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Wall Street's Half-Reports on Solar
  • Bubbles and Inverse Bubbles 14 comments
    May 20, 2011 9:53 PM | about stocks: JASO, SOL, LDK, JKS, CSUN, FSLR, SPWR, STP, TSL, YGE, GE, CSIQ, SUNE, ENER, ESLRQ, ASTI, LNKD, CRM, PCLN, NFLX
    Pin piercing bubble
    All bubbles eventually collapse. This happened to dot coms, housing, Dubai and oil in 2008.

    All inverse bubbles reflate. This happened to most stocks from March 2009 until now.

    Despite this, the market never learns from the past. No matter how many bubbles we’ve had, we will always have new bubbles.

    In addition to market-fuelled bubbles, Ben Graham, Warren Buffet’s mentor, has written about Wall Street manipulating stocks up and down many times over the decades, pushing them into bubble and inverse bubble territory.   But, the manipulation can last only so long before the true value of the company is reflected in the stock. According to Ben Graham, all stocks eventually reflect fundamentals and a company's ability to generate PROFIT.

    Would you buy a lemonade stand for $1,000 if it generated $1 profit per year? You would, if you knew that a greater fool will buy it from you for $1,100. But, eventually fools run out and all bubbles collapse.

    The reverse also happens. Would you sell a shoe store for $10, if it was generating $3 profit per year? You would if you knew that everybody else is selling shoe stores for less than $10. But, eventually fools run out and logical people will want to buy your shoe store. This is because it would take 1,000 years to recoup their investment in their lemonade stands, whereas it would take less than four years to recoup yours.

    1,000 years to recoup your investment? Does that sound so extreme that it’s ridiculous?

    Some numbers:

    Revenue in 2010 (approx.):

    JA Solar: $1,790 million
    LinkedIn: $243 million
    Priceline.com: $3,085 million
    Netflix: $2,163 million
    Salesforce.com: $1,657 million
    (LinkedIn’s numbers are from data.cnbc.com/quotes/LNKD/tab/7)

    Revenue growth from 2009 to 2010:

    JA Solar: 211%
    LinkedIn: 102%
    Priceline.com: 32%
    Netflix: 30%
    Salesforce.com: 21%
    (LinkedIn’s numbers are derived from from data.cnbc.com/quotes/LNKD/tab/7)

    P/E:

    JA Solar: 3.12
    LinkedIn: 1,560
    Priceline.com: 45
    Netflix: 70
    Salesforce.com: 311
    (P/Es are from Yahoo Finance on May 20, 2011. LinkedIn’s P/E is based on EPS for 2010)

    (Assuming that both JA Solar and LinkedIn have flat growth, it would take less than four years to recoup your investment in JA Solar from earnings and it would take 1,560 years to recoup your investment in LinkedIn.  In 1999, dot coms and technology stocks had similarly ridiculous valuations. It became so ridiculous that AOL bought Time Warner. Eventually, the bubbles collapsed and their P/Es came into line. This happened to even the biggest companies, such as Cisco and Microsoft and their share price has never gone back to their 2000 peak. The same thing will likely happen to bubbles such as LinkedIn and Salesforce.)

    If JA Solar had the same P/E as Priceline.com, its price would be $80
    If JA Solar had the same P/E as LinkedIn, its price would be $2,795.

    However, as of May 20, 2011, JASO is at $5.59. This is a perfect example of an inverse bubble.  (I’ve used JA Solar here to serve as the example, but many Chinese solar stocks are in similar situations.)

    Furthermore, JA Solar (NASDAQ:JASO) gave explosive, crystal-clear guidance for 2011 that is backed by law (50% growth in 2011 with 90% of the 2011’s sales already under contract).  How many companies can say that?

