Wednesday, June 29, 2011

(updated with video) got to be kidding me...

Yesterday morning, at one a.m., I arrived back from the Philippines. I had just spent a week roaming around the malls of Manilla and the beaches of Boracay. I had a great time. Yet, arriving back to the daily grind is never fun, reality sets in that life isn't one mango shake at a time. It's even less fun when you find out your favorite short has decided to buy back almost five million dollars worth of stock.

Yet, not all was lost. COGO finally let out the web address to their "leading online platform of Core Technologies for the 42 Million Small and Medium Enterprises ("SME") in China"...

 Here is the full snippet from their press release:

About Cogo Group, Inc.:
Cogo is the leading online platform of Core Technologies for the 42 Million Small and Medium Enterprises ("SME") in China., currently serving Cogo's 1,500 SME and 100 Blue-Chip customers, is an e-commerce platform for customers in tech manufacturing sectors (Smart Meters, Alternative Energy, Autos, Healthcare, Tablets and HDTV), offering designs, product, applications and technical support. Cogo's transaction-based online revenue model centers on its Application Store, offering design solutions and embedded software, and its Product Store, which sells standardized Electronic products. Cogo operates, a unique web-based business networking platform to engage with 50,000 electronic and software engineers, collecting one million data inputs daily. Cogo offers technology from 400 suppliers, including 50 global players like Broadcom, Xilinx, Freescale, Microsoft and Atmel. Cogo has 600 employees, with 300 in engineering and 200 in direct sales and 15 service centers across China
According that snippet, is gotta be some amazing site. Here is a screen shot of the site.

COGO's online platform 

 Yet, there are some big problems. The first, the website looks like a generic catalog site, made with some cookie cutter template. This doesn't look like leading online platform. More like a website you make over the weekend.

The second problem I have deals with page rankings. If you have the leading online platform for 42 million Chinese SMEs, there should a lot of page hits, but with there are so few, there isn't even any data. showing that so few people actually use the sit to engender enough data.

 You might think that Alexa only caters to large websites and doesn't collect data for anything but the top 100 sites, but you'd be wrong. Alexa even has data for beloved blog:

Alexa traffic data for this blog.

Even this blog, with it's 11,510,395 page ranking (so sad) and no sites are linking in (very sad) Alexa has enough data for a traffic ranking.  Ok, maybe you are thinking that since is a Chinese site and there is this Chinese firewall and that's why there isn't enough data. Well, check out all these Chinese sites.
Chinese sites on Alexa

Yeap, Alexa even has data for the Chinese companies. In fact you can find a nice list of 500 Chinese websites here. Even COGO's crappy main website has an Alexa page ranking.

Alexa page ranking for

Another problem I have with COGO's leading platform is their lack of Baidu page results. If you have such a great platform for 42 million SMEs, there should be a lot of Baidu page results. Yet, if you Baidu "cogozon" you only get 3 pages.

Baidu'ing "cogozon" only brings back a scant 3 pages of results

My discerning readers might say, "But Josh, Cogozon is met for the Chinese, why are you searching in English?"  Well, the reason is Cogozon doesn't have a Chinese name.  That's right, Cogozon has to be the only website made for the 42 Million Chinese SMEs that doesn't have a Chinese name.  This means either the website designer and management are incredibly incompetent or this website is just for show...

( site went back online and I completed a video capture tutorial of the sites problems)

[**Note:In the middle of writing this, went down.  On one level this goes to show how poor the site is, but I also wanted to show two severe deficiencies of the site. (1) The all the sites products are in US currency, not in CNY. Which, you would think for a site made for Chinese users would be in CNY (2) There was no way to buy goods online. Once you put an item in your cart, and proceeded to check out. A window popped up saying that you needed to call a certain number to place your order, but you  could not complete your order online.  How can you be a leading online platform if you can't place your order online?**]

Here is a video capture I have completed for It's not the best made video but in the video I show the following dysfunctions of

  • Site name is in English not Chinese 
  • Website has a very basic layout for a leading online platform 
  • The products prices are in USD not CNY even though the site is targeted to Chinese customers 
  • Some of the documents do not work when you try to download them 
  • It is not possible to buy products online, once you get to the checkout they ask you to call a number, not complete the checkout online.

One last thing that makes the whole site even more amazing. Cogo now says they are a leading online platform through, so how long do you think the website has been active? Five years? Three years? Nope, try one month. According to DomainTools created on May, 26, 2011.

Screenshot showing was created on 2011-05-26

That's right, the leading online platform is just over a month old.  Unbelievable.

For anyone who is interested in COGO financial analysis write up, please read my report here.  The brilliant (DELETED) has also written a wonderful analysis here (DELETED) .

I'm off to find myself a mango shake...

Tuesday, June 28, 2011

Back - Must Check out Simoleon Sense

Just got back last night and I'm refreshing all my blogs & replying to e-mails. Plan to post about the Philippines and COGO soon.

