Kurt Shrout's  Instablog

Preamble:  Despite the fact that Seeking Alpha has recently published many articles from short-side authors that were obviously biased and shoddily researched (and did a lot of unjustified damage to the portfolio value of long-side investors and some unjustified damage to the companies being unfairly criticized), they declined to publish this article—in its current state at least.  I believe that Seeking Alpha, and/or its editors, are a part of the problem which I describe within this article under Part 1, point [4].  In addition, I am concerned that people within Seeking Alpha and/or people affiliated with Seeking Alpha personnel may be shorting the stocks that are being unfairly criticized within published articles prior to article publication.   I am posting this article as an Instablog.  If you have any suggestions as to another place(s), other than Seeking Alpha, where I can post this article, please share them with me.  Also, I join with those who advise others to be very skeptical about the information published by Seeking Alpha, especially if the information is short-side stock information.

More-and-more, we are seeing written articles, web blogs, message board postings, and television segments in which U.S.-listed Chinese stocks, especially the ones that came into being via a reverse merger, are characterized as far more risky and/or frauds.  These characterizations have occurred ad nauseam.  Sometimes these characterizations have been made regarding the stock segment as a whole, sometimes they have been made in regard to individual stocks within the segment, and sometimes they have been made in regard to the segment as a whole and an individual stock(s) in conjunction.

In brief, these characterizations are almost entirely false.  Like in any stock segment, occasionally, a stock like RINO International is found.  (RINO International appears to have overstated their past revenue since two contracts for which they reported receiving revenue were never finalized.)  Despite the very bright spotlight thrown on this stock segment for an extended period, there is not reliable evidence that these stocks are far riskier; and it is becoming clearer and clearer over time that, entirely or almost entirely, the underlying companies are not frauds.

In fact, since the prices of these stocks have been beaten down to such a ridiculously low level based upon almost-entirely-false information, they represent a fantastic buying opportunity for individual investors.  Normally, this kind of buying opportunity is limited to venture capitalists and the like.  In this segment, individuals have a venture-capitalist-like opportunity.  Like a venture capitalist, though, you need to do your due diligence to separate the truly great opportunities from the overstated opportunities and the occasional fraud.  In this way, it is just like investing in U.S.-or-Western-European-based companies; but it has far greater upside potential.

What has been happening is this:  People know that they can easily make money in this segment by shorting the stocks and, then, often with or via collaborators, communicating a series of lies, exaggerations, and/or misrepresentations that will drag the stock price down.  One of these many lies, exaggerations, and/or misrepresentations may hit on what proves to be, in part if not in whole, a true flaw regarding the investment.  Almost always, they hit on nothing or nothing significant.  It doesn’t matter much, if at all, to the shorter if any of the lies, exaggerations, and/or misrepresentations hit.  The stock price still goes down, at least for a while.

Is this unethical?  Yes, of course it is.  Will this continue?  Yes.  How can it be stopped?  Via multiple measures.

(1) The impacted companies are just now starting to speak out well in response to these attacks.  This trend must continue and strengthen.  Generally, they should not be silent regarding any unfair criticisms that largely affect the stock price, even if the affect on the stock price is temporary.  Also, if when a legitimate, significant question is raised that the company has not answered or answered well enough before, they should always answer the question publically.  (A criticism can, potentially, be valid.)

(2) The companies should always consider legal action as a potential course of responsive action.

(3)  U.S. regulatory authorities need to address the situation.  It is an outright embarrassment that we have done nothing regarding the grave mistreatment of the companies in this stock sector.  It is also rather humorous that we have done nothing, in the context of all the unfounded or exaggerated claims about how relatively untrustworthy these companies are because they are Chinese.  It appears that they can’t trust us, not the other way around.

