Author Archives: Editor

Come On Obama, Get Tough on China Fraud

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Come On Obama: Get Tough

I almost hate to go back and revisit any of the 2011 frauds. I’m hoping that era can become a distant memory, and the well behaved companies and their shareholders get rewarded for their patience.

Come On Obama : Get Tough

Come On Obama : Get Tough

However, when I read a recent article about the fraud committed against US investors by Ming Zhao, the Chairman of disgraced former China stand out Puda Coal (formerly NASDAQ: PUDA), I was horrified at our weak response.

The primary asset of Puda Coal was Shanzi Puda Coal mining. As it turned out, in 2009, Chairman Zhao sold the assets of Shanzi to himself, then turned around and sold Shanzi to a Chinese state owned company- Citic Trust.

After formally transferring the asset and taking the money, Zhao was able to raise $112.8 million from US and Canadian investors based on Shanzi, which the company no longer owned. He managed to fool light weight auditor Moore Stephens- these guys be penalized for failing to protect US investors as well.

When the fraud was uncovered in 2011, Zhao produced a letter from Citic stating they did not own the Shanzi coal mine. As it turned out, the letter was a forgery.

The whistle was blown on this one by anonymous web site Alfred Little. A fund manager was able to confirm the fraud by simply spending $500 to have an investigator look at some government filings in China showing the asset had changed hands.

The NY Times published an article back on February 23rd concerning the charges the SEC filed against the Chairman and CFO of Puda. Click Here to read the article.

Had such a blatant fraud of these massive proportions been perpetrated in the US, those offenders would be looking at long jail terms.

Here’s what I find astonishing- how is the US allowing these guys to walk around free? Now, I know these are Chinese citizens, and I know the Chinese are tough to deal with.

However, it seems to me our government should be doing something to strong arm those Chinese citizens into a one way ticket to the US so they can face trial, or forcing the Chinese government to take criminal action against these guys.

I don’t care how many of our Treasuries they own. If we’re prepared to unseat dictators in the Middle East to assure oil supplies, why are we allowing Chinese to simply steal $112.8 million from US investors, and get away with it?

Surely, there must be something we can offer the Chinese government in exchange for surrendering those offenders to US authorities.

Come on Obama-

Get Tough and show some back bone. This is ridiculous, and you should do something to get those crooks to US soil immediately.

Just throw one of these guys in jail, and make sure everyone in China knows about. The China/US relationship is far more important to China than a couple of thieving coal executives. With the proper leverage, those crooks would be in jail.

Come On Obama- how about protecting American investors!!!

China Markets Shaping Up.

I’ve been saying all along the China small cap sector would not improve dramatically until the China markets themselves made the transition from Ursine to Bovine.

Take a look at the Shanghai “A” Shares in 2012- China’s version of the S&P 500:

There’s a lot to like about this chart, but it’s a little premature to call it a Bull Market in break out mode.

Coming off the December lows, the Shanghai A’s have improved about 17%. As the index is moving up, the volume is increasing, which is a great sign.

A breakout above the November highs of about 2650 (above the blue line) on volume would suggest we have a new Baby Bull coming out of the gates in China, and there will be plenty of room to run.

Renewed enthusiasm for China stocks is being reflected in large cap sector. My personal favorite- Baidu (NASDAQ: BIDU) is back over $140, and eventually headed for $200. Even beleaguered and heavily shorted Sina Corp (NASDAQ: SINA) was up over 10 points this past week, moving from $62 to $74.60 in the last 4 trading days.

At the same time, the China small caps continue their listless, sideways, light volume trading.

I don’t know if this will change after earnings releases. I suspect there are some great trades, but it is yet to be determined if earnings can turn the tide.

It’s going to take a high profile, major short squeeze to bring attention to the undervalued nature of this sector and bring some institutional money back to these stocks.

I really like YONG for an earnings trade. The Yahoo! earnings calender says they will announce on March 12th, but there’s no confirmation on the company web site. The stock is so cheap bad numbers will probably drive it up.

China XD Plastics (NASDAQ: CXDC) is due out Monday according to Yahoo!, but I haven’t been able to find confirmation from the company.

I’ll be keeping my eye on the news flow and the response in the stocks in order to formulate some trading ideas.

Stand by for a much busier two weeks.

