LDK Solar: Conversation with Pichel Revisited

| About: LDK Solar (LDK)
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I've glanced through the reactions on LDK Solar (NYSE: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 (NASDAQ: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