(4) The more-reputable, and supposedly more-reputable, U.S. news sources should stop covering this story in a biased and/or unprofessional manner.  Barron’s and CNBC seem unlikely to do this.  All of us who are knowledgeable regarding the news realm know that, often, what passes for news is simply a part of someone’s and/or some institution’s agenda.  It is clear that, for the time being at least, people at these institutions want to get us to invest in U.S. companies, even though these investments are relatively much less attractive.  Expectations are higher for places like Bloomberg and The Wall Street Journal; yet Bloomberg recently published an article on Waldo Mushman without doing proper investigation.  If they had investigated properly, they would have readily seen that the Mushman, as is standard for short proponents in this stock space, is regularly inaccurate in his criticisms and does not issue retractions.  In fact, they would have found things like this:  “The management of China Sky One Medical reminded investors that Waldo Mushman was misleading investors by counterfeiting SAIC documents and posting them on its website and other blogs.”  (Source:  http://www.skyonemedical.com/English/newsshow.asp?hid=848)  I hereby challenge the U.S. and other business news services to do unbiased, high-quality investigative journalism regarding the point-by-point accuracy and integrity of the short proponents in this space.  If and when they do, the results will be shockingly (to many people) unflattering.

(5)  The many well-known and reputable individuals and institutions in this space as long-side investors should be more involved.  It may be too difficult or time-consuming for a news service like Bloomberg to go through all of the more-recent major SEC filings, visit locations in China, et cetera, related to a company(s) that has been unfairly criticized.  These bigger investors have already strongly vetted these investments.  They are a resource via which the many unfair short-side contentions can be more-readily debunked.  They should also consider legal action as a potential course of responsive action.

(6)  The bigger, more-renowned brokerages, et cetera, should initiate coverage on some of these stocks—and not simply for newer issues for which they may have helped with the financing and/or listing.  Some of them are far better investments than the vast majority of stocks that are currently covered.

If/when any of the many short-side people who lie, exaggerate, or misrepresent respond to this article, I may simply ignore them.  It is only worth spending a limited amount of time responding to falsehood after falsehood after falsehood.  If, on the other hand, you are not one of these people, and you think I was significantly inaccurate with something I wrote above, you think that something I wrote above should be enhanced, or the like, please do point this out to me.

Below is the exact and complete content of a message that I attempted to post on the Yahoo Finance NIV message board.  Yahoo blocked this message from posting (i.e., censored it) each and every time that I attempted to post it.  This was true even after I removed the text that I have, now, italicized within the message.  I wrote Yahoo twice about unwarrantedly censoring this message.  Less two very minor grammatical corrections that I made (i.e., the addition of a missing “)” and removing an “a” between “have” and “Bachelors”), below the censored message are the exact and complete correspondences between Yahoo and me.  For those of you who know me from the Yahoo Finance message boards for NIV, YONG, and HRBN, please be aware that, if I suddenly stop participating on these message boards, it is because Yahoo terminated my account in a further act of unwarranted censorship.  Also, if you wish to comment on or discuss this situation, we should do it via this vehicle, and not via Yahoo Finance.  Based upon some research I have done, it appears that Yahoo may delete some or all of the messages pertaining to this topic; and I don't want anyone else to have difficulties with Yahoo based upon this specific situation.

Censored message:

"In important ways, YONG’s use of fulvic acid is newer. Fulvic acid has been in use in China and some other countries for hundreds of years; but not, to the extent I can determine, for agriculture. In terms of agriculture, there are research studies going back to at least the 1980’s. In terms of the plant product (which currently represents over 90% of revenues), it doesn’t really matter anyway. China has, to a large extent, duplicated the mistake that the U.S. and some other countries made. They relied on non-organic and/or N-P-K fertilizers and, in so doing, made the food being produced less-and-less nutritious over the years, et cetera. The U.S. ended up doing this very heavily because the U.S. is very big-money-driven, versus a true democracy. It’s a much longer story; but our companies don’t care if the people are malnourished, as long as they are making plenty of money off of the products they are selling, and our government is too disingenuous to do much about it. (The vitamin and mineral supplements that most people take fall far short of addressing the problem, and this is just a way in which our companies can make even more money without doing much public good.)