Also, Check Miguel Barbosa's Simoleon Sense.  He runs one of the finest curated links on the net.  I can't recommend his work enough.

Tuesday, June 21, 2011

Off to the Philippines

Going to the Philippines this week . My girlfriend is taking her GRE in Manilla (Why not Taipei? That's a great question...) Figured we make it more than just a GRE flight so we are heading off to Borocay as well.  Hope nothing crazy happens while I am gone.

I just got a message from my broker about them raising margin requirements on several securities, most of them Chinese.

Seeya in a week.
Dear Trader,

IB regularly monitors individual securities and imposes ‘house’ margin requirements which exceed regulatory minimums when we believe the risks of holding such securities on margin to have increased. Given the recent market volatility and risk factors associated with a class of securities formed via a method known as ‘reverse merger’, IB will be increasing the margin requirement on a new batch of these securities starting today, June 21, 2011, after the US market close. You are receiving this notice as one or more of the securities currently held in your account will be impacted by this change. Please manage your risk accordingly.

The scheduled increases are as follows and will take place after the US market close on each date:
June 21, 2011 – 50%
June 22, 2011 – 75%
June 23, 2011 – 100%

Affected symbols:

Please refer to and monitor the following link for a list of affected securities*:

*NOTE - this link should be updated with these new symbols later today.

Greenspan on Charlie Rose

Greenspan discusses the high probability of a Greece default, the cheapness of stocks, high earnings of corporations, possibility of inflation, his role in the financial crisis, lack of bank lending and which president he thought was the smartest, wisest and most Machiavellian.

Monday, June 20, 2011

(Updated) Listed Chinese Companies With Indicative Interest

*Indicative interest as of 06/17/2011 from Interactive Brokers. I looked up each individual securities indicative interest rate and manual entered them into the spreadsheet. I Indicative interest fluctuates with supply and demand of lendable shares, so please beware this is a snapshot and will change with time

Sunday, June 19, 2011

(updated):Barron's article about being punished for shorting Chinese companies

More than a dozen such halts have occurred this year and, as shown in the table at left, they've dragged on for as long as three months. Regulations bar trading in listed stocks during a halt. That leaves stock-option traders unable to exercise, and equity longs and shorts trapped in their positions. But there's a more arcane problem for the short-sellers: Throughout the halt, they must continue to pay interest-like fees on the shares they borrowed to make their short sales. These fees—known as  "negative rebates"—can run at rates as high as 180%, annualized.

Must read article for Chinese short sellers. Here is my question.

Where do you find out what your broker is charging you for shorting the stock? (From my understanding with Interactive Brokers, I am paying the margin 1.6% on my I paying more than this but don't know?)

EDIT: A reader e-mailed me and told me where to find my lending cost on Interactive Brokers.  Go to "Account Management" - click the  "Tools"  in the upper left area of the screen. Then on the click on Short Stock Availability option. There you can enter in the security and find the current cost of borrowing or what they refer to as the indicative rate. The indicative rate is the interest you pay for shorting. 

COGO'S current indicative rate is -0.495 or 0.495% per ANUM. This is quite low, to put in perspective another Chinese RTO Harbin is -26.155 .  As far as I know, COGO has the cheapest indicative rate of any Chinese RTO.  Even China Fire and Security (CFSG) which has a buy out offer from Bain Capital has an indicative rate of -17.748.

Friday, June 17, 2011

(Book Review) More Money Than God

More Money Than God is a great book with a distasteful title. It's like You Can Be a Stock Market Genius, once you get past the title, the book itself is wonderful. So what would I name it? Simple:

The History of Hedge Funds: the people involved, the tactics used and the affect on on the markets.

Some points and stories in the book that really struck home:

  • A successful hedge funds worst enemy is their success itself. Either associates in the fund realize they could make more money by striking on their own or other people start to copy their tactics. Generally the founder becomes fat and happy and loses their entrepreneurial zeal to younger and hungrier competitors.
  • Certain trades at the beginning are brilliant ideas then slowly dissolve into a "crowded trade."  Eventually the ROIC becomes drastically lower and traders end up using too much leverage to make the trade reasonable. Jut like in Ecology, the trades have a carrying capacity and it's important be aware if the idea is too crowded, because if it is there might be a market event that triggers a sell off and since everyone is trying to delever, the trade officially turns from being brilliant to a disaster.
  • Currency speculators can profit off poorly designed fixed exchange rates. One speculator made money by going long the Riyal and shorting other currencies. His reasoning was the Riyal was undervalued compared to it's fixed exchange currency, the US dollar, and the large trade surplus was not going to end anytime soon with it's vast oil reserves. Saudi Arabia was also fighting strong inflation at the time due to large capital inflows attributed to the fixed exchange rate. Soon after, Saudi Arabia floated it's currency and the speculator profited immensely. 
  • There was also a beautifully detailed account how Soros and Druckenmiller (Quantum) shorted the British pound. Quantum knew there was a fixed exchange rate between Britain and Germany, but at the time Britain was in an economic doldrums and didn't want to raise their interest rates since they needed low interest rates pump the economy up and very importantly, the British householder held mortgages that fluctuated with interest rates. So if the interest rate went up, the average Brit's ability to save decreased since their monthly mortgage payment would increase with an increase in interest rates. Yet, at the same time, Britain had a fixed exchange rate with Germany. Which at the time was experienced some inflation due reunification of East and West Germany. The central banker in Germany had no interest in lower interest rates since it would spur more inflation and the sole purpose of Germany's central bank is to keep inflation in check since thoughts of Weimar were scared in the memory of Germany.   So there was a problem. If you can have higher interest rates in another country and there is a fixed exchange, you can move your capital to Germany and enjoy better rates. This lead to a substantial currency pressure for Britain which was forced to buy British pounds and sell their foreign reserves in order to keep the fixed exchange rate in effect. Yet this whole thing was heavily exacerbated when the Quantum fund heavily shorted the British pound, forcing the British bank to sell even more of their currency and buy more British pounds. Eventually the cost of losing their foreign reserves and keeping up with the fixed exchange rate was too high. Towards the end of this fiasco Britain started to raise their interest rates, which was politically and economically unpopular, yet it was too little and too late and eventually Britain left the fixed exchange mechanism.  Quantum fund made a bundle and thats how Soros broke the Bank of England.  
  • Learning how commodity speculators made money was very interesting. They would made models trying to best determine the supply and demand for a certain commodity. Take cocoa as an example, commodity traders would model out what they thought the demand for cocoa would be based on economic data (richer you are the more chocolate you eat?.) Then they would model out the supply of cocoa based on each producer countries weather, political stability, and farming efficiency.  Knowing how to model the supply and demand for the commodity gave speculators an edge in determining a more likely price.
  • Paul Tudor Jones philosophy seems the most visceral and the one I least understand. Paul tries to sense how other traders react to his presence and plays off that reaction. There tends be a great deal of theory of mind from what I understand. He also uses past charts to help predict future movements in the market. Although his record speaks for itself and obviously must have a lot of experience in the market, I don't understand his philosophy.  I'd suggest for anyone to watch the documentary Trader, it's an old documentary where a young Paul Tudor Jones wears Bruce Willis' shoes to get an extra point in the market....oy vey
  • Michael Steinhardt has an impressive record and benefited from being short when all the original hedge funds were long. He seems like a great investor but not the kind of person I'd like to go to the beach with. He also made money by providing liquidity to large institutional investors who needed to trade out of large positions. Some of what on there was sleazy. He obviously was getting information from brokers about was doing the selling & buying (plodding insurance company = patsy, entrepreneurial hedge fund = watch out.)  Didn't learn much from him other than providing liquidity in the market can be profitable, although you do risk eventually being blown up. 
  • If I could go back in time I would want to work for Julian Robertson at the Tiger fund. He is a hard nosed value guy with the charm of a Southerner. Jim Chanos worked under him and said he was one of the best teachers. Ken Griffin also worked under him for a while. 
  • Ken Griffin from Citidal is a badass. I would wear his shoes for an extra percentage point not Bruce Willis's. Citidal bailed out a couple of hedge funds during critical periods and because of his efficient back office, which everyone else outsources, he is able to make acquisitions and get feedback on positions very quickly and  also was smart enough to get borrow money long term so when the liquidity crisis hit, he was able to stage off the vultures.
  • High Frequency Trading firms or Quants are still pretty much a mystery to me. Lots of their work depends on arbitraging positions with little return but beefing up their positions with leverage in order to get a good enough return. To me, I can't see how Quant firms have a competitive advantage. These firms are constantly being berated by other smart firms trying to figure out their positions/algorithms and their constant use of leverage makes them very susceptible to blow ups. Currently reading another books on Quants, that should clear up some things.

    Tuesday, June 14, 2011

    Putting projects on the back burner

    (no real meat in this entry, more of a diary post, I'd advise skipping) 

    Often researchers hit a road block and decide to put their project on the back burner.  I am finding that happening to me at the moment. There are three projects I am currently working on but, haven't found a way to get to the next level.

    My three projects:

    1. COGO
    This the Chinese RTO I've been obsessed with. Unfortunately, without being able to talk to the management, the IR or knowing the Chinese names for the subsidiaries, I have hit a road block. This is on the back burner until I can hop on the conference call or I find some other avenue. 

    2. Old Short Analysis
    This is deals with finding the short thesis for a famous bear raid that happened. I haven't been able to find a reasonable enough short thesis for this company, partly because I don't know most of the players involved and the ones I've messaged refuse (understandably) to talk about it over the internet or the phone.

    3. Hedge Fund with odd returns
    This is my current fascination. I've started to dive into a very prestigious hedge fund with odd returns and a funky story. It all could be nothing but rattles me. I should be posting about this soon, but currently my notes are a mess and I'm waiting for some information.


