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Donald Rudow

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  • Deswell Industries: A 1-Foot Hurdle Investors Can Step Over [View article]
    I'll throw my unsolicited comments in here...

    Firstly, the rmb has been appreciating against the US$ and the Euro for several years now. This has made their products more expensive for export to the regions denominated in those particular currencies. Regardless of their trade balance levels, an appreciating yuan has a negative effect on the level; making it lower than it would be in the absence of yuan appreciation.

    Labor costs have been increasing and there may be uncertainty over when the CCP will ease up on their policies designed to transform the consumption portion of gdp into an increasingly higher and important component for the future. A 'strong yuan' policy supports that endeavor (putting downward pricing pressure on imports). Will China's monetary policy change fundamentally with a higher default rate in loans? The credit issues are probably temporary, i.e. a short run problem, so I doubt that a strong yuan policy will change over the long run.

    A new CEO, I expect, will put his own stamp on the strategy going forward. The past few years have been low on risky capital investments. Perhaps the new guy brings with him a new strategy. If they are going to pursue an export oriented approach involving regions that are almost certainly trying to devalue their currencies to grow the company, this may require capital investments outside of China to get and keep a competitive edge for an extended period of time.

    I would like to see a strategy going forward that addresses the currency issues at work. China is not the cheapest manufacturing location anymore and the policy trends of China and its traditional trading partners cannot be ignored if the company prefers to avoid headwinds.
    Feb 25 03:41 PM | 1 Like Like |Link to Comment
  • Gushan Environmental Energy: Marginal Analysis Necessary to Judge Diversification [View article]
    I did not agree to it. The buyout terms the board agreed to were far below the equity value of the company, and a good portion of the total capacity was new, with only a couple of years of depreciation incurred. Shareholders got a bad deal on the buyout.
    Feb 21 11:06 AM | Likes Like |Link to Comment
  • Gushan Environmental Energy: Marginal Analysis Necessary to Judge Diversification [View article]
    Thank you for the link. I am not surprised they have re-listed on another exchange, albeit without the biodiesel business apparently. I'm not planning on entrusting my capital with Yu Jianqui anytime soon.
    Feb 21 09:56 AM | Likes Like |Link to Comment
  • If You Believe In Yidatong (NQ's Largest Purported Revenue Source), You'll Believe In Santa Claus [View article]
    All China VIEs are prone to moral hazard problems. It is unavoidable due to the incentives that arise as an owner of the VIE versus the incentives those same owners face as shareholders entitled to excess benefits provided through the contractual agreements.

    There exist 'x' owners of the VIE and 'y' owners of the company that owns the VIE contracts. If the 'x' owners of the VIE are part of the 'y' owners of the company that owns the VIE contracts (and x<y), The benefits to the VIE owners of a $ or rmb within the VIE is greater than the benefits of a $ or rmb to the VIE owners within the company that is contractually entitled to the benefits. So there is an incentive to capture these benefits within the VIE as owners through various means we are familiar with. The assets funneled out of the VIE are generally much greater in magnitude than the benefits lost as shareholders, because x<y, so the VIE owners have an opportunity to be net gainers. These incentives exist regardless of how honest and upstanding the VIE owners are as executives in charge of the contractual relationship.

    This does not even address the ability of these contracts to be supported in a Chinese provincial court, which is another issue.

    I explained this in an article published on SA.
    Nov 7 11:48 AM | 1 Like Like |Link to Comment
  • If You Believe In Yidatong (NQ's Largest Purported Revenue Source), You'll Believe In Santa Claus [View article]
    Great work. This kind of thorough investigation into Yidatong is necessary. It's not just a revenue issue here. The role this company may play in 'laundering' equity and credit financing from off shore into the VIE as reported, and subsequently out to other parties through related parties transactions the VIE conducts with its suppliers and customers seem to be a central issue (as is always the case with these structures). I think the cash balance, whether it exists or not, is less important than achieving transparency on Yidatong.

    Once the assets are transferred to the VIE they are out of the reach of shareholders, regardless of fraud accusations. It represents a vault, to some degree, safe from foreign investors up to this point. The capital controls are only part of the problem in my opinion.
    Nov 6 03:52 PM | 2 Likes Like |Link to Comment
  • NQ Mobile: A Neutral Observer's Take [View article]
    Nice review of current events.