While you’re there, sign up for my free Webinar on:

How China Companies Commit Fraud < < ==

Warmest Regards,

Larry Isen

 

 

 

Anatomy of the Movers in China Small Cap

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Larry Isen’s Emerging China Stocks

Anatomy of a Mover

This past week there was a template for China Small Caps that offers the possibility of providing powerful returns for the contrarian investors who still follow the sector.

Former EmergingChinaStocks.com favorite Gulf Resources (NASDAQ: GURE) traded up like a scalded cat this week thanks to an event outside the company’s activities.

This company came under vicious attack by short sellers in 2011 based on SAIC filings- if you seen my webinar on China fraud, you know those claims have no credibility.

However, when it happened, I didn’t care for way the company responded, leaving some possibility the claims against the company had some elements of truth.

GURE is a resource company specializing in the mining of Bromine- a substance in high demand by Pharmaceutical manufacturers. I thought this company would be an easy winner as the pharmaceutical industry in China is growing rapidly, and demand is increasing for bromine.

In the China small cap world there’s a proverbial Mexican stand off between shorts and longs. Short sellers decimated the sector in 2011 and won many major victories. However, the stocks remaining in the sector seem, for the most part, to be honest companies. Short positions remain very high, but there’s no one left to sell the shares, preventing short sellers from buying back and closing out positions.

Upcoming audited earnings numbers might get these stocks going, but short sellers appear to be far more afraid of losing money when MBOs come into play- management led buy outs.

There is still a lot of money chasing small cap companies in China, but it’s all Private Equity money these days. Many companies will choose to go private with buy outs at much higher levels than where they are trading. Many of these companies will partner with a financier and buy out their public shares. Likely, you’ll see them engage in initial public offerings on a Far East exchange within a couple of years.

Harbin Electric (Formerly HRBN) set the bar with an MBO at $24- short sellers got kill in that one last Fall.

As you can see, GURE had a great week:

At the beginning of this past week, it was disclosed Shandong Ocean Bright Stone Industry Fund Management is exploring the possibility, along the Shandong Haoyuan Industrial group, of executing a roll up strategy on China’s bromine producers with an eye towards privatization of companies in the industry. The plan would be to consolidate the better companies in the group, then eventually take the consolidated company public in China.

Despite GURE making a formal announcement it had not received any written offer or entered into any sort of LOI, the stock traded just great.

As you can see, on the day the “possibility was recognized, GURE traded its highest volume in months and broke above its 200DMA convincingly.

I don’t believe these kinds of events are attracting new money to these stocks. These rallies are the result of short covering. As of 1/31, there were still 2.4 million shares short in GURE. I’m sure there’s been quite a bit of short covering in this name.

I’m looking for an expecting a lot more MBO’s surfacing after year end numbers come out. To make money, we will just have to be there before the action materializes, and stick with the stocks we have.

Next Week- I’ll suggest some specific earnings trades.

If you’d like to know my 3 favorite stocks for 2012, simply sign up for a trial subscription at www.emergingchinastocks.com. My top 3 picks are up 150%, 66%, and 40% from the October lows. All look like they have a lot more room to run.

While you’re there, sign up for my free Webinar on:

How China Companies Commit Fraud

Warmest Regards,

Larry Isen

 

 

 

(NASDAQ: AAPL) Apple Users Ask “Who Is Foxconn?”

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Larry Isen’s Emerging China Stocks

 

In This Post:

  • Apple Users Ask “Who Is Foxconn?”
  • Foxconn manufacturing process draws scrutiny
  • Apple Takes Action With FLA

Apple Users Ask “Who Is Foxconn?”

Apple (NASDAQ: AAPL) is probably just what Wall Street needs to bring retail investors back to the markets. As the company continues to take over the digital wireless and entertainment space with the iPhone, iPad, and the iCloud (which I absolutely love), the stock has finally ripped through the $400 level, but remains undervalued, only trading at about 12x FY 2012 earnings projections. The company is single handedly dragging retail investors back to the stock market, and it’s become one of the greatest stocks of all time to own.

Who Is Foxconn - Apple (NASDAQ: AAPL)

Despite the passing away of founder and tech visionary Steve Jobs last year, everything appears to be perfect in Apple Land. But wait- there is a little bit of dark cloud blocking out the otherwise bright and heavenly light that shines on Apple these days. Consumers are starting to take a hard look at their manufacturing facilities in China, and not liking what they see. Read on McDuff……

Foxconn Manufacturing Practices Draw Scrutiny

Apple’s biggest supplier is China based Foxxcon- an outsourced manufacturer that gets the majority of manufacturing orders from the Apple. Of late, Foxconn has come under fire for working conditions in its Shenzhen and Chengdu manufacturing facilities. Fatal accidents and suicides amongst workers in recent years have brought scrutiny, along with accusations of child labor abuses.