    Can Wall Street Analysts show one non-solar company with numbers similar to JASO’s?  I’ve challenged Herb Greenberg of CNBC and Eric Rosenbaum of TheStreet to this, but no reply.  Nobody can name one company. Read more at:

    http://seekingalpha.com/instablog/872074-curt0/143971-is-wall-street-manipulating-solar-stocks

    Critics (manipulators?) argue that the European market is shrinking for Solar companies. However, they rarely mention that the Chinese, Indian, American and Canadian markets are growing. China plans to double solar usage by 2015 and increase it by 400% by 2020: 
    http://etfdailynews.com/2011/05/18/china-solar-power-sunny-days-ahead-for-solar-etfs/

    They argue that high P/E companies are growing fast and therefore their P/E will shrink because E is expanding. However, what is the probability that their E will expand so much to the point of bringing their P/E down to something reasonable such as 15? The probability that the Chinese solar companies will do this is over 100%, because their P/E is already much lower than 15. If you buy a company with a P/E of 300 or 1,500, are you investing, speculating or gambling?

    The premise with most bubbles is that most speculators believe that the price will always go up. This was the same premise that American homeowners had.
     
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Comments (14)
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  • Cosmodog
    , contributor
    Comments (16) | Send Message
     
    This man is a genius..

     

    Herb Greenberg, Jim Cramer and Eric Rosenbaum, are shills for the large institutions who pay them under the table to help manipulate equities.

     

    As I type this Goldman Sachs is in China trying to buy stocks using YUAN so that when the US Dollar collapses and the YUAN explodes they will be paid in the Yuan, protecting themselves using the currency hedge.

     

    Where are the large multinationals going to invest, when the U.S. dollar deflates? Either Germany or China, because they will have the strongest currencies.

     

    This means companies like profitable Chinese Solar companies will get the first look since they offer a reasonable amouint of safety, especailly when the institutions start to pump them, which thy will when thy need to make profits. Right now, these same institutions are shorting them, while using Greenberg, Cramer and Rosenbaum as messengers of doom.

     

    I'd love for the FBI to tap Cramers phone calls and take a peak into his emails, and then show the world who he is really talking too.
    20 May 2011, 11:11 PM Reply Like
  • Murmuru
    , contributor
    Comments (100) | Send Message
     
    Thanks for the article. I mostly agree with your point (JASO is oversold). But I wonder about one thing. Wall Street analysts may put down JASO, but they don't rule that stock anyways. Indeed, I suspect most share holders are living in China, and THEY are leading the price down. And THEY don't care about Wall Street analysts. There must be some Chinese analysts putting it down a lot too. My question is: Why so?
    20 May 2011, 11:26 PM Reply Like
  • nolaig
    , contributor
    Comments (426) | Send Message
     
    I'm waiting for the Upward crash in price.

     

    All Chinese Solars are treated in the same way, LDK and YGE had a hard couple of days with Bear Raids.

     

    These criminals need to go to Jail...
    21 May 2011, 04:28 AM Reply Like
  • EveryOneAndNoOne
    , contributor
    Comments (3) | Send Message
     
    Murmuru,

     

    It is an interesting thesis, but becomes less plausible when you consider that JASO is not alone, it is all Chinese solars listed in the US that have been targetted, but not Chinese solars listed on other exchanges including HK.

     

    There will be more Chinese involved in the HK market rather than US markets, so, if your thesis were true and the Chinese were selling solars, you would see it more in HK and less in the US.

     

    The reverse case is true.

     

    A Chinese solar listed in HK (GCL) has a PE of 17, whereas the same exact business listed in the US, has a PE of 3.

     

    In fact, if you look at US solars listed in the US, such as FSLR with a PE of 20, they have not been targetted in the same way.

     

    It is clear that WS are targetting Chinese solars only. On a purely business argument, the case for doing this is very weak. The Chinese solars are taking market share away from all western companies. They have better products and better prices. If one were to extrapolate solar's path into the future, you will see the winning companies all coming from China.