    Here is a gratuitous Youtube video about optical illusions and a catchy song. Enjoy & sorry about the diary post.

      Friday, June 10, 2011

      (VIDEO) Berkowitz on BAC + My BAC Warrants

      Financial service companies are disliked right now. People are worried about the government increasing capital requirements, assets turning increasingly sour and the economy going back into a tail spin. Yet, I own the BAC Warrants. Here are my thoughts.

      BAC is currently trading at $10.65 a share
      • $13.2 tangible book value per share
      • $100 deposits per share
      • net credit losses and non performing loans have declined since last year
      • New CEO on clean up duty, no longer in acquiring mode like Ken Lewis
      • 2012 Analyst estimates of $1.71 EPS
      You can also see a free value line report on Bank of America here

      As time goes on, provisions for loan losses will decrease increasing earnings per share. Also as the capital continues to accumulate inside the bank, the Treasury department will allow BAC to increase their dividend from it's paltry $0.01 per quarter to around 20-30% income, probably around $0.10 per quarter. Dividends should attract more investors and start to drive the share price going forward.

      I particularly like the warrants. Here is some basic information on the Bank of America - A Warrants
      • Currently cost $5.68 per warrant. (BAC currently at $10.65)
      • Expire on January 2019
      • Strike at $13.30 
      • For every quarterly dividend over $0.01 a share, the warrant decreases accordingly. For example, if a quarterly dividend of $0.07 was issued, the strike price would decrease to $13.24.
       CNBC had an interview with Berkowitz discussing his investments in bank stocks, especially Bank of America. You can read that article here

      Thursday, June 9, 2011

      SEC Commissioner's speech on capital formation - discusses Chinese RTO's

      SEC Commissioner Luis Aguilar speech on capital formation where he discusses the abuses of reverse mergers and specifically the Chinese reverse mergers.  The link to the full speech is here.

      Certain Foreign Companies Abusing U.S. Capital Formation Process

      With that foundation, I would like to highlight a disturbing trend that seems to have challenging implications for capital formation and investor protection. In recent years, we have seen a spike in private companies merging with a public shell company as a way of going public. While it is Chinese companies that have grabbed recent headlines, the problems coming to the forefront would not necessarily be limited to companies based in China.
      There are a lot of different ways for companies to access the public markets, but not all of them are equal. They differ in the quality of the disclosures, the time investors and the SEC typically have to consider them, and the protections that investors have against false and fraudulent statements.
      The traditional IPO remains the gold standard. In a traditional IPO, the SEC and the public receive robust disclosures, along with the time to review and consider them, backed up by real liability that puts the risk of false statements on the people in the best position to ensure accuracy, not on the investors. In addition, underwriters and auditors engage in due diligence which enhances the disclosure quality.
      Another way to access the public markets is Exchange Act registration of a class of securities, rather than through registration of a public offering. For example, when the company reaches a certain size and has a class of equity securities that is considered widely-held because of its number of shareholders, it is required to provide public disclosures. However, unlike a traditional IPO, there is no underwriter performing due diligence.
      A common but lesser known way of accessing the public markets is the reverse merger into a public shell, or where a public shell merges into a private company, a so-called “backdoor registration.”27 For those of you not familiar with these types of mergers, what typically happens is a private company seeking to go public merges with a public shell company. Before the transaction, the public shell company no longer has substantive operations, but its public company registration remains in effect. The transaction gives the formerly private company the credibility and access to capital of being registered as a public company, without any of the vetting from underwriters and investors that companies undergo when they perform a traditional IPO.
      Since January of 2007, there have been over 600 backdoor registrations. Over 150 of these have been by companies from China and the China region.28 Notwithstanding the SEC rulemaking of a few years ago to respond to abuses involving shell companies,29 we are seeing increasing problems. While the vast majority of these Chinese companies may be legitimate businesses, a growing number of them are proving to have significant accounting deficiencies or being vessels of outright fraud.30
      As just one example of this phenomenon, two companies that were numbers 1 and 2 on the Investor’s Business Daily 100 have now been shown to have significant issues.31 One of these companies had to restate its earnings and was delisted just last week.32 The other has admitted that at the very least two of its manufacturing contracts didn’t actually exist.33 Just last Friday, the SEC suspended trading in another Chinese company that became public in the United States through a shell.34 This was the second SEC trading suspension imposed on Chinese companies in this situation in the month of March alone.35 Additionally, NASDAQ and NYSE Amex have recently suspended trading in several of these companies.36
      I support all of the efforts to address these problems. The SEC staff has been working collaboratively and tirelessly with many others to investigate and shed light on this situation. It has been widely reported that the SEC set up an internal task force to investigate fraud in overseas companies with listings on U.S. exchanges, with particular emphasis on companies engaging in these mergers to achieve backdoor SEC registration. The staff’s hard work has yielded, and will continue to yield, results.
      In the world of backdoor registrations to gain entry into the U.S. public market, the use by Chinese companies has raised some unique issues, even compared to mergers by U.S. companies. Two important ones are:
      • First, there appear to be systematic concerns with the quality of the auditing and financial reporting; and
      • Second, even though these companies are registered here in the U.S., there are limitations on the ability to enforce the securities laws, and for investors to recover their losses when disclosures are found to be untrue, or even fraudulent.
      I am worried by the systematic concerns surrounding the quality of the financial reporting by these companies. In particular, according to a recent report by the staff of the Public Company Accounting Oversight Board (PCAOB), U.S. auditing firms may be issuing audit opinions on the financials, but not engaging in any of their own work.37 Instead, the U.S. firm may be issuing an opinion based almost entirely on work performed by Chinese audit firms. If this is true, it could appear that the U.S. audit firms are simply selling their name and PCAOB-registered status because they are not engaging in independent activity to confirm that the work they are relying on is of high quality. This is significant for a lot of reasons, including that the PCAOB has been prevented from inspecting audit firms in China.
      Moreover, the PCAOB noted that these issues were layered on top of other factors that may have a negative impact on the audit, including:
      • The need to understand the local language;
      • The use of local audit firms or personnel from an outside audit firm to complete a portion of the audit work;
      • Additional travel time and expense; and
      • The need to understand the local business environment in which the client operates.
      An additional problem with these backdoor registrations is that there may be difficulty in prosecuting violations. Enforcement against falsehoods in the context of these companies is difficult. The documents and people who have the information about the company and whether there was misconduct are often outside the reach of subpoena power. However, notwithstanding these obstacles, our staff is committed to doing everything they can with the resources we have. The SEC has already brought cases and will continue to do so.
      Nonetheless, investors should still be aware that the SEC and private plaintiffs may have a more difficult time enforcing their remedies and that recovery for investor losses could be limited. For one thing, the persons to punish and the assets that could satisfy a judgment may be located outside of the United States and harder to access. In addition, remedies obtained in the United States may not be enforceable in foreign countries, where the bulk of the assets might reside.
      The consequences of the growing problems in this area has real significance, because it has been reported that billions of U.S. savings and investment dollars have been entrusted with these companies.38
      Finally, and to return to our earlier topic of capital formation, it’s important to see the connection between capital formation and strong enforcement of securities laws. We have seen clearly that capital formation is improved with solid disclosures – but what happens when the disclosures are lies? That’s when we need strong enforcement. Capital formation is strengthened when investors have confidence that the laws will be obeyed and that, when they’re not, that the fraudsters will be made to pay. Moreover, strong enforcement – by providing deterrence - helps to ensure the disclosure is truthful and complete in the first place. Where savings and investments are allocated under inadequate or false information the environment for capital formation is negatively affected. That is why I’ve been a consistent advocate for a robust enforcement program and an adequately funded SEC. My hope is that potential fraudsters are scared into telling the truth to avoid the consequences.