US consumers are starting to take note. The NY Times published and expose article on January 25th entitled “In China, Human Costs Are Built Into an iPad”. The Times chronicled recent explosions and general health care violations taking place at Foxconn manufacturing facilities.

There’s a petition on the web site Change.orgtitled “Apple: Protect Workers Making iPhones in Chinese Factories”- the petition has now garnered over 200,000 signatures. Mark Shields, an Apple customer, started the petition and appealed to the company, suggesting all “Mac People” wanted to hold their heads hi and be proud of the products they use.

Apple Takes Action With FLA

In response to the criticism, Apple joined the FLA- Fair Labor Association, a non-profit organization committed to improving working conditions on a global scale.

This week, the FLA started inspecting Foxconn manufacturing facilities in China. While many critics see this as a publicity stunt by Apple to mitigate the criticism, others see it as a genuine step towards better working conditions associated with Apple products.

The Fair Labor Association (FLA) will conduct “special voluntary audits” at the China based Foxconn’s plants in Shenzhen and Chengdu. In a press release, Apple stated the first inspection commenced this past Monday. Findings will be posted on the organization’s website in March. www.fairlabor.org.

Other critics believe this is simply a transparent effort to rebuild Apple’s image in this area. China Labor Watch’s Li Qiang stated “What Apple should do now is to take action to solve the problems and improve the labor conditions in their supplier factories, not to conduct inspections and put the factories into the media and public’s attention”.

Stand by for more coverage of this controversial issue.

In my view- here’s the best solution- The idiots on both sides of the aisle and in the White House should get together, reduce the corporate income tax rate to 15%, give a tax break for repatriating operations in the US, and bring Apple’s manufacturing back to the US.

But, then again- what do I know?

And, don’t forget to sign up for my free Webinar on:

How China Companies Commit Fraud < < == Register Now!

Warmest Regards,

How To Buy China Stocks

Larry Isen

 

 

Market in China : Big Divergences Make China Stocks Look Higher

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In This Post:

  • Two Big Divergences
  • US China Large Caps Diverging
  • Market In China

Market In China – Two Big Divergences

Despite the fact that the US market is roaring, the Chinese market still looks to be rather Ursine (a fancy Latin work for bearish).

But wait- Is it really still a Bear Market for China stocks, or are the China markets looking up?

The Shanghai A shares- the China equivalent of our S&P 500, still looks pretty darn weak.

Market In China - Shanghai A Shares

Market In China - Shanghai A Shares

There’s been a little bit of resurgence in this index. There’s also a week of trading missing as this market was closed last week for Chinese New Year, and they are just getting underway in China again.

This index is struggling to get through its 50DMA, which would confirm at least a short term up trend is getting underway. It’s not even close to its 200DMA, which would confirm a longer term bullish trend when we see those levels pierced.

The Shanghai A shares were down about 36% in 2011- as I like to say- an absolutely brutal year.

US China Large Caps Diverging the Market in China

The performance of the Shanghai A shares is anemic compared to China stocks trading with US listings.

Let’s start with the Granddaddy of all the ETFs- FXI is the China 25 Index fund- it represents China’s equivalent of the DOW, and contains the 25 largest public companies in China. These are the mega caps owned partially by the government.

Market In China - FXI

Market In China - FXI

The FXI is showing far greater signs of life than the Shanghai A shares, having broken above its 50DMA in January, and well above its 200DMA, suggesting all is well in China Large Cap world.

Here’s the charts of two individual stocks that are still featured by EmergingChinaStocks- check out Baidu (NASDAQ: BIDU) and Sina Corp (NASDAQ: SINA).

Here’s the Google of China:

Market In China - Baidu (NASDAQ: BIDU)

Market In China - Baidu (NASDAQ: BIDU)

BIDU has been on a 25 point tear this year, and on Friday managed to trade above the 200DMA for the first time since November. I suspect the 200DMA will become resistance for a little while, but that stock looks headed to break through that barrier rather easily.

Market In China - Sina Corp (NASDAQ: SINA)

Market In China - Sina Corp (NASDAQ: SINA)

SINA is a little bit more like the Yahoo! of China with a lot of mobile and digital entertainment components.