     

    Not to mention the fact that the biggest solar market in future years, will be China. With a population of nearing 1.5billion, rural populations needing off-grid power, a country with a vast surplus of cash, a population growing in aspiration and wealth, and a huge industrial base, they have a unique combination of huge energy demand and a need to reduce pollution. Solar, being the cheapest source of energy this decade, and clean, is also perfect for remote locations.

     

    So, why are they being targetted? One can only summize that it is a combination of a little xenophobia, a little exploitation and a lot of manipulation to force margin selling in order to scoop up cheap shares whilst the media attempts to subvert the truth, about the current 400%-500% Chinese solar discount, in the eyes of the public.

     

    The media justification for the current 50% stock price hammering over just the last few months, is Italy. Italy did hold up the market for more than a month and has lowered it's annual installation expectations.

     

    However, Italy only represents about 10% of the solar market and the market is growing at 30-50% per year globally. The market is heavily betting, as in 2010, that the solar industry will collapse. Again, as in 2010, the word glut is being used, although with far less vigour than during 2010.

     

    Will disaster strike? Logically, no, Italy's lowered expectations do not detract from overall global growth. If 2010 is a guide, the analysts got 2010 H2 disaster completely wrong because it turned into a 2010 H2 explosive growth.

     

    Will that happen this year? Every solar has so far re-iterated full year expectations believing that a weaker H1 will be followed by a stronger H2 especially now that the delay in Italy has passed.

     

    It will take time for the channel build-up to be worked through because of Italy. That is why Q2 estimates have been lowered. But once through Q2, H2 should be back to the normal growth trend.

     

    If you do consider the market's targetting action against Chinese solars, you should consider what would happen, although it has been threatened in the media repeatedly and never come to pass, if a true 'glut' should ever occur.

     

    Put simply, the market share shift from the US, Europe and Japan to China would accelerate. The wholesale premium for a US, European or Japanese panel is vast, at worst over 70% between a panel made by Renesola (best price $1.65/watt) and a panel sold by Sharp ($2.82/watt).

     

    It is already happening, the high-cost western (and Japanese) companies are not just losing market share, they are going out of business, leaving a bigger market to a fewer number of companies.

     

    We must never lose sight of what this industry is doing and why the self-interested power in the US are so scared of it. The solar industry is trying to create energy for a cheaper price than fossil fuels regardless of it's advantage in being clean. Thus removing the constant criticism that renewable energy is hugely more expensive.

     

    The point being that the industry they are fighting over is energy. At 17,000GW annual rate, it is by far the biggest industry on the planet. If solar is the cheapest, not to mention cleanest, form of energy, then countries wishing to stay economically competitive will not just want it on environmental grounds, they must have it on economic grounds too.

     

    Given that, it is therefore not surprising, given that solar is about to win this game this decade, that the trillion dollar interests of fossil fuel companies are trying to snuff it out at any cost.

     

    Will they succeed? No. It has gone too far. Even the paltry 50GW (equivalent to 10GW) current installations has dropped solar costs dramatically. There is simply too much known now and too many companies knowing how to get there for them all to be stopped. It does not mean WS/Big Oil will not try, it just means that they are destined to fail.

     

    The solar future will happen but it will not happen for all. Only fully integrated companies can achieve the cost structures required. The high cost and low efficiency (possibly including FSLR) producers will go out of business and must.

     

    The world cannot support inflated solar prices for any more time than it has to. The political game is important, but the business one is more so. If incentives are artifically keeping companies in business, it is better to cut them more quickly.

     

    This has ended up being a bit larger post than I had intended, my apologies.

     

    The bottom line is the Chinese companies will be the winners here regardless of the way in which they are being treated by WS. For most of us, we are very happy to pick up shares at such ridiculously cheap levels.