      Remain Skeptical - Quote from Tolstoy

      "The most difficult subjects can be explained to the most slow-
      witted man if he has not formed any idea of them already; but the
      simplest thing cannot be made clear to the most intelligent man if
      he is firmly persuaded that he knows already, without a shadow of
      doubt, what is laid before him."
      — Leo Tolstoy

      (VIDEO) China Agritech, Glickenhaus, Sterngold on Bloomberg

      Great** video of Jim Glickenhaus and Sterngold discussing China Agritech on Bloomberg (Long video, 16 and half minutes, first 1/3 is about the market, the last 2/3rds is about China Agritech)

      **I do not mean great as in Glickenhaus video was great. I should have been more clear when I originally posted this and I wasn't. I post a negative article on Glickenhaus's analysis here: Sorry I was not clear when I originally posted this. This video is a great example how of people who manage lots of money can get things very wrong.

      Wednesday, June 8, 2011

      Dislike for John Hempton and Herb Greenberg keeps investors wary of Muddy Waters

      I am a big fan of the message board Corner of Berkshire and Fairfax run by Sanjeev Parsad. I have learned a ton from that message board and have interacted with lots of the members offline. Yet, I am disquieted by some of the members rhetoric about John Hempton and Herb Greenberg.  Some members of this board ,who I deeply respect, have such a dislike for Hempton and Greenberg that any association of those two causes them to discount Muddy Waters report on Sino-Forest.

      You can read the discussion about Sino-Forest, Hempton and Greenberg here.

      IB now considers almost all Chinese stocks too risky for margin.

      Interactive Brokers just released a statement blanketing almost all Chinese securities as risky, you can view it here.  In April, Interactive Brokers issued a statement blanketing almost all Chinese RTO securities as risky, you can view it here, they included Cogo in the April statement.

      SECURITIES SUBJECT TO INCREASED MARGIN REQUIREMENT (50% effective 12:00 ET April 13, 2011; 75% April 14, 2011 prior to market open; 100% April 15, 2011 prior to market open)
      Symbol Company Name     
                COGO      Cogo Group


      How to find the subsidiaries in Chinese? A Cogo update.