As you can see, this stock has run up nearly 30 points in the last month, and is gunning for its 200DMA. SINA was one stock short sellers absolutely vilified when it looked like the government might restrict some of their content. It really never happened.

The Shanghai A index is trailing the US large caps at this time. The China stocks are trading as if the investment community is now expecting a “soft landing” scenario in China.

China small caps are not trading as well as their larger brethren yet- but they will catch up as soon as there are some big break outs. Shorts are covering, but still have huge positions, and as these stocks trade up on lighter volumes, short sellers are going struggle with closing out their positions at lower prices.

One of my 3 favorite China stocks rocketed to a level it hasn’t seen since early September on Friday. The two others had a sideways week, but earnings are coming soon.

And, don’t forget to sign up for my free Webinar on:

How China Companies Commit Fraud

 

Warmest Regards,

 

Larry Isen

Market In China: Short Sellers’ Scam Is Unraveling

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In This Post:

  • MBOs
  • Company Retaliation
  • Offenders Jailed
  • Valuations Absurd

Market in China: China Stocks Pendullum Is Swinging Back

Market in China - China Market ReviewChina small cap stocks are having a great year in the early going, and I suspect it will get better as the quality survivors deliver their 2011 audited numbers. I thought last year’s audits were under the microscope- this year’s audits will be the most thoroughly performed in the history of audits. In light of all the fraud that was disclosed in 2011, the China auditors are on the hot seat, and they know it.

There are several major factors pushes these oversold stocks back up the charts.

The Market in China Is ripe.

MBOs:

First, there’s been a tremendous pick up in MBO activity- Management Led Buyouts. There are many large Private Equity funds prepared to back management teams looking to take their companies private. In an MBO, management teams up with one or more institutional investors and tenders an offer to buy out their shareholders at a premium to where the stock is trading. If the transaction closes, the companies withdraws from the public markets.

Harbin Electric (formerly HRBN) was successful in an MBO at $24 when the stock had traded as low as $7, and short sellers, who had publicly villfied the management, ended up looking foolish.

Several others have succeeded in going private, and it seems about once a week a company announces it has either received a tender offer, or has started down the path of going private.

From the perspective of the CEO of a China based company with a US listing, why not? After all, billions were raised for these companies at far higher valuations. Why not buy yourself back a lot cheaper, and take your company back? Makes sense to me.

Short sellers are getting extremely nervous as tender offers and MBOs come out regularly, and the stocks trade up on the news.

Company Retaliation: Assessing the Market in China

Market In China: Short Sellers' Scam Is UnravelingCompanies are fighting back against highly vocal short sellers with some success. Of recent note is the progress being made by Sivercorp (AMEX: SVM).

Silvercorp is actively pursuing short seller “Alfred Little”. Alfred LIttle attackers have hidden behind for sometime. Through court action, SVM was able to uncover the identities the Alfred Little group of alleged co-conspirators who launched baseless attacks against the company.

With the names of the perpetrators revealed, SVM is not actively pursuing legal action accusing the Alfred LIttle group of spreading “false, defamatory and fraudulent information about Silvercorp on the Internet and in letters to the media and regulators to drive down the price of Silvercorp’s stock to profit from their short positions in the stock.”

Deer Consumer (NASDAQ: DEER) and Focus Media (NASDAQ: FMCN) are actively engaged in law suits against short sellers, and making progress towards uncovering high levels of fraudulent activities (allegedly). The Market in China is Looking up.

Muddy Waters- the largest and most successful short seller in the space, attacked Focus Media. Since the initial drop, the stock has rebounded nicely as the company refuted all the allegations and simply declared it would start paying a cash dividend. That move cast some serious doubts on the Muddy Waters claims. Hereby giving the Market in China room to breathe.

Offenders Jailed in China:

The Chinese are very focused on appearances. They like events and occurances that make them look good, and abhor any media worthy fodder that makes them look bad regardless of what the underlying truth may be.

The high profile collapses in the China Small Cap space in 2011 made China look really bad. Chinese officials are very sensitive to these issues.

It is widely known many of the short sellers hired investigating groups in China to uncover fraud. Several of the attacks on the larger names- specifically China Media Express and SinoForest were so righteous that I felt these short sellers had to have some sort of insider information to dig in as deeply as they did.