     

    Good luck all.
    21 May 2011, 04:57 AM Reply Like
  • nolaig
    , contributor
    Comments (426) | Send Message
     
    Thank you for your rational take on things, Amazing how corrupt WS is when supporting green would be better for all of us.....
    21 May 2011, 05:19 AM Reply Like
  • Earning REady
    , contributor
    Comments (191) | Send Message
     
    Bubbles and inverse bubbles net benefactor is always China....Not Wall Street and never main street.
    Are these analysts manipulating Chinese stocks trading on foreign exchanges? Yes
    Is Wall Street Manipulating Solar Stocks? Yes
    Who benefits from this manipulation? China
    Wall street Journal wrote 5 lines via Dow Jones Yesterday
    China ministry will offer interest rate subsidies to the renewable energy and high technology material sectors,
    online.wsj.com/article...

     

    Who increased trade with developing countries? China @ over 30%
    Who surpassed the U.S. as the world's largest consumer of energy? China
    Who benefited when polycrystalline was $500 ? China
    Who will benefit now that Poly-silicon is 75$? The Chinese and every developing country partnership they have forged

     

    Who used foreign economic partnerships to master solar technology while selling those finished products when poly silicon was $200, $300, $400, and $500? China

     

    Who wants to buy those products now??????

     

    China commercialized solar panels to the obese populace who live on a steady diet of fast food, prescription medication, and professional sporting events administered through cable television.
    Now China wants those solar panels to go to the developing world at 10 cents on the dollar
    i.bnet.com/blogs/polys...;drawer-container
    21 May 2011, 03:49 PM Reply Like
  • Murmuru
    , contributor
    Comments (100) | Send Message
     
    EveryOne, I found your comment thought stimulating.

     

    True, western solar stocks have higher PE than Chinese ones. But even western stocks like Canadian Solar (CSIQ) have been beaten down. I tried to look for the solar company (GCL) you mention but found none. I would be very surprised to find a stock with a significant price discrepancy between two stock exchanges, because active arbitrageurs always reduce that discrepancy. But who knows? I would be glad if you could give me such an example.

     

    As for the assumption that solar stocks have not been hammered down on the Asian markets, I made a little research. True, I found some small cap Chinese solar stocks still going up these days (China Singyes Solar Tech). I found also a more establieshed company, Solartech Energy (3561, Taiwan stock exchange), and its stock trend is the same as JASO. Seems like taiwanese investors think the same as WS...

     

    22 May 2011, 09:27 AM Reply Like
  • Clearwave Capital
    , contributor
    Comments (131) | Send Message
     
    Author’s reply » Murmuru:

     

    Canadian Solar's head office is in Canada, but their seven manufacturing subsidiaries are in China, their R&D is in China and the founders/executives are Chinese Canadians. Maybe that's why they're beaten down as well?
    www.canadiansolar.com

     

    I'm not sure, but maybe EveryOneAndNoONe was referring to GCL-Poly finance.yahoo.com/q?s=... ? I don't think GCL-poly is traded in New York, but I could be wrong. I don't think EveryOneAndNoOne is referring to the exact same company/stock traded on two exchanges with different prices. I think he was referring to two different companies in the same industry, but traded on different exchanges.

     

    In regards to Solartech Energy, it looks like their share price has gone up 150-200% since 2009. This is not the case with most Chinese solar stocks traded in New York. JASO is up marginally since 2009. Also, what are the fundamentals like for Solartech? Have they grown as fast as JASO?
    22 May 2011, 10:21 AM Reply Like
  • Murmuru
    , contributor
    Comments (100) | Send Message
     
    Curt0, thanks for your thoughts.

     

    Well, I agree, CSIQ is in fact a chinese boy with a canadian hat listed on an american exchange.

     

    I guess you are right as well about GCL-Poly. It is most likely the company EveryOne was talking about. It is listed in Hong Kong as well as Germany and found no price discrepancy between both. The US pink sheet price is also in phase. The stock had a long run before plummeting a bit recently, and a PE of 15. So a price evolution very different from JASO and the likes. The company is an established one with a big capitalization. Unlike JASO, it produces energy as well as making solar cells, but did not dig to find the business percentage devoted to each activities. Are they enough alike to go up for comparison?