      Cogo showing off their hi-tech merchandise with a flashy site...I suggest everyone to check it out just for the great music.

      Cogo is such a gem. It has to be one of the most textbook examples of a fraud: cash flows that don't reconcile with net income, paying large amounts of money for acquisitions well above goodwill, diluting shares, and talking up hot technologies like "high speed rail", "3.0", "smart phones", "tablets" and the "smart system." To top it all off, it's an American listed Chinese RTO that you can still get a borrow on.

      So I am obsessed with Cogo*. I have written up about it here and (DELETED) has also written a great report up (DELETED) . I am even in the process of hiring people in Taiwan to do some research for me.

      Yet, I have a problem and the problem is, I can't give my Taiwanese researchers much work if I can't get the Chinese names for all these subsidiaries. I think the subsidiaries is key to finding the smoking gun with this likely fraud since they've been acquired with so much goodwill.
      • Viewtran Technologies
      • Shanghai  E&T
      • Comtech Broadband
      • Keen Awards
      • Longrise 
      • Mega Smart Group
      • MDC Technologies 
      • **There are subsidiaries than this

      So does anyone have any idea on how I can find the Chinese names for the subsidiaries? I have tried contacting the management which didn't get me anywhere, and I have tried e-mailing Wayne Ho the person in charge of Investor Relations but he no longer returns my e-mails and his phone number goes directly to his voice mail and hasn't called me back.  

      Here is our boy Jeffery (JingWei) Kang, the CEO of Cogo, on Bloomberg. It would have been great if they asked him a question about their funky accounting or overuse of goodwill in acquisitions, but hey, I am just an ESL teacher...what do I know? At least they asked, a question I've been wondering. What exactly does Cogo do?

      Tuesday, June 7, 2011

      Welcome to Walrus Value

      Welcome. I originally started this blog at but I needed to match the name of the blog with the URL and since I didn't want to pay money to use Google analytics I moved to blogspot.

      A Walrus Welcome

      I am currently deeply fascinated with Chinese frauds and especially COGO.  I plan on posting an update to the COGO story very soon.

      Monday, June 6, 2011

      moving blog soon & walrus value is hiring

      Moving my blog soon. Not sure where I want to move it.  Any suggestions?

      Blogger has google analytics and allows for more embedding  but the sites generally looks really ugly. Best part it's free!, this is what i have now, but I'd want to change it to a matching url. I like layout, but I can't get google analytics and I have trouble embedding most videos. Best part, it's free!, this is what I'd aspire to. I would have my own domain, and lots of flexibility in terms of what I could post and the stats with google analytics.  The worst part, it costs money...and I really dislike spending money.

      Right now I am leaning toward Blogger, anyone have any bad things to say about blogger?


      Also, I am currently trying to hire a Taiwanese student or recent graduate to do some research for me. I am utterly fascinated with these Chinese frauds but I can only point out red flags in the SEC filings. I need someone to get me to the next step... SAIC filings, talking to vendors, customers and court filings.

      Here is my advertisement I am posting on the internet college board:


      LOOKING FOR: Fraud Investigator, IMMEDIATELY


      I am an American living in Taiwan looking into several mainland Chinese companies that are possibly committing accounting fraud on the US listed stock exchanges.  I need a native Chinese speaker to help me do research.


      1. Researching information on mainland Chinese web sites

      2. Calling companies in order to gain information

      3. Calling Chinese government offices to get information

      4. Translating documents and conversations into English.

      5. Reading Chinese financial documents


      1. Native Chinese speaker

      2. Ability to read and  type in simplified  Chinese

      3. Ability not to be intimated by high government officials or corporate executives

      4. Understanding of Business &  Accounting


      1. 200NT per hour

      Call Josh at: 09.75.303081 or e-mail at

      I need someone immediately, please do not hesitate to call if this interests you.

      This is a part time job that, that may last a week or a month.  Anyone is welcomed to apply as long as you feel qualified, students or graduates.


      Update: I have already gotten one resume in, I am psyched.

      Saturday, June 4, 2011

      Crazy Disclosure #1

      There are some crazy disclosures out there. I read them and I think "how could anyone be long this company..." Here is the first crazy disclosure*
      In July 2006, the Company sold all of its interest in DaRen Consulting (China) Ltd. (“DaRen”), to Daren’s management team for a cash consideration of approximately $3,090 (RMB25,000). The Company also released DaRen from the obligation of $6,080 in loans payable to the Company and injected transitional working capital of $1,015 into DaRen. The cash consideration to be received from DaRen was to be paid from DaRen’s net profits over four years through 2010, secured by a share pledge of 44% of DaRens equity. The Company has no involvement in DaRens’s operations after the disposal date. The Company believed that there was significant uncertainty regarding the collection of the proceeds from this sale given the negotiated terms of the agreement and DaRen’s cumulative operating losses. Accordingly, recognition of the sales proceeds of $3,090 was not recorded on the sale date. In July 2007, the Company and DaRen’s management entered into a supplementary agreement to reduce the cash consideration of RMB24,000 (an equivalent of $3,075) to RMB12,500 (an equivalent of $1,711), which was received by the Company in December 2007. An outstanding payable balance to DaRen of $139 was also waived according to the agreement. The total amount of $1,839 was recognized as gain in the consolidated statements of operations in year 2007

      *Names have been changed and some numbers have been changed (non-materially) in order to keep this company a secret until a full research report is released in the public domain.

