Prince Frog as quiet as a mouse, NQ’s "Top Ten Lies", China Minzhong's earnings dive

I wrote before about "Prince Frog", it is already more than 2 weeks and the company has still not officially replied, worrisome. The longer it takes, the higher the chance the company is indeed a fraud.


Regarding NQ Mobile, targeted by Muddy Waters, the latter has written a new report called "NQ’s Top Ten Lies Since Friday". It can be found here. I am not an expert in this matter, but I did speak to someone knowledgeable in this area, and he told me that NQ Mobile was suspicious for a longer time, that there were enough rumours regarding the company.


Regarding China Minzhong, which was targeted by Glaucus, the company announced its quarterly results.

This looks like a nice picture:

But this not, earnings are down by 60%:

And this one is rather strange:

Cash up a lot, but borrowings also, why would a company want to borrow so much money if it has RMB 1.57 Billion in cash?

Indofood has acquired 89% of the company, we will have to wait how that will work out.

These are tough times for China based companies listed overseas, but they only have themselves to blame, in my opinion. Conservative accounting, a healthy dose of transparency and rewarding the shareholders through sizeable dividends would go a long way to battle the sceptical observers. But I haven't seen much of that lately.

China Stationery: too many red flags and what does "demised" mean?

I was alerted to Common Sense Investing's posting about China Stationery, one of the China listed companies on Bursa.

The posting referred to an article of Tong Kooi Ong in The Edge. The discrepancy in interest rate received versus the interest rate paid is worrisome. It has been observed in other China companies, in which reported cash was simply hugely overstated. China Stationery claims it owns more than RM 1 Billion cash, an unbelievable amount, that is, if it is for real (I have my doubts).

Common Sense Investing also wrote a previous article about the company, about a puzzling announcement that the CEO was "demised".

One website writes about the uncertainty:


"There is uncertainty surrounding Jiang Danping, the CEO of Chinese manufacturer China Stationery. In an 8 October filing to the Malaysian stock market to announce a boardroom change, China Stationery said that 54-year-old Jiang Danping had 'demised' on 1 October. A number of Malaysian publications have interpreted the wording of the stock market filing as meaning that Jiang Danping has died, although this is still being questioned on some financial forums. We'll provide an update as soon as we have more information."


But the update never came.

Here is one of the definitions of the word "demise" (I only give the first two):

1. death or decease.
2. termination of existence or operation: the demise of the empire. 

If the CEO really passed away (the first definition), one would expect a date of passing, plus on the company website an eulogy, but I can't find any.

If the CEO did not pass away (the second definition), then what was the reason for his termination? Surely shareholders are entitled to know that.

Also, the CEO owned shares in the holding company of CSL, rather important. And in most companies, the CEO is the most important executive, should he not be replaced?

The confusing situation around the CEO is puzzling, to say the least.

The following information I found in the last year report:

Many China companies were listed on the SGX during that time (and many failed), the fact that CSL's IPO was aborted in 2010 must be a large red flag.

The CFO has also resigned, in 2012.

The auditor is oddly enough from Singapore.

Too many red flags, and the trust has gone, the graph of the share price is not pretty:

In an interview with KiniBiz, the Chairman mentioned:

“The stock market moves up and down like the ebb and flow of the tides,” he explained when asked if he was concerned about the sorry performance of his company’s stock.

But I only see the share going down.

LTKM Chairman missing in action? (2)

With reference to the previous posting on this subject, LTKM made the following announcement to Bursa:


"We refer to Bank Negara Malaysia' notice dated 23 October 2013 in The Star newspaper, seeking to locate Encik Ahmad Khairuddin bin Ilias ("Encik Ahmad"), the Company's Independent Non-Executive Chairman, to assist in the investigations of the affairs of Genneva Malaysia Sdn Bhd ("the said matter").

The Board of Directors of the Company wishes to inform that the Directors of the Company have attempted to locate Encik Ahmad but failed to do so up to date.

The Board has met this morning on the said matter and has decided to take the following immediate actions which the Board believes will be in the best interest of the Company. These are:-

(a) With immediate effect, the duties and responsibilities of Encik Ahmad, the Non-Executive Chairman of the Company, is suspended pending the necessary clarification and verification by the Board and the Management regarding the said matter.