I may have digressed some in the paragraph above; but the point is that YONG, and other companies that are producing products enabling China to reverse this situation, are emblematic of what should be a new era. Also, previously, fulvic acid products for agriculture were plagued by quality and misapplication issues. Many companies are still producing poor quality products and giving bad advice regarding application amounts, et cetera. YONG, and some other companies, are bucking this trend; and their sales do, and will continue to, reflect this.

I don’t trust the ability of many companies with high margins to maintain them; but I do trust YONG’s ability to maintain its margins for years to come – and, in fact, grow them. Why? The coal mine and distribution rights purchases they made recently will each give them a significant amount of margin improvement, and they have barely tapped the domestic market available to them. They have almost certainly already smacked up against numerous competitors; but almost entirely, if not entirely, their competitors’ products and marketing (including assistance to farmers) aren’t as good.

If no one else on this message board is interested in YONG, it is O.K. with me, of course. I have just been engaging in a good conversation about it with y’all. If someone else is interested, you may want to go to the YONG message board and see the messages I posted earlier today under Technical Viability Of YONG’s Products."

Correspondence from me to Yahoo:

"The URL involved is http://messages.finance.yahoo.com/Stocks_%28A_to_Z%29/Stocks_N/messagesview?bn=93315.
This is, simply, the NIV message board.  I can post messages on this
board, but I cannot post the message below.  Also, the blocking of this
message followed an unnatural pattern.  (This is the easiest way I can
say it.  It means, for instance, that it did not follow the pattern it
follows when you accidently type a curse word within the text, or the
like.)  You need to either allow me to post this message or give me a
true and good reason why it was blocked.  If you do not, I will not
simply sit on my hands.  The message is as follows; and, in a country
that supposedly has free speech, there is nothing wrong with it."

Response from Yahoo:

"Thank you for writing to Yahoo! Message Boards.

We have completed our evaluation of your abuse report in accordance with
our Terms of Service, and because of our privacy guidelines, we do not
disclose what, if any, action which may have been taken on a user's
account.

We can tell you that we may, in appropriate circumstances and at our
sole discretion, terminate or take other action on accounts of users who
may have violated our Terms of Service.

You can review the Yahoo! Terms of Service here:

   http://info.yahoo.com/legal/us/yahoo/utos/utos-173.html

Thank you for taking the time to report abuse on Yahoo!.

Thank you again for contacting Yahoo! Message Boards."

My response to Yahoo:

"This is rather important, so I am going to give you one more chance to get this right.

I have Bachelors and Masters degrees in Communication, and I have reviewed your terms of service.  The message I attempted to post does not violate your terms of service.  You have, simply, violated my right to free speech.  Moreover, everything I attempted to post is, actually, inarguable fact.  It is all so well supported by legitimate statistics, government documents, and other information that there is, actually, not another valid perspective.  The issue is that people have had, and continue to have, inadequate unbiased access to this information.

Regardless of the above, it is not your place to make any judgment on matters such as these.  I did not curse; I did not attempt to sell goods or services via your message board (as I have seen some others do); and I did not attempt to incite violence.

It is extremely important that you do not block messages such as mine.  Although you probably do not recognize it, the quality of our (United States) government, companies, and people have badly deteriorated in recent decades - to the point where we are relatively good at very little.  The only way that we can address this issue is by first recognizing our flaws in earnest and entirety.  Without doing this, we cannot begin to better ourselves.

I strongly advise you to not respond to this email with a canned response.  You should be certain to involve management, at an adequately high level, prior to giving a final response.  I expect you, as I should, to respond to me within 24 hours; but, if you need more time to determine your final response as an organization, I understand.  Just don't take too long."

Yahoo's response to me:

"Thank you for writing to Yahoo! Message Boards.

Yahoo! takes pride in the fact that our communities are an interesting
place to interact, share, learn, and grow. In keeping with this spirit
of community, we may periodically review posted content and remove posts
that violate our Terms of Service (TOS).

Please review the TOS to ensure that your posts are within our community
conduct guidelines. The TOS can be found at:

   http://info.yahoo.com/legal/us/yahoo/utos/utos-173.html

Thank you again for contacting Yahoo! Message Boards."