TRE - Sino-forest put.

[Guest Hester]

"Anyways, this saga leads to discover a list of Chinese companies. My focus now is trying to do a basket approach on the Chinese co. Many of them looks awful cheap to me. I think even 1 in 3 turns out to be fraud, it will make awesome returns. TRE will be on my list. Thinking to do 10% allocation on them.

Thoughts?"

 

*************************************************************************************************************

 

I would honestly take the exact opposite trade as that. If only I could borrow them all. There's only two Chinese RTO's that I know of that can really be borrowed without a draconian HTB fee. They're both being held up by buyout offers, one is a phantom BS offer from management and the other is more serious offer from Bain capital. I'm short the former, although I think both are frauds (the latter will probably go through, with Bain taking a hit long term. There are a few pretty big red flags but I respect the power of the greater fool)

 

I think there is a greater chance that Harold Camping's rapture happens than only 1/3rd of these Chinese RTO's being frauds. I would be shocked if less than 90% were frauds in some way or another. I think it's possible, although maybe not probable, that 100% are at least a little bit of a fraud. Even the companies that actually have real businesses and real profits just get stolen by management (Puda Coal).

 

There are just so many red flags for so many of them. I'd say the biggest red flag is that most of them are supposedly swimming in cash, producing tons of FCF and with a copious amount of net cash on the BS (BS in this case has two meanings). Yet very very few of them pay dividends or buyback shares. The ones that do, like CCME, just did it to reinstill confidence and get the share price back up so they can sell more stock. Look at CCME's numbers. Huge amount of net cash, huge amount of FCF, and yet they sold almost $80 million in stock in the last 12 months. It just makes no sense other than fraud (which it was). All these companies are supposedly just swimming in cash and yet they still fall over themselves to issue new equity. And this new equity is issued at low single digit p/e multiples

 

I think the biggest problem is that there is no extradition treaty between US and China. US investors and the SEC have zero recourse against Chinese management if they commit fraud, as long as they stay in China and only commit the fraud in the US. Add in the strong US investor demand for Chinese growth stocks, and this model will almost bring nothing but fraudsters in.

[Guest Hester]

I'll add that I've seen some people say (not here though) that there is now a Chinese RTO discount and therefore the short opportunity is gone. I question how there could ever be a discount on something that is worth zero but trades for a positive value. The only problem is getting the borrow now. That's what's difficult. The average Chinese RTO may have gone from $10 per share to $3, but if the average RTO is worth zero then is it really any cheaper? Today's buyers will still lose 100% of their investment.

[Uccmal]

Hester said: The comparison to the FFH episode is crazy. This is much more analogous to CCME. One comment even suggested that MW set out on a plan to get RINO, CCME, DGW, and ONP right just so they could convince people that they are legitimate and get a big manipulation hit on Sino. This theory is crazier than the Obama birth certificate and Osama still alive conspiracy theories put together. But really, the history of MW shouldn't matter, the similarities to FFH shouldn't matter. The only thing that should matter is the facts, and the MW report has 40 pages of pretty damning ones.

 

This was directed at me.  Hester, truth is stranger than fiction.  You are obviously familiar with the FFH story.  When Muddy Waters raised the name Hempton with Herb Greenberg of all people it raised flags all over with me.  It is entirely plausible that a skilled con man , Block, could over a few months set up a con to take down a big company like Sino and make a fortune without ever being accountable.  Why would this be any less plausible than Sino being a fraud? 

 

Are you short Sino?   

[Guest Hester]

Hester, truth is stranger than fiction.  You are obviously familiar with the FFH story.  When Muddy Waters raised the name Hempton with Herb Greenberg of all people it raised flags all over with me.  It is entirely plausible that a skilled con man , Block, could over a few months set up a con to take down a big company like Sino and make a fortune without ever being accountable.  Why would this be any less plausible than Sino being a fraud?   

 

Well I guess the red flags you interpret are different than mine. MW had 40 pages of them in my opinion.

 

I try to think in terms of probabilities, as opposed to absolutes. It's entirely possible that Block and the MW team decided to painstakingly nail 4 criminal Chinese frauds, one with a blue chip auditor, likely saving US investors millions (future equity offerings), just so they could build up a good record and reputation, and later nail a slightly bigger Chinese fraud by producing a false, but intensive 40 page report that took 2 months and nearly a dozen analysts to put together, the contents of which you nor anybody else that I've read have been able to refute, and then cash out after the stock drops.

 

Or... This could just be another in a long list of fraudulant Chinese RTO's. Which one is really a higher probability? I guess you know my answer and readers can decide for themselves.

 

It's also entirely possible that The Bush administration meticulously planned out 9/11 and brought the twin towers (and building 7 apparently) down so they could invade Iraq and try acquire middle eastern oil.

 

There's no way to know for sure.