Having studied this process, I now believe the investigators for Short Sellers bribed government officials to get their hands on non public disclosure- primarily the VAT filings, which are the equivalent of our tax returns. Discrepancies between the taxes paid and the SEC filings would lead one to a conclusion fraud is being committed.

I also believe much of the information they received was falsfied. It would not be uncommon in China for a government official to accept a bribe to produce information. The official provides falsified documents and then just keeps the money.

Short sellers, who are still deeply stuck in short positions in many of these stocks, might have been acting on false information which was illegally obtained.

I have read some reports of arrests in China of investigators who worked on behalf of short sellers. I don’t have any specifics yet.

Valuations Absurd

With stocks trading as low as 1x to 2x ’12 EPS, high cash balances, short sellers facing legal action, and their investigators being jailed, we are finally seeing the “green shoots” of a resurgent China Small Cap Market.

Particularly distressing for short sellers is the price movement on fairly light volumes. Many of these stocks are beginning to trade up on rather light volumes as there are no sellers left to be found.

In the meantime over $4 billion has moved into Emerging Market mutual funds over the past 30 days- $1 billion flowed in that direction last week alone.

We’re seeing short positions in these stocks unwind as they move up, suggesting shorts have begun covering, but are trapped as small amounts of buying push up prices.

Also, several of the very high profile short sellers have been hinting they are looking at going long some of these stocks. I believe they have simply run out of targets, and the investigators are being arrested.

We appear to be on the front end of a nice rebound in the sector. After last year’s blood bath, the pendullum is finally swinging back.

If you’d like to know my 3 favorite stocks for 2012, simply sign up for a trial subscription at www.emergingchinastocks.com. My top 3 picks are up 150%, 66%, and 40% from the October lows. All look like they have a lot more room to run.

While you’re there, sign up for my free Webinar on:

How China Companies Commit Fraud

Warmest Regards,

Larry Isen

China Stocks – Inflating Revenues

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Inflating Revenues in China Stocks and How To Avoid The Fraud

Inflating revenues is another common way fraud is being committed in China Stocks.

The most simple way is to fake the receipt of revenues. The company has to show more money coming into the bank than really has.

China Stocks - How To Avoid Fraud In China Stocks

China Stocks - How To Avoid Fraud In China Stocks

It’s a simple matter of getting a bunch of fraudulent invoices from the black market, and putting the revenues on your books.

From there, these fake revenues have to be reflected in your banks statements as well, so you need fraudulent bank statements.

This is a simple matter of creating the statements and presenting them to your examiner with the “Bank Chop” seal already stamped. Of course, you’ve obtained a fake stamp for about $200.

It’s common to claim receivables that don’t exist. You claim to have shipped a product, and the buyer is in on the conspiracy. When called by the examiner, the buyer confirms the purchase, but he has, of course, been bribed in advance to cooperate.

China stock fraud going on in the China livestock industry

There’s a lot of fraud going on in the China livestock industry where sales are double counted. For example, and pork producer might sell a whole generation of baby pigs to local farmers. They raise the pigs, and sell them back to the pork producer, who then sells them to an end buyer. The hogs were never really sold to the local farmer, and the sale of the livestock is double counted. Since this is the same animal, this is not allowed under GAAP accounting standards.

 

China Stocks Fraud And How To Avoid It

China Small Cap Stocks: Can They Come Back in 2012?

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The China Small Cap Market in 2011

The China Small Cap Market in 2011

The China Small Cap Market in 2011

It’s almost not worth reliving, but sometimes reliving the bad experiences of the past helps you move forward and identify opportunities.

Anthony Bolton, manager of the Fidelity China Special Situations Fund said he best when he described 2011 in China equities as “BRUTAL”.

Bolton’s fund tumbled 38% last year. Most people would look at this track record and assume Bolton has no idea what he’s doing.

Hold the phone. The market takes Anthony Bolton very seriously when one considers Bolton managed $12 billion for Fidelity for 28 years, and averaged 19.5% annually over his tenure. Morningstar points out a $10,000 investment in his fund in 1979 turned into $1,494,118 in 2007.

Bolton’s $208 billion fund was heavily weighted to small and medium cap stocks. This sector was decimated by three separate head winds:

  • The widespread accusations of fraud (in some cases proven accurate)
  • The real estate and food driven spike in inflation in the Chinese economy
  • The global slow down fostered by the European Sovereign debt and banking crisis

Any one of those three factors would have been enough for a weak market environment, but combining the three together led to the adjective “BRUTAL” by this seasoned veteran.