     

    As for JASO, I found that the shares outstanding has increased from 162M to 171M in 2010 and wonder why for such a profitable company. Any clue about it?
    23 May 2011, 08:37 AM Reply Like
  • Value Digger
    , contributor
    Comments (3541) | Send Message
     
    I think the polysilicon producers like DQ (Daqo new Energy) , GCL Poly, OCI, Wacker are better positioned than the module or cell producers where the dog eats dog.

     

    This is why those who produce the raw material (polysilicon) have way higher margins and better prospects than the module and cell producers imho.

     

    p.s. DQ's ceo was a VP of AMAT (Applied Materials) for many years.
    DQ's whole mgmt team was engaged with american companies before their assignment in DQ.
    24 May 2011, 02:17 AM Reply Like
  • Value Digger
    , contributor
    Comments (3541) | Send Message
     
    FSLR will go broke if they do not switch to polysilicon asap.
    Tellurium is getting more and more expensive and FSLR costs rise dramatically every year.

     

    Check the charts and do your research about the rarity and the toxicity of tellurium to confirm.All the studies are bullish about the tellurium price too.

     

    The market do not say anything about this major problem of FSLR because it is american.
    24 May 2011, 02:20 AM Reply Like
  • Value Digger
    , contributor
    Comments (3541) | Send Message
     
    Curt, why don't you ask seekingalpha mgmt to release this great article publicly ?
    24 May 2011, 02:21 AM Reply Like
  • Positive Equity
    , contributor
    Comments (483) | Send Message
     
    Another lost sheep crying foul that the market is not fair to his favorite stock picks! Here is a dose of reality to your Kool-Aid story about bubbles being "manipulated" by Wall Street.

     

    Reality:

     

    If you think a stock is overpriced then don't buy the stock! Its that simple!

     

    Don't, however, make up a Kool-Aid story about how the price is manipulated by "Wall Street".

     

    Stock prices are determined by the buyers and sellers of stocks. Most large cap companies have too many shares trading to allow any one group to manipulate the price of the stock into "bubble" valuations. Small cap stocks in some cases are vulnerable to manipulation for short periods of time. However, keep in mind that no one is forcing the buyers to purchase the stock.

     

    Investors need to be informed and make responsible decisions. This means educating yourself about the workings of the market. Its too easy to blame others and not take responsibility for your own actions.

     

    I am long MSFT and DELL both of which I know are currently value stocks. Would I be upset if they ran up to "bubble" territory?
    Let em pop I say.

     

    Invest in the future not the past!
    6 Jun 2011, 07:13 PM Reply Like
  • Clearwave Capital
    , contributor
    Comments (131) | Send Message
     
    Author’s reply » Positive Equity

     

    You are correct and you make good points.

     

    You wrote: "If you think a stock is overpriced then don't buy the stock!" That's what this article is advocating, which is, if you buy into bubbles, you can get burnt as many speculators have experienced with bubbles when they collapse. (I didn't buy any bubbles.)

     

    There are many causes of bubbles and inverse bubbles. One of the obvious causes and likely the main cause, is the market. This article starts off by saying that the market creates these bubbles and inverse bubbles: "…the market never learns from the past." and "In addition to market-fuelled bubbles…"

     

    This article also cites Ben Graham's book that wrote about how Wall Street manipulates stock and cites how maybe this is another factor that fuels bubbles or inverse bubbles. This may be correct or incorrect. According to the Oscar winning documentary "Inside Job", crime and corruption is rampant on Wall Street and Washington. It explains how even the academic economic professors, including Larry Summers, cannot be trusted because they are paid by Wall Street to write their reports. The award-winner Charles Ferguson began his acceptance speech by reminding us that three years after our worst financial meltdown, the subject of his movie is "not a single financial executive has gone to jail."