      Read The Footnotes!

      Currently reading some SEC filings and the footnotes tell such a story of sick corporate governance. I doubt most people would have gone long this company if they would have just read the whole filling.

      So please read the filings!

      Use Chrome to search through SEC documents easier

      I've been searching through some SEC documents and at first I was using Firefox but their in browser search isn't very comprehensive or as useful as Google Chrome.

      Just a tip for all those filing lovers.

      Friday, June 3, 2011

      A Song For all the Shareholders of Chinese Listed Companies

      EDIT: I originally embedded a youtube video here, but now, I realized it was a jerky thing to do. For anyone who listened to the song, I hope you were not offended. I've lost money before investing into too good to be true RTOs and companies I have done more due diligence on.  Sorry for anyone's loss of money...that was time at work, birthday gifts, holidays with friends & family, retirement savings and funds for your child's university education.

      Taipei Real Estate Bubble Photos (all photos)

      Last Tuesday I hopped on my scooter and took a bunch of photos of newly constructed or near completed empty apartment buildings.

      Here are all the photos I took that day. I did take some videos but after watching them, I realized my commentary and unsteady videos were obnoxious. Enjoy the photos.

      [gallery link="file"]

      I realize there probably needs to be commentary on every photos for it to make sense to the viewer. Maybe I'll do that later.

      e-mail's with COGO's IR

      About a week and a half ago I had found COGO's IR e-mail address ( . I sent him a message about COGO's share repurchases which took him five days to respond. I e-mailed him eight other questions, but eight days later, I still haven't heard back from him.

      Here are my e-mails:

      May 21, 2011 (Saturday)

      Can you tell me if the stock repurchases were done on the open market or done through negotiated transactions?

      Joshua Walis

      May 25, 2011 (Wednesday)

      Dear Joshua
      How are you? The repurchases were done on the open market.

      May 25, 2011 (Wednesday)


      I am good, thanks for asking.

      So let me clarify. All stock repurchases COGO has ever done as been on the open market and none have been through negotiated transactions?

      I have more questions that I need to get cleared up.

      1) As per the 2004 10K on page 46, the CEO, Jeffrey Kang, owned a 6.1% interest in Viewtran.  Nowhere in the 2007 report did COGO disclose the CEO had an interest in Viewtran before they bought it. Why did they not disclose this?

      2.)  Did any the CEO or any of the management have any interest in Shanghai E&T, Comtech Broadband, Keen Awards, Longries, Mega Smart or MDC Technologies before the company bought it?

      3.) In 2007, COGO dismissed their auditor Deliotte, why did they dismiss them? I did not see any explanation in the firms 10K.

      4.) Why is there a contractual agreement with Vice president and the CEO's mother for the economic interest in ShenZhen Comtech? In prior 10Ks, the equity for ShenZhen was with the CEO and his wife, why did you change around the equity? How many companies are owned within ShenZhen Comtech? How many companies are owned through COGO directly?

      5.)  What exactly is COGO's business? Are they mostly a reseller for electronic equipment? What kind of engineering design work do they do? What exactly is COGO 3.0?  I am very coonfused how exactly COGO makes there money and I would like some clarification.

      6.) According the filings, COGO will find it difficult to release dividends to shareholders because Chinese regulations in terms of currency conversion. Yet, how did COGO convert their RMB to USD to buy COGO stock if it's in USD? If COGO can buy back stock on the open market, like you said, with USD doesn't that mean COGO can also release dividends now and no longer is affected by this regulation?

      7.) Wanyee, what is your relationship with the company? Is your function solely to be the investor relations?  Do you do investor relations for any other firm, and if so which ones? Are you at all related to the CEO or the management to COGO?

      8.) Why did the company have to re-domesticate in the Cayman islands to go public on the Hong Kong Stock Exchange?

      June 03, 2011 (Friday) (no reply yet)
      Maybe I should call him?

      Wanyee Ho
      Cogo Group, Inc. (Nasdaq: COGO)
      Investor Relations
      HK: +852 2730 1518
      US: +1 (646) 291 8998
      Fax: +86 (755) 2674 3522

      Sino Forest just got muddied

      [caption id="attachment_209" align="aligncenter" width="640" caption="Sino Forest drops 60% after a Muddy Water report"][/caption]

      Muddy Water has posted research on a Canadian listed Chinese company called Sino Forest. You can see it here.

      Also some good videos of Carson Block, founder of Muddy Waters, on CNBC here.