 

Yet most people, including me (generally pretty liberal), aren't calling for Bush's head and scoff/condemn/ridicule anyone who does.

 

I know you're not a big fan of Hempton/Greenberg, and they were dead wrong on FFH. But, they've been right on dozens, and in Greenberg's case maybe hundreds, of other frauds. You are, in my opinion, basing an investment opinion on emotion towards a couple of very loosly related individuals rather than cold hard facts.

 

An investing strategy of just going long anything Hempton/Greenberg are negative on, or in this case, someone who has mentioned them in an interview is negative on, is a very very poor strategy. One only has to look at recent Chinese frauds. The two biggest proven frauds of the past year have been CCME and Longtop Financial. Greenberg frequently reported on both, negatively, and Hempton was short both.

 

 

Are you short Sino?   

 

I find it a bit odd that you'd ask this since I wrote "I'm neither long nor short and don't plan to be either" directly under my comment you quoted. So I'll take it as a rhetorical question.

 

 

 

 

[ubuy2wron]

I bet you guys are big Glenn Beck fans.   :)

 

Nobody is manipulating anything.   If the company is legit and healthy then this will be the buying opportunity of the century.   

 

Do you realize that there are NO shares borrowable to short on Interactive Brokers but there are 10's of millions I can buy at the current price level?   My point is, I can't even enter a short position if I wanted to (and send the price down) but I can buy (as can anyone else) essentially unlimited stock at these levels.   

 

The market is pure capitalism.  If this was such an obvious manipulation, many large funds would be foaming at the math to buy all the shares they could and maybe some did today.   But all this talk about short manipulation makes me lol.   

[Uccmal]

hester and ubuy2wron,  Sino may well be a fraud but neither of you have a clue what you are talking about in terms of short manipulation of stocks.  Many board members here lived through the FFh short attacks.  We saw first hand the extent to which short manipulators will go to do develop their own credibility and try to take down a company. 

 

Muddy Water's only says that he had 10 people working on his behalf for 2 months.  What if they were falsifying information to him in this case?  He does not divulge his partners because they may be in danger - fair enough.  Then we need to apply the same standards to Muddy Waters as he is applying to Sino and I dont see either of you doing that. Such as:

Who is giving him information?

Is he honest and credible?

Was he the first to spot fraud at those other companies or did he just make it look like that?

What is his address?

Where does he live?

Can you actually comprehend the documents he has presented and what they mean?  We are relying on his interpretation of them which is not good.  We have no idea if he himself has perhaps forged them.  He could well have been working on this for years and forged everything.

 

Finally, he may well be right but you need to hold him to the same reportoing standard as Sino.

    I could go on for hours but it serves no point.

[stahleyp]

Why are you guys putting so much faith in Paulson?

 

Yeah, he's been a star for the last 2-3 years, but I wouldn't really call this guy a great investor. According to "The Greatest Trade Ever," he had a okay, but fairly mediocre track records before the subprime trades. He didn't even "discover" the trade. Someone else brought it to his attention.

[ubuy2wron]

Sorry but I suspect you are just being naive and that is being generous if you think that manipulation is not happening on a ongoing basis and no the mkts are not pure capitalism some times they are rigged and most here  hate Glenn Beck, and who says Dr. Byrnes company is ruined. As far as this being an opportunity with Sino Forest or not I have NO IDEA however I do remember the attack on FFH I can remember it took a great deal of courage and conviction to buy shares in this co when the company was being attacked and that very smart long term investors had their confidence shaken with the LIES that were floated about this company. This manipulation happens on both the long and the short side of the mkt it is just the short side seems to more odious. Naked shorting should be a serious criminal offense. Securities crimes are so attractive because the victims are almost always anonymous and it is extremely difficult to achieve a conviction.

[given2invest]

I never claimed manipulation doesn't happen in the market.   I just find it hilarious that some people on this board think every short report is manipulation, every employee who works for SAC is a felon, etc.  You do realize SAC has some 90 portfolio managers right?  I know some of them.  One of them is the finest individual I have met on Wall Street.  

 

I am a bit different than most on here.   I have never owned FFH or BRK and only found this board through a random google search.   I realize your unwavering loyalty to all things FFH and because they went through a "bear raid" that was proven to be fruitless, many now think all hedge funds and shorts are evil.  I think you are doing yourself an incredible disservice with this line of reasoning.

 

And "Dr." Byrne is a complete lunatic.  

[Guest Hester]

I'd say at this point it would be 1000 times harder to orchestrate a manipulation on the scale that you're implying than to simply discover yet another RTO fraud.

Or maybe... This isn't MW's manipulation hit. Maybe, it's just another fraud they uncover to build credibility. Maybe the manipulation hit will be next. Perhaps they're going to take down China Mobile. Or Exxon Mobil.

