LDK Solar: Conversation with Pichel Revisited 16 comments
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I've glanced through the reactions on LDK Solar (LDK) message boards to a recent article I wrote, "A Conversation with Piper's Jesse Pichel" and I am surprised at some of the responses. The writing of this article followed several hours of detailed questions and discussions with an LDK analyst who has studied and visited most of the Chinese and domestic solar companies. I spent the entire MLK weekend working on it.
The article also included 12 pages (4 months worth) of detailed analytical notes from a professional in the field - instead of the usual sound bytes and magazine by-lines available on the web. It's true: he is bearish, I am bullish, and yet we look at the same data from the same company. And as I write, there are two remaining bears on the stock (PJ, GS) while the rest are either neutral or bullish.
My hope was to bring a balanced view to investors. Was I mistaken? My previous experience was the hunger of shareholders to ascertain the underlying themes which drive this stock, and which render it so volatile. For one's own safety's-sake there is a judicious need to assess LDK's risk. Is there no one who DOESN'T think a stock that gyrates 8-15% every single day is risky?
So I will express my own feelings about what has transpired and why I think the longs are so skeptical, and where I hope it could go from here.
Who wouldn't be nervous and gun-shy after what shareholders have gone through? How do you tell your wife you're still "holding" when LDK goes from 70 to 50 to 40 to 30 to 55 to 70 to 50 to 45 to 30 like a toboggan on the Matterhorn? The clearest and most accurate stock recommendation would be two words, "HOLD ON!".
During the worst of it in November I was receiving emails from investors who were losing $50,000/day, teetering on the verge of being wiped out on margin calls, or demolished further if they held. So let's be clear about it - anyone who has opened their mouth and said anything negative about LDK has been rewarded in spades, while the positive comments about LDK seem to get little press time or recognition. In other words, bad stuff moves the stock, not good stuff.
I eluded to this previously. "Psychology governs trading in our highly connected market, and it's an established fact that negativity is more attractive to the human mind than positive approbation....Our modern financial equivalent of instant communication (mouse clicks) takes this fallen nature and exacerbates it to the max in stock trading. If traders hear something negative about a firm they'll flee for the exits. Shoot first, ask questions later. That's the name of the game."
And this has been the name of the game for LDK. It's resulted in a passionate partisanship on the long side - wherein any dissenting data is considered another threat that's gonna whack the stock (which it usually does).
Have any of you considered the fact that bear markets reward bad news and ignore good news, and that regardless of what Apple (AAPL) or RIM (RIMM) have been doing, the rest of the small cap universe has been in a bear market since summer?
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I have looked carefully at the volume data in LDK the week before Mr. Pichel broke the Situ allegations on October 3rd. The stock ROSE and PEAKED between September 24-28 on about 2x average daily volume. This is textbook volume expansion for an intermediate blow-off top. Rising stock (+10%) + rising volume = "Thar she blows!". On October 1st and 2nd the stock dipped slightly (about 60 cents in 2 days) on LOW volume on the other side of the top.
AFTER the story was released on October 3rd, volume increased to 8x, and then 20x the following day, and it has been hyper-volatile ever since. Bad news on LDK has caused shareholders a lot of pain. But there is no evidence that short-sellers were "on to something" ahead of time. LDK was a hot stock in a leading sector that had tripled to a top, seven days before the ultimate Nasdaq top in October at 2861.
There may have been some very savvy shorts out there that got in before the gun, but LDK's short sellers probably followed the Tammany Hall maxim, "I seen my chances and I took 'em." (a corollary of "opportunity knocks").
I think I see this saga clearly. Mr. Situ was the message, Mr. Pichel was the messenger, Mr. Alpert was the propagandist. I have gone into my explanations previously of why Piper had to release the story that Situ had already circulated to KMPG (Asia), the SEC, and to others - PRIOR to the October 3rd release. Why should Piper's clients be the last on the Street to know? It was a Catch-22: selective disclosure of a "material fact" is illegal; yet that "material fact" had been leaked selectively to who-knows-who by Situ, and the story was starting to get back to Piper.
If Piper traded on its knowledge for its clients (not for themselves - they don't take positions in stocks) before the news release then that would be illegal and liable for an SEC investigation. Piper has said that they didn't do this and there's no proof they did. The SEC hasn't investigated, and if they did, it would seem easy to tabulate and cross-check just 5 days worth of trades, and to my knowledge, they haven't acted. This is not rocket science. The SEC has electronic access to trading data. Go get em.
But they haven't.
Anyone reading has heard the term, "Don't shoot the messenger, it's the message you're upset with." LDK has finished a delayed forensic audit that took many weeks to complete. In the interim the stock traded lower and lower (to $27) as shareholders waited for the final coup d'etat.
We still don't know who did this audit, there's no reprint of its results to read or verify what the auditing company found, and yet all shareholders have breathed a deep sigh of relief because the worst is finally behind them, the company has been exonerated. I wish the IRS could audit me like that. It kind of reminds me of what my mother used to ask me and the answers I gave her. "Where'd you go? No place. Who'd you see? Nobody. What did you do? Nothing."
And yet Mr. Pichel - who played it by the book - had everything to lose and nothing to gain by being placed in this situation (because Piper was an underwriter of LDK's IPO). He released the content of an email that was sent to him. That's it.
