 18, 2011, the Reporting Person’s former spouse sold 480,796 Shares at a price of $1.30 per share.
On June 10, 2011 the Reporting Person transferred 537,445 Shares to his former spouse pursuant to a divorce settlement.
-Fernando
CHBT: Just like I don't think YONG helps the entire space, I don't think CHBT hurts it either. This company has had 'fraud problems' written all over it for a year.
-Fernando
TSTC Acquisition info:
http://messages.finance.yahoo.com/Stocks_%28A_to_Z%29/Stocks_T/threadview?m=tm&bn=51264&tid=53578&mid=53578&tof=1&frt=1
and
http://messages.finance.yahoo.com/Stocks_%28A_to_Z%29/Stocks_T/threadview?m=tm&bn=51264&tid=53578&mid=53579&tof=1&rt=2&frt=1&off=1
His post says:
"Lost in Translation DD
I've done some digging on TSTC's acquisition target and here's what I come up. (I cannot confirm this 100%, but everything seems to match up...anyone else feel free to chime in.)
First, it appears that Sichuan Ruideng Telecom Corporation is also know as Sichuan Reading Telecommunication Co.,LTD.
Their website is listed as readingtelecom.com, but I can seem to access it here in the US. whois has is created in 2008 and paid thru 2015. link
Next, a Google translation of the PR from China says the company is Four Chuanrui Deng Communications Co., Ltd.
When I pull up links for Four Chuanrui Deng Communications Co., Ltd., it does list the same website (readingtelecom.com) and same company info as in TSTC's press release.
* 300-400 employees, 80% have college degree or higher
* founded in 1993
* $20M USD annual revenue
* focus on engineering and installation
* manufactures equipment such as repeaters and amplifiers
* was involved with the 3G project for the 2008 Olympics "
"some other translated notes:
Four Chuanrui Deng Communications Co., Ltd. is a professional communications technology service provider and telecom equipment manufacturers, is committed to providing the highest quality telecom network services and products, was established in 1993, the registered capital of 32 million yuan (about $ 4,900,000), is in southwest China Sichuan and the largest telecommunications network engineering service providers, the average revenue over the past few years to (20) million U.S. dollars. Its business covers Sichuan, Yunnan, Guizhou, Hubei and Qinghai Province.
Four Chuanrui Deng Communications Co., Ltd. was founded in 1993, is a professional mobile communications, microwave communications research and development and project implementation of high-tech enterprises. The company has research and development, production, marketing, engineering, maintenance, finance and administrative personnel and other functional departments, and in Beijing, Zhengzhou, Shijiazhuang, Xi'an, Kunming, Guiyang, Chongqing, Nanjing and other cities Branch or Service. Company more than three hundred employees, 80% have a college education, a number of mobile communications and microwave communications in research and development experts, production managers, and has an experienced and professional construction team.
Since 2003, Sichuan Mobile Communication Co., Ltd. will be socialized base station equipment maintenance, our company will become the first in Sichuan Province to carry out maintenance of base station equipment, one of professional services, has worked in Sichuan, Yunnan and Guizhou provinces and municipalities maintenance of about tens of thousands of base stations, and have achieved certain results. After more than five years of exploration and practice, four Chuanrui Deng Communications Equipment Co., Ltd. in the field of technical services has been successfully created their own service concept and service system data also extended to the WLAN equipment, transmission equipment, outdoor repeaters, indoor distribution network optimization system equipment and other technical services, and fully established our company in the peer leader in the service.
Development and production company PHS, GSM, CDMA Repeater mobile outdoor and indoor trunk amplifier has, including Beijing, Sichuan, Guizhou, Yunnan, Hebei, Henan, Chongqing, Shaanxi, Jiangsu, Tibet Autonomous Prefecture, including access to a number of provinces and cities a wide range of use. Company has completed thousands of high-rise buildings or large public buildings, indoor coverage systems for mobile communications in a number of highways, tunnels and construction of tourist attractions seamless coverage, and Participation in Beijing and other areas in Sichuan and plumbing lines, user access to the highly praised.
To meet the market and their own development needs, the company established a comprehensive research and development, production, marketing and service system. Everything from start to establish the details of the technology-led, customer-centered principle, and will consistently provide users with better service and quality products.
With the company's strength and brand communications in 2008 became the first in four Chuanrui Deng TD-WCDMA (3G) mobile communication network construction business, for the Olympic 3G network to provide network testing and optimization, network maintenance, construction and other technical services. "
Enjoy.
-Fernando
Market: I actually covered half my market shorts today when the market was down like 180pts... I added alot to those shorts yesterday on the spike so back down to pre-yesterday levels (chuckle) :).
I agree with you though, we have come down far very fast -- The 200day MA should provide a bounce, where we go after that bounce will depend on data and headlines IMO.
-Fernando
CNTF: Probably because people keep mentioning it here and then you get shorts hitting CNTF back down every time it moves a little higher :P.
-Fernando
Michael, here is an example of law firm hired by a Chinese company (Just like CCME hired DLA Piper) which resigned when the company was not cooperative with their investigations: "Pillsbury Winthrop Shaw Pittman LLP".
The company involved was CBEH.
Why would DLA Piper act any different than Pillsbury if CCME is uncooperative?
So yes, personally I do think it is a very good sign that they have not resigned. This does not mean there was not fraud, just that CCME is cooperating -- Maybe coming clean with whatever happened?
-Fernando
Wish I could help, but I have never paid too much attention to Brazillian agriculture companies given their high evaluation.
-Fernando
MW is in for a long tough fight on this one!
-Fernando
If someone had to call and impersonate themselves as a client to get the information, I certainly don't think it is ok. You should not be required to lie to get the information.
Now if I could call them, say I am a shareholder, and get the information -- Then i'd say that would be fine.
-Fernando