 

Seriously though, the only thing that matters is the facts. In order for Muddy Waters to be manipulating the stock, they would have to have falsified info in the report.

 

40 pages.

 

Nobody can find one line that's wrong.

 

This is some manipulation.

 

I encourage ya'll to take advantage of the evil shorts and load up on Sino stock. After all it worked for DGW, CHBT, CGA, CCME, ONP, LFT, CSKI, BBCZ, CYXI, UTA, RINO, OSTK, and FFH.

[Guest Hester]

 

And "Dr." Byrne is a complete lunatic. 

 

:o I knew you were the Sith Lord.

[given2invest]

 

And "Dr." Byrne is a complete lunatic. 

 

:o I knew you were the Sith Lord.

 

That conference call in 2003 or 2004, I can't remember when it was, is still the greatest conference call I have ever listened to. 

[alertmeipp]

There is manipulation in stock market.

Not all shorts are evil, naked short is different and should be banned completely.

If one publish a false report intentionally while shorting/longing the underly stocks (or related stocks) should be prosecuted.

No one knows for sure whether MW's report on Sino is accurate, semi-accurate or not.

No one knows for sure whether Sino is a fraud, semi-fraud or not.

Just because some Chinese RTOs are fraud, it does mean all of them are.

Each company is different. In each case, at the end, it's the fact that matters.

 

If any of you disagree with any of of the above, let me know.

[alertmeipp]

I am just wondering one thing. Does the following disclaimer really make MW's trouble-free if their report turn out to be inaccurate?

 

"As of the publication date of this report, Muddy Waters, LLC (possibly along with or through our members, employees, and / or consultants) has a short position in the stock (and / or options of the stock) covered herein, and therefore stands to realize significant gains in the event that the price of the stock declines. Following publication of this report, we intend to continue transacting in the securities covered herein, and we may be long, short, or neutral at any time hereafter. Muddy Waters, LLC  has obtained all information contained herein from sources we believe to be accurate and reliable.  However, such information is presented "as is,"  without warranty of any kind – whether express or implied. Muddy Waters, LLC makes no representation, express or implied, as to the accuracy, timeliness, or completeness of any such information or with regard to the results to be obtained from its use.  All expressions of opinion are subject to change without notice, and Muddy Waters, LLC does not undertake to update or supplement this report or any of the information contained herein."

[ubuy2wron]

Why are you guys putting so much faith in Paulson?

 

Yeah, he's been a star for the last 2-3 years, but I wouldn't really call this guy a great investor. According to "The Greatest Trade Ever," he had a okay, but fairly mediocre track records before the subprime trades. He didn't even "discover" the trade. Someone else brought it to his attention.

When does anyone DISCOVER the trade we ALL are tail gating. I for one have some faith in Paulson in that he certainly has likely done a fair amount of due dilligence if a position is large enough. Chinese frauds are abundunt as a matter of fact MOST hot areas of the mkt have more than their fair share of supect investments IMO. I have been on the wrong side of a Chinese fraud through a company called Noble China which was  RTO in the 90's. Most of the fraud is either of the PUMP and Dump variety own the shares produce bogus financial results sell the shares to investors and hide in China where you are safe, these are the easiest to detect and the Short crowd has done a pretty good job of ferretiing these out and good for them. The investment bankers who brought these things public should be drawn and quartered IMO if IB's had to take 1/2 of their fees in shares which had to be held for 5 years perhaps these companies would never see the light of day which would be a very good thing. Risk capital is such a valuable and scarce resource it is a terrible shame that it is wasted on scams. It seems to me that only greedy Investment bankers and sharp short sellers and crooks are the only people who benefit when this crap gets on our public mkts and it pollutes the eco-system. If Sino Forest is a scam then it is a scam of a different variety it clearly is not a pump and dump, it has been around for many years . My radar is telling me this is a short and distort but all I have to go on are my spider senses.

[ubuy2wron]

hester and ubuy2wron,  Sino may well be a fraud but neither of you have a clue what you are talking about in terms of short manipulation of stocks.  Many board members here lived through the FFh short attacks.  We saw first hand the extent to which short manipulators will go to do develop their own credibility and try to take down a company. 

 

Muddy Water's only says that he had 10 people working on his behalf for 2 months.  What if they were falsifying information to him in this case?  He does not divulge his partners because they may be in danger - fair enough.  Then we need to apply the same standards to Muddy Waters as he is applying to Sino and I dont see either of you doing that. Such as:

Who is giving him information?

Is he honest and credible?

Was he the first to spot fraud at those other companies or did he just make it look like that?

What is his address?

Where does he live?

Can you actually comprehend the documents he has presented and what they mean?  We are relying on his interpretation of them which is not good.  We have no idea if he himself has perhaps forged them.  He could well have been working on this for years and forged everything.

 

Finally, he may well be right but you need to hold him to the same reportoing standard as Sino.