    Problems for me concerning this stock. (1) It is essentially nothing more than an investment in a VIE. These organizational structures are prone to problems involving moral hazard, which I have written about previously here on SA. (2) DSO of ~5 months with no Level 1 cash seems inconsistent with the statement that operations fund all their cash flow needs. (3) The Yidatong relationship has too much uncertainty surrounding it. If it generates all that revenue for NQ, why is it not a completely independent company that is distinct from Xu Rong's other company? Co-mingling of assets and records are a risk. (4) Exactly why is all that cash sitting there as Level 2, earning less than it should be as a non-cash, non-short term investment asset base, according to recent quarterly filings? Operating yields on non-cash eq, non-short term investment assets are an implied 4%, 7% and 4% for the past three quarters. Not making use of the assets within its operations cuts the operating earnings yield on its assets in half. Is this bad management, a temporary issue, or indicative of the true nature concerning the intent of acquiring that cash in the first place from the markets?
    Nov 5 03:16 PM | Likes Like |Link to Comment
  • NQ Mobile: Behind Smoke And Mirrors Lies The Truth, Part 1 [View article]
    Foreign currency, government debts, and publicly traded equities are also level I assets according to the unique definitions for assets provided by FAS 157.
    Oct 29 04:58 PM | 1 Like Like |Link to Comment
  • Muddy Waters Initiates Coverage on NQ Mobile Inc. [View article]
    Block was on an interview with Bloomberg this morning. They have already been speaking with NQ, under another name according to him. So this has already happened, even if it wasn't during the cc. MW has already forwarded their information to the SEC. They fully expect NQ to follow the same path as Sino-Forest, according to Block this morning.
    Oct 25 11:32 AM | Likes Like |Link to Comment
  • Muddy Waters Initiates Coverage on NQ Mobile Inc. [View article]
    A 'Level II' classification for a bank balance is absurd, quite frankly. Cash, sitting anywhere as cash, should not be classified as Level II assets. PWC basically states they did not confirm the cash balance, if 'Level II' is their claim in the annual report. I didn't read it, and I've only just begun paying attention to this, but as an investor that sends a huge red flag. We've seen bogus cash statements coming out of China all too often the past 3 years.
    Oct 25 10:13 AM | 3 Likes Like |Link to Comment
  • NQ Mobile: NQ Live Is A Game Changer [View article]
    Great story, if only it were true...
    Oct 24 01:40 PM | 1 Like Like |Link to Comment
  • Dreams Of Doubling My Money - Conversations With J.C. Penney [View article]
    Just based off of a brief analysis on the data I have, statistically speaking, JCP has the SG&A costs of a company generating $20b in revenues, assuming it is capable of generating revenue yields on assets similar to the average. But, it has historically not been able to turn over its assets like the rest of its competitors have, on average.
    Oct 24 12:25 PM | 1 Like Like |Link to Comment
  • A Classic Net-Net: Deswell Industries [View article]
    Nice, even if it is basic, piece. I too like the ownership level. Research has shown there is a sweet spot for Chinese equities, concerning inside ownership. Too much, and funneling of assets becomes more of a risk.

    DSWL has some real challenges, as you point out. RMB appreciation relative to the western currencies and increases in labor costs are problems. Labor cost issues can be addressed through capital investments designed to increase labor productivity, but they obviously need to come up with more revenue.
    Oct 9 11:28 AM | Likes Like |Link to Comment
  • Drybulk Shipping: Normalizing Proportional Risk To Determine Asset Quality [View article]
    Thanks for the update surfgeezer. The Capesize and Panamax market charter rates have relatively lower volatility than does the Handymax vessels the past few months. Does anyone know why this is? Maybe this is just an anomaly with the data I have.
    Jul 29 12:40 PM | 1 Like Like |Link to Comment
  • Drybulk Shipping: Normalizing Proportional Risk To Determine Asset Quality [View article]
    I have a correction to make on the second table. The dwt 2011 figure for SB should be 1,886,400... implying no change in dwt between 12/31/2011 and the 6-k information supplied 5/8/2012. I apologize for the error and I'll inform the SA editors. It doesn't change any of the rankings.

    @V Investor, check the charter rates for DSX in 2012. The last two charter rates reported by DSX were just this last month... $13k gross/day for a Handymax and $9.7k gross/day for a Panamax. There is a 5% commission expense on these. Also, when comparing the OI, I think NMM incorporates interest as an operating expense so the operating expenses are not as apples to apples as one would like.
    Jul 26 05:22 PM | Likes Like |Link to Comment
  • Drybulk Shipping: Normalizing Proportional Risk To Determine Asset Quality [View article]
    I wanted to limit the analysis to historical data and avoid speculating about the future. So I focused on the assets. I do agree that the timing of the contracts matters. Hopefully, the work here will supplement your own research.
    Jul 25 08:14 AM | 2 Likes Like |Link to Comment