Barrons' Alpert took that information and ran with it. Doesn't LDK management have any culpability, any responsibility to shareholders in what happened to the shares? A $5 billion dollar company does their bookkeeping on paper with pencil (let's hope it doesn't rain) and can't verify something in a pinch? The audit took 8 weeks while the stock lost 60% of its value. Was it all the short sellers' fault they had a field day with a management who plays their cards worse than Ben Bernanke? How does one rate the IR? Tops? Or is that someone else's fault too.
Which leads me to Bill Alpert - the guy that cost shareholders 25% in a single day and then deftly re-packaged the SAME allegation over and over again for three weeks to cream the stock. You don't think that is intentional? He NEVER verified his Pichel comments, never made the call to PJ, and it is obvious that he had a comfortable and ongoing relationship with Situ. I find it curious that Mr .Alpert accuses an analyst of criminal behavior in an offhand way while he - the white Knight in Johnny Reb sheets - dices up LDK for the shorts twice a week.
Alpert is not a journalist. He's a propagandist. I don't think he worked in isolation for his LDK diatribe and it's no accident that his article created such volume on the downside. This wiley putz, with just enough vagueness to disguise his suppositions as facts and consensus, carved up LDK like a turkey. If you want to get mad at somebody who cost shareholders big dough ($) with his fabrications, look no further than Mr. Alpert.
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On another note, I have a lot of information on the 6N and 9N poly plants of the world, and would love to share it, but I don't feel comfortable doing that in an environment of October resentment and analyst-bashing. It's not worth it for me to stay involved just to get ripped for publishing. October's over with. Analysts' opinions have a way of changing as circumstances change. The past is already baked into the stock. I'm hoping it's time readers will be willing to move on.
Disclosure: Author has a long position in LDK
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This article has 16 comments:
Basically what Pichel is saying is: any company that attempts to build a polysilicon plant in 2 years or less should be rated sell.
I am kind of an old fashion investor in that my preference is to research companies that have growth potential and hold them [everything being equal] until they reach the goal that I have set for the investment. I also have a sum of money that I use for trading, not daily, but short term investments that I turn frequently.
After following the solar sector through the first part of 2007 I made my first investment in LDK on August 22, 2007 at a cost of $43.01. The more I read about the company the more I realized that it could be an incredible growth story if all their planning was executed properly.
By the way, I am a believer that renewable, clean energy is going to be the future -- no if and buts -- it may have to go through a few wars to finally knock off fossil fuels but it will happen.
I kept buying here and there until I accumulated a total of 14,000 shares.
Now comes my disagreement with one portion of your comments on today's posting. That the stock is not being manipulated by MM's and or shorters. Look at the naked short amount today and it will tell you something.
On Dec. 26th, I received a call from my personal broker at Schwab informing me that I had a margin call of several hundred thousand dollars. I was in a state of shock of say the least! I have been their customer since 1995, with absolutely no problems. I asked what happened and he was very apologetic but he said that Schwab had taken the margin requirement for LDK from 30% to non-marginable status 100% and I had 3 days to cover.
After I picked myself from the floor, I decided to liquidate my Schwab account of LDK, it took me three days but I was able to sell 9,000 shares at an average price of 48.01. I actually ended up making a net profit of $11,900.
I then transferred 98% of the money out of Schwab and opened an account with TD Ameritrade and started buying LDK again. I now told a total of 9,000 shares total in all my accounts.
On December 28th I received a special overnight package from Schwab, fancy with a brochure, nice letter to valued customer, etc., etc. informing me that they would be interested in borrowing my LDK shares and pay me 2% interest, computed daily on the closing prices of the shares that I lent to Schwab. Incredible! If you don't believe me I will be happy to send you a copy of the letter, just give me an e-mail where I can send it.
I believe in the company, I believe in the sector, as you said -- do your diligence and pay attention.
I think we will come out ahead with LDK. Thanks for all your efforts.
I have lost a ton of money on this stock, but I am still holding knowing the fundamentals are STRONG. One thing people need to remember, Peng has created this company in short 2-3 years. He is one determined individual that has delivered his promises to us, shareholders.
LDK now has 10000 strong, determined individuals working hard 24/7. Chinese Govt, Flour and GT Solar know what is at stake would not LIE to LDK and give unreasonable deadlines.
Going through Situ, and now this gives me a huge headache. It is time for people to move on and start trading this stock on it's fundamentals knowing LDK will be the largest PS and Solar wafer producer in the world.
This company will lower production costs to the point where it is competitive with OIL and Nuclear and I will be there to profit from it.
Some people have lost their entire life savings and acting like you have a personal agenda against the management makes you stand out!
According to my research, Peng just few years ago could not speak English at all. It just shows how truly dedicated of a person he is, so lets have some respect and give him a chance.
WiseInvestor is right; Schwab was clearly trying to generate selling pressure on LDK - which they succeeded in doing.
All: anyone who trades LDK or any other speculative stock on margin, or allows it to become more than 5% of their portfolio exposure, is taking an inappropriate risk, and survival of the fittest *always* eliminates those people from the market eventually. Analogy: if you keep doubling down, the house inevitably wins in the end.
As for LDK, "hold on!" is definitely the right advice. Scarey at times, but will pay off in the end. Does anyone know when exactly they are scheduled to annouce their quarterly earnings?
Thanks
Fish4r@gmail.com