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Lawrence J. Kramer's  Instablog

Lawrence J. Kramer
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I am a retired lawyer who specialized in tax, insurance, and employee benefit law.
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  • An Open Letter to Chinese Small-Cap Management, Re: Shark Repellent 4 comments
    Apr 26, 2011 3:52 PM | about stocks: , GURE, KNDI, TPI, ZSTN, JADE

    Gentleman and Ladies:

    Some of you are crooks.  If you are a crook, feel free to stop reading.

    For the rest of you, I have great news.  Due Diligence Bank has created a line of credit solely for Chinese small-cap stocks that have been unfairly attacked by short sellers.  To be eligible for loans under this program, you must open your books and facilities to us for serious inspection.  We will do the financial equivalent of a cavity search, and, if you pass, we will promise to finance repurchase of your shares whenever they fall in value as a result of a short-seller hit-piece.  We will lend you enough money to buy as many shares as it takes to assure that the share price is not significantly moved for more than a few hours.  Interest on the line can be paid in shares.

    We will publish the names of all companies that have passed our tests and whose shares are eligible for purchase under this program.  We will, in effect, do on the long side what these attackers are doing on the short side.  Only we won't lie about it, because we can't afford to, as we will be putting our money into your company AFTER it is attacked. 

    We believe that merely being listed by us will increase the multiple of earnings at which your shares sell.  For many of you, that multiple is as small as one or two times earnings, thanks, in many cases to pieces published by short sellers who have figured out how to make their bets self-fulfilling.  Responding to such attacks with information is a good idea, but it's not a cure-all.  After all, denying that one is a liar hardly disposes of the charge.  We think lowering the pay-off is a far better strategy, especially since fear of being the next victim is keeping the price of your shares down.

    We will charge a stand-by fee for our Shark Repellent line of credit.  We will need to charge the fee because we expect no actual drawings against it.  Why hit a company with a bottomless appetite for shares when there are real crooks out there to take down?  The fee can, of course, be paid in registered shares, which we will not sell for less than they are worth when we receive them.

    We look forward to serving you...

    [Is that so hard to imagine?  Surely, there is some institution in China that can credibly separate the wheat from the chaff.  I'm guessing that one will step up in some form or another, sooner rather than later.  Indeed, if one does not, I may conclude that there really AREN'T enough honest companies there to justify investing there.]
     

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Comments (4)
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  • Lawrence, I am curious as to what point this blog is trying to make re. the six stocks you listed. While most have had accusations made against them, KNDI has not, and for good reason. I defy anyone to come up with a US traded China stock that is more directly involved with all levels of Government in China. Not from "the Company pays the Government" position like a CCME, but from the "Government pays the Company" as in purchasing postal cars and giving major subsidies from all levels of Government. And of course there is the unique position KNDI is in with State Grid allowing KNDI a 30% "carried" equity position in a JV to advance SG's preference of Quick Battery Exchange. Add to this the visit and Kudo's heaped on the Company by the Vice Governor of Zhejiang Province announced last Monday, the day before you wrote this blog. One thing that should be obvious to all is that you don't screw around with taking Government money, or cause top level officials to "lose face". Almost an exact opposite of here in the US.

     

    One last point. On Friday KNDI put out another PR headlined, "Kandi Engages Big Four Professional Firm. While it looks a bit hokey in that they did not yet name the Company in writing, I am free to tell you it is Price Waterhouse Coopers Consulting. This was not done because the Company had been accused of anything wrong, only because they are now becoming Global. The are already selling on three Continents and will shortly be adding at least two more. Regional Regulatory Compliance varies such that the Company, like most larger companies, decided to bring in a firm the likes of PWCC, to pave the way.

     

    BTW, the details on this engagement will be described in the Q1, 10Q in two weeks. The only reason the name was not disclosed in the PR was a weeks normal delay in getting PWCC's Communications Dept. in approving the use of their name in new clients PR's. The deal was signed on the 27 from what I was told by EVP Finance, Cathy Cao.
    30 Apr 2011, 11:20 AM Reply Like
  • Author’s reply » Art - I listed KNDI because it has been punished as if it were just another Chinese small-cap. That you and I know better is irrelevant. I'm offering a way for them to escape that treatment. (I own or have owned all the stocks I named; I don't short, not even with puts.)

     

    My largest worry regarding KNDI is that it will be taken over or taken private for, say, $8/sh. That can't happen if it trades at a decent multiple. So I want it to trade there.

     

    Why you're reciting old news that you know I know is beyond me.
    30 Apr 2011, 04:15 PM Reply Like
  • Larry-Sorry, since I wasn't aware that you would be writing this, I guess I am just a little paranoid after what Struftpete did to us back in January. Thought maybe you were practicing to go renegade on us:-)

     

    I guess there are those who would argue that it is trading at a more then decent "multiple" for the present if one were to just look at earnings. For now, I am not too concerned about Mr. Hu taking it private. But if the stock doesn't improve significantly over the next year, I might start getting concerned.

     

    The reason I recited "news that you knew", was just in case some others, who are not aware, might find your blog and get concerned that KNDI might be next on a "list"

     

    Hopefully, you will soon write an actual SA article on KNDI. I think people might be getting a bit burned out on my articles.
    1 May 2011, 01:05 PM Reply Like
  • Author’s reply » Sadly, KNDI has been added to the hit-piece casualty list. tinyurl.com/639ttvf There may be explanations for the allegations, but the sloppiness in reporting that makes the charges makeable is apparent.
    4 May 2011, 09:06 AM Reply Like
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