     

    The ratings agencies gave AAA ratings to homeowners with no job, no income and no assets via CDOs, but wouldn't give AAA ratings to most Canadian banks which made billions in profits. CNBC's documentary "House of Cards" implied that the agencies did this because they were paid by the firms that sold the CDOs. Can CDOs be classified as a bubble in 2006? I don't know.

     

    Dozens or hundreds of class action lawsuits are filed every year. Many of them are for pumping and dumping or manipulation. Goldman Sachs was charged by the SEC for pumping and dumping CDSs. One of their directors (Gupta) was charged with insider trading. A NASDAQ employee was charged with insider trading last month. George Papadopoulos warned SEC three times about Madoff and his network of fraudulent fund managers. Can you imagine how many crooks would be caught if the SEC was competent?

     

    The reverse of pumping and dumping happens as well: short a stock, spread fear, uncertainty and doubt and then cover:
    SEC Investigating United Airlines False-Bankruptcy Stock Crash
    www.businessinsider.co...

     

    In the mid-morning of March 16, 2011, news came out that the EU energy minister had claimed the Japanese nuclear crisis is out of control. This caused the market to plunge. Later, the EU energy minister’s spokesperson tried to clarify it by saying that this was not based on anything new or privileged information. It didn’t matter. The damage was done.

     

    CNBC explains how this was likely stock manipulation. You can watch it here:

     

    video.cnbc.com/gallery... (it starts 28 minutes and 18 seconds into the recording)

     

    Here’s the transcript:

     

    Melissa Lee: “What started as a quiet day on the market, turned into a violent sell off around 11 AM eastern time on the back of the EU Energy Minister’s comments about the Japan nuclear situation, talking about catastrophes happening in a matter of hours. But Dr. J actually saw some unusual activity which raised some eyebrows…”

     

    Jon Najarian: “Yeah, well, in a host of indices and in particular Nasdaq and S&P. The S&P, if you took a look at the March 12 25…puts. They were bought, about 5,000 of them were bought like bang, bang, bang, bang. And then 4 minutes before 11 o’clock, to Melissa’s point, it’s started hitting on Twitter that they re-purposed some of that information, about that EU Energy Minister. Then, next thing you know, both Dow Jones and Reuters put it out, as if it was new news again, which to me was not new news. This was 8 hours old. And the markets went into a free fall. We went down from about 45, 50 points negative in the Dow Jones industrials to over 200 and the fear was lit in everybody’s trading room and the next thing you saw was people basically just run for the hills. And those options that were purchased for about 90 cents, in the case of the S&P March 12 25 puts, went to $7.60. [Jon Najarian snaps his finger]”

     

    Melissa Lee: “Did you see them being sold immediately afterwards?”

     

    Jon Najarian: “No, I did see most of them being sold around $3, and then they re-loaded, basically when, strangely enough, the US energy people came out and started commenting about moving Americans outside of Tokyo and telling them to stay in their homes, if they stay there, and all that sort of thing. I mean, the fear mongering here, folks, is on a level I’ve not seen before. Some of it’s suspicious, like I say because, it’s been repurposed, this information. If you’re just smart and you make a great trade, kudos to you. If you’re somebody who then basically puts out information to create fear to the upside or downside, that seems pretty close to criminal.”

     

    Melissa Lee: “JJ…based on your experience, does this also strike you as odd?”

     

    JJ: “Yes, I think Jon’s 100% right. And, you know, one of the lessons in it for the viewers, I think, is actually, we are in expiration week. It’s a quadruple expiration…”

     

    Do these shenanigans create bubbles or inverse bubbles? I don't know.

     

    Regardless, I'm getting off track because the cause of bubbles and inverse bubbles is not the main theme of the article. This article is telling you to look out for bubbles and is essentially advocating that you look at inverse bubbles or value stocks. I own value stocks and I don't think I wrote anywhere that I would be upset if the market drove them into bubble territory.

     

    But the bottom line message is that bubbles and inverse bubbles exist and will always exist. Do you disagree?
    7 Jun 2011, 12:36 PM Reply Like
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