Bolton’s fund was down 38% in 2011. The China large cap market was down 22%- a dismal year by any standard. This, despite continuing fundamental progress by many of the more heavily followed China names.

China companies are doing very well- but the stocks have been dismal. The macro global picture trumped the company micro picture in 2011.

 

The Outlook for China Stocks 2012  The Outlook for China Stocks 2012

For starters, it would be hard for 2012 to be worse than 2011 for China equities. Aside from the normal stock market fluctuations off a terrible year, the macro picture in China is improving.

Q4 GDP growth in China was 8.9%. This is the slowest pace since 2009, but the median forecast of 26 economists was 8.7%. China is doing better than the economists realize.

China delivered full year GDP growth of 9.2%. The lowest estimate I’ve seen for 2012 is 7% GDP growth from Pimco, but most economists take a more moderate view in the 8% to 8.5% range.

Whether 7% or 8.5%, in this era of global crisis, China will still stand as the world’s fastest growing economy, boasting the largest emerging consumer class in the history of the world.

Economists are forecasting 12.3% industrial production growth in December ’11. While this growth is stronger than the rest of the world, it’s the smallest gain since August of 2009.

However, growth in retail sales is making up for the shortfall in the growth of industrial production. Retail sales in China are expected to grow 17.2% in December- a blistering pace.

7% to 8.5% growth in China in 2012 should actually bode well for equities. The Chinese government put the brakes on the economy in 2011 to slow down inflation, and it’s paying off.

Thanks to the cooling off of exports and the lower food costs, China inflation rate fell to its lowest level in 15 months in December, which should allow the Chinese government to ease monetary policy.

This past week, many commodities such as copper, soy beans, wheat, and oil traded to multi month highs this week which indicates a certain level of optimism concerning the global economy, spurred on by demand out of China.

In an interview with Bloomberg on Wednesday, Jim O’Neill, the Chairman of Goldman Sachs Asset Management, has some interesting observations.

O’Neill is the economist who coined the acronym “BRIC Nations”- referring to Brazil, Russia, India, and China.

O’Neill pointed out that if the Chinese economy were to grow a mere 7.5% for this entire decade (he is forecasting this), it would contribute more to world growth in dollars than the US and Europe combined.

O’Neill also forecasts a China style democracy will evolve. While the Chinese citizenry is saying the want more freedom, what they really want is more wealth.

There’s still 1 billion people in China who have nothing by modern standards, and they all want wealth. It’s the largest emerging consumer class in the history of the world.

While all this macro stuff is happening, things are shaping up on a micro level as well. I’ve studied nearly 100 small cap charts this past week, and there’s a few that are really shaping up beautifully.

There haven’t been many fraud accusations of late, and the 2011 audits of China small caps will start coming out next month.

There will be massive scrutiny from the audit firms considering the heat that has befallen the sector, so these will be the most reliable audits on China small cap to date.

It’s time to start getting engaged in this sector again if you’ve been on the sidelines.

Some Of My Best Work- A Webinar For You on Fraud In China and How To Avoid It

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Some Of My Best Work- A Webinar For You

As many of you know, the OTC Journal is only one of my publications. This is the beginning of my 14th year with the OTC Journal. As 2011 wasn’t a good year in the markets, I expect 2012 to be far better.

Fraud in China and How to Avoid It!My other newsletter, which is now going into its second year of publication, is focused on Emerging China Stocks. You can check out the web site at www.emergingchinastocks.com. Those of you who follow the sector know it was a complete bloodbath in 2011. The allegations of fraud, many of which turned out to be true, completely destroyed a sector of about 600 publicly traded companies, most of whom are perfectly legitimate.

One of the greatest fund managers of all time- Anthony Bolton, who manages the Fidelity China Special Situations fund, described 2011 as “BRUTAL” for investors.

Bolton, who has averaged 20% a year for the last 20 years in his UK Special Situations fund, believes the world’s investment community will look for growth again soon, and they’ll find it in China equities.

Bolton is continuing to accumulate China Small Caps in the $.5 billion fund, but he is focusing primarily on companies with good corporate governance policies.

I lost a substantial amount of my own personal capital in the 2011 China disasters, but I’ve learned a lot. Rather than fold my tent and disappear into the desert night, I have learned after 23 years in the small cap world that there’s opportunity in crisis.