      It's been interesting seeing these frauds expand. Starting from newly uplisted Chinese RTO's with low level auditors, to Chinese RTO's with high level auditors, to Chinese IPO's with high level auditors, now to Canadian listed Chinese companies.

      Bronte Capital, pointed out in this NYT article that the bank branch at Longtop played a part in scheming the auditor. Makes you wonder if you can trust any financial statement from a Chinese company.


      New research is out about Sino Forest from Muddy Waters.  I h

      Thursday, June 2, 2011

      COGO Excessive Good Will - How to Account Fraud, with Antar (Crazy Eddie)

      "You gotta watch the goodwill," says Antar. One way for an executive to overpay for an acquisition is to inflate goodwill -- the excess of the purchase price over the fair market value of a target's assets and liabilities. Once again, the skeptical investor must go to the filings. If it turns out that goodwill makes up a majority of a company's assets -- watch out.

      Accounting Fraud:A "How-To" Guide

      A List of COGO's Acquisitions and goodwill associated with the acquistion.
      In 2006, COGO purchased Viewtran Technologies (company with ties to the CEO) for 58,529,000 RMB. Of this purchase price, 47,469,000 RMB was in goodwill and 9,707,000 was in intangibles (of the intangibles, 6,610,00 was in customer relationships).

      In 2006, COGO purchased the remaining 40% Shaghai E&T for 16,000,000 in cash. Of the purchase price was in 4,264,000 goodwill and 5,467,000 was intangibles assets (all from customer relationships)

      In 2007, COGO purchased the remainder of the 45% interest in Comtech Broadband for 113,193,000 RMB  (2/3 in cash, 1/3 in stock) 47,561,000 RMB of this was in Goodwill and 74,578,000 RMB (66,202,000 was in Customer relationships) for the Intangibles.

      In 2007 COGO purchased Keen Awards for 66,032,000 RMB, of which 73,007,000 was in intangibles and 63,009,000 RMB was in customer relationships.

      In 2008, COGO purchased a 70% interest in Longrise for 60,921,000 RMB. Of that, 21,422,000 was in Goodwill and 34,567,000 was in intangibles.

      In 2009 COGO purchased Mega Smart Group for 122,415,00 RMB (paid in installments) Of the purchase price 80,226,000 RMB is attributable to goodwill, and 50, 526,000 RMB to intangibles with 24,580,000 attributable to  customer relationships, and 8,876,000 attributable  to supplier relationships.

      In 2011 COGO purchased MDC Technologies for 144,372,000 RMB. Of this purchase price, 49,669,000 RMB was in goodwill, and 113,417,000 RMB was in intangibles assets. Including 21,786,000 for customer relationships and 90,443,000 RMB for non-compete agreements.

      COGO Short Thesis by Joshua Wallis (*cough* vanity post)


      I've been LinkedIn, searching for people

      I'm succumbed to the Linkedin. I have been putting it off for a while since I'm fairly

      Wednesday, June 1, 2011

      How big are the China Frauds? SINA...could it be?

      A long time ago I made a google  doc list of all the possible china frauds that fit within a specific range of market cap. You can see it here

      This is the same list that lead me to COGO, a company with accounting that makes your head spin.  I went after COGO first because of the low amount of shares short and cash flows looked suspicious off the bat, also because it was just a 220 million dollar company. I mean, could there really be a billion dollar fraud cap out there?

      Well obviously there was with Longtop. So now I wonder if the biggest company on that list could be a fraud as well...SINA.

      Thinking about looking into this one, would be crazy if this one is screwing with it's accounting as well. I mean, this is a 7 billion dollar company.

      update: I want to make sure, I don't have any evidence that falsifies SINA's claims, I am just wondering where will all these Chinese stocks end?

      Charlie Rose - Too Big to Fail

      Charlie Rose - Too Big to Fail.

      Nice video about the up and coming HBO special from the Sorkin book "Too Big to Fail"

      I also suggest subscribing to the Charlie Rose RSS feed

      Auto Draft

      Bain & Morgan Stanley...what are you doing!?

      Bain Capital has made a buy out offer for Chinese Fire & Security (CFSG) and I am scratching my head.  If you read the company's 10K, red flags pop up all over the place. John Hempton at Bronte Capital, has done an excellent write up here. Just look at their odd cash flows and you see red flags.

      [caption id="attachment_189" align="aligncenter" width="640" caption="Net Income and Cash Flows are wildly different"][/caption]

      Now I just read yesterday that Morgan Stanley Private Equity Asia division is making a 50 million dollar investment in YongYe International. Again, YongYe has the same suspicious accounting. Absaroka has done a good write up for it here.  Here is a look at YongYe's cash flows:

      [caption id="attachment_192" align="aligncenter" width="640" caption="Large difference between net income and cash flow from operations"][/caption]


      Personally I don't get it. I mean, these are supposed to be the smart investment banker types. The kind of dudes who probably wouldn't talk to me on the street (I dress like a bum).  Yet....I think they are going to get a huge goose egg.