    I could go on for hours but it serves no point.

Al I have the greatest respect for you I think you misunderstand my post. I am VERY suspicious of Muddy Waters, this looks like an orchestrated attack to me. Many Chinese companies esp ones of recent vintage ARE highly suspect I am going to go one step farther I suspect that some Chinese RTO co's of recent vintage were designed to blow up and that the same people who created them are now short

[ubuy2wron]

There is manipulation in stock market.

Not all shorts are evil, naked short is different and should be banned completely.

If one publish a false report intentionally while shorting/longing the underly stocks (or related stocks) should be prosecuted.

No one knows for sure whether MW's report on Sino is accurate, semi-accurate or not.

No one knows for sure whether Sino is a fraud, semi-fraud or not.

Just because some Chinese RTOs are fraud, it does mean all of them are.

Each company is different. In each case, at the end, it's the fact that matters.

 

If any of you disagree with any of of the above, let me know.

I agree with everything in this post and almost nothing in your earlier posts and Dr. Byrne IS an ECCENTRIC but you would have to be INSANE to ignore the implications of what he is alledging

[claphands22]

I really respect muddy waters for their research. I have read the reports and concluded they have probably done more due diligence than anyone else. Their TRE report was top notch and would advise anyone to read the 40 page report.

 

I am not short or long TRE but I am short some other Chinese cos. If someone put a gun to my head and forced me take a position in TRE I would be short.

 

FFH got burned by short sellers, that doesn't means we shouldn't assume the worse from short sellers, especially when they have a high hit rate on their shorts. I don't discount Pabrai just because of DFC or Watsa for Abbi or Buffet for Irish banks. In this case it's wise to be skeptical but foolish to be cynical.

[alertmeipp]

Their TRE report was top notch and would advise anyone to read the 40 page report.

 

What do you think about the two errors TRE points out in their PR? It's a fine report but doesn't seem top notch to me. it has lots to details that one cannot really verify by reading through the filings.

 

[Uccmal]

ubuy2wron,  My apologies.  I did misunderstand your post.  Sorry about that!

 

Alertmeipp, you probably convered the scenarios above.

 

RE: John Paulson - I would think he would have sent some people to China to investigate the situation first hand given the history of Chinese companies of late.  I of course dont know this.

 

Hester, I am not paranoid by nature.  I am just figuring that Sino is a perfect target if this is a short attack.  They have no way to verify their business to investors.  MW has set it up in such a way that no amount of persuasion would work.

 

All that Sino can do now is to do a press conference, install a dividend of a significant amount, and put the money into a trust account for the first couple of years of dividends.  Then carry on with business.  If they are legit they will be forced to a higher standard of accountability than most public companies.  That would not be a bad thing.  

 

I am guessing that time will tell.  If one of the major shareholders tries to unload that will kill the price completely.

[cofabmd]

One should be wary of thinking MW (and Co) has published all they have. Usually they reserve plenty of additional ammo. The strategy of firing one salvo at a time allows them multiple bites of the apple as the stock plunges and rebounds on company denials, declared special dividends, buybacks, etc.

 

 

[ubuy2wron]

Look this thing may very well be a fraud, I just finished reading the Muddy Waters report if it is not a fraud then Muddy Waters is in for a world of hurt, however if is not a fraud then some despicable people have made enormous profits already and will likely escape detection and persecution. Of the two outcomes I actualy prefer that it is Sino Forest that is the fraudulent party because there is a better chance for some justice to be served if parties have been harmed. 

[alertmeipp]

One should be wary of thinking MW (and Co) has published all they have. Usually they reserve plenty of additional ammo. The strategy of firing one salvo at a time allows them multiple bites of the apple as the stock plunges and rebounds on company denials, declared special dividends, buybacks, etc.

 

 

 

They may have additional info or they may not. The process doesn't really matter. At the end of day, only the FACT counts. In next few years, Sino is either a $40+ or $0 stock. However, I doubt they have additional info that are more damaging than they have already released.

[alertmeipp]

Look this thing may very well be a fraud, I just finished reading the Muddy Waters report if it is not a fraud then Muddy Waters is in for a world of hurt, however if is not a fraud then some despicable people have made enormous profits already and will likely escape detection and persecution. Of the two outcomes I actualy prefer that it is Sino Forest that is the fraudulent party because there is a better chance for some justice to be served if parties have been harmed. 

 

 

I think if Sino is a fraud, we will know very soon. It should be quick to check:

Is the 1.2 billions cash there?

Do they actually own the land and are the trees there?

Who are the counter parties that purchased all standing logging?

 

We should know in weeks if not days and I am sure multiple parties are in China checking as we speak. It's this odd time that defines us. This is the time one can go rich or broke based on the decision.

[given2invest]

This is the time one can go rich or broke based on the decision.

 

Or be on the sidelines and stay away from it all?