Here’s where this is all leading. In the second half of 2011 I spent a lot of time educating myself and learning how China companies commit fraud. For investors on the long side, the China small cap companies who are publishing accurate numbers represent the values of a lifetime.

There’s 600 China small caps- 200 trading with senior US listings. About 25 have been credibly demonstrated to be committing fraud, and I believe there will be a few more.

So, the key to making money in these beaten down stocks is the ability to identify which are committing fraud to a material extent, and which are not.

I’ve written a produced an 8 Part video WEBINAR on “How China Companies Commit Fraud”. It’s free- no strings attached, and the first opportunity to attend will be next Thursday.

Lest you think these stocks haven’t hit bottom, let me point out 3 of my core ideas in EmergingChinaStocks are up 140%, 75%, and 62% respectively off the October lows.

If you’d like to attend the WEBINAR, Click Here, go to the following sign up page:

http://bit.ly/PowerOfEight

 Tomorrow’s New Idea

Tomorrow I’ll be introducing my first new penny stock trading idea for 2012.

This is a $.15 stock that no one is following and no one knows about. However, this is no start up. The company is coming off its best quarter ever. In September, this company delivered $5.6 million in quarterly revenues with 30% margins and an extremely small paper loss. The company was very nearly cash flow positive for the first time in its history. I invested privately in this company about 3 years ago at $.25, and I still hold 85% of the shares. Since the company is performing better than it ever has, you’re getting a far better entry level than I had.

This company is riding a 21st Century wave being adopted rapidly into Main Stream society. It’s a bit unusual, and promises to be very profitable. They manufacture and distribute a line of products in a specific category, and their largest customers are the likes of:

  • Amazon
  • Brookstone
  • Drugstore.com
  • Overstock
  • Walgreens

Their products are getting national recognition having recently been featured in a number of top run Hollywood Movies and one highly rated cable reality show.

Got your attention? I’m working on the initial presentation now. I plan to publish several editions on this one over the course of the next month. Tomorrow is your OTC Journal “First Look”.

Stand by to be entertained.

Home Page : www.otcjournal.com
Email Questions or Comments To: editor@otcjournal.com
Click Here to View the OTC Journal Disclosure

Europe Snubs China Bailout Offer – What Will Happen with Chinese Stocks

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This is particularly funny to me. It has long been rumored China was willing to provide as much as $3.2 Trillion in foreign exchange reserves to bail out the Eurozone. I would have expected the Chinese to focus their demands on austerity programs. However, what they are really after is:

  • Greater status at the World Trade Organization
  • Removal of an arms embargo placed after Tiananman Square
  • Greater influence in the IMF- International Monetary Fund

When it came right down to it- led by Germany, the European delegation simply left rather than negotiate, stating its not worth it to allow a Communist Country to have too much influence of EU Members. The Chinese have a lot at stake in Europe, so they don’t have any great leverage in the process. The EU is China’s largest export market, and a full 25% of China’s foreign exchange reserves are in European denominated investments. If Europe goes down, China will lose very big as well. While all this was going on, stocks in China continued their rebound, suggesting the Chinese markets are really starting to buy into the “Soft Landing” scenario. In Monday trading, the Shanghai A shares were up 1.92%, and the B shares 2.02%- 2% moves to the upside are nothing to sneeze at.

The Calm Before the Numbers

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The China markets continued extending out sideways in yesterday’s trading as several high impact economic numbers are due out later this week, and the world watches the fascinating machinations on the political landscape in Europe.

Both the China indexes- The Shanghai A and B shares were flat in yesterday’s trading- each down far less than 1%.

The IPI stats are due out soon- measuring the amount of output from the manufacturing, mining, electric and gas industries. The prior reading was an increase of 13.8%. The IPI number will go a long ways towards indicating the level of slow down in the Chinese economy’s manufacturing and export sector.

October’s CPI should also be out later this week- the measure off the all important inflation number.

In an ideal world, we’d like to see a very moderate drop in the IPI number, coupled with a continuing drop in the CPI number showing inflation has peaked and is coming down. Goldman Sachs is out ahead of all of this information, recommending investing in China stocks now.

While exports from China to the developed nations are shrinking, demand from Japan has soared in the earth quake reconstruction era, and exports to Africa and Latin America are growing as well.

McKinsey company also reports optimism amongst Chinese consumers is growing, and most Chinese believe their income will grow in 2011 as compared to 2010.

That’s it for today. Back tomorrow.