(b) With immediate effect, Encik Kamarudin bin Md Derom, an Independent Non-Executive Director is appointed as the Deputy Non-Executive Chairman of the Company.

The Board will make further announcement(s) on the said matter pending the outcome of the clarification and verification by the Board and the Management in due course."


Correct decision, as far as I can see, although rather late, the Board of Directors should have known of Mr. Ahmad's involvement with Genneva Malaysia, which could very well lead to problems down the road. The issue was well noticed by Errol Oh of The Star.

How the economic machine works

I featured Ray Dalio in this blog, here and here. He has now started a new website, called EconomicPrinciples. He offers another view on how the economy works, not only in the form of a book, but also in the form of a 30 minute cartoon, which I highly recommend. I have never been much of a fan of economy (it is all much too vague to me, also incomprehensible that economists can have such a different opinion and that so many didn't see the 2008/09 events coming), but this video I can understand.



I think that his theory is also relevant in the Malaysian context, the economy has grown quite impressive, but part of that is realized by spending on credit (on many levels, both federal but also consumers), which translates into debt.

Below comments are from The New York Times, Andrew Ross Sorkin:


"Ray Dalio, the 64-year-old founder of Bridgewater Associates, the largest hedge fund in the world with some $150 billion under management, has quietly begun teaching his investment secrets on YouTube.

Mr. Dalio, who is said to be worth some $13 billion, was one of the few investors to see the financial crisis of 2008 developing, and perhaps just as important, the rebound. He’s made his money by predicting big macroeconomic cycles. His economic theories, up until now, have been known only to a small group of investors and those willing to pay his firm 2 percent management fees and 20 percent of the investment profits.

Mr. Dalio’s plain-spoken 30-minute video is an oddly entertaining animated cartoon filled with provocative theories about the way the economy runs. He dispenses with the way economists have long taught economics in school, and instead explains the economy as if it were a “machine” that he believes is much easier to understand and predict.

The average Main Street investor has probably never heard of him. It also may seem counterintuitive that a money manager who sells his clients on his foresight would want to preach to the masses. But he told me that he decided to make the video to demystify economic cycles because he believes most investors, regulators and politicians are focused on the wrong issues.

“While I kept it confidential until recently, I now want to share it because I believe that it could be very helpful in reducing big economic blunders, if it was more broadly understood,” he wrote in an e-mail. He explained that, “I believe that most influential decision makers and most people cause a lot of needless economic suffering because they are missing the fundamentals.”

An image from the animated cartoon “How the Economic Machine Works.”An image from the animated cartoon “How the Economic Machine Works.”

Mr. Dalio says he believes that the traditional approach to economics is too academic and impractical. It is one of the reasons he, and others, believe that the Federal Reserve and many other institutions missed the signs of the financial crisis.

Just as there is monetarism and Keynesianism, Mr. Dalio’s approach may be a more practical way to think about the economic cause-and-effect relationships. There are refreshingly basic explanations for neophytes in his video, titled “How the Economic Machine Works,” that even the most sophisticated investors will appreciate.

“Think of borrowing as simply a way of pulling spending forward,” he says, explaining that to buy something you can’t afford today, “you essentially need to borrow from your future self. In doing so you create a time in the future that you need to spend less than you make in order to pay it back.”

This is how he explains austerity: “When borrowers stop taking on new debts, and start paying down old debts, you might expect the debt burden to decrease. But the opposite happens. Because spending is cut — and one man’s spending is another man’s income — it causes incomes to fall.”

Mr. Dalio’s effort is attracting attention with both students of economics and the financial cognoscenti. Already, more than 300,000 people have viewed the video since it went up last month. Henry M. Paulson Jr., the former Treasury secretary, has been sending the link to friends.

Paul A. Volcker, the former Fed chairman, a fan of the cartoon, described it as “unconventional but it casts strong light on how the economy actually works, with its history of repetitive and ultimately destructive excesses in credit creation. The analysis points the way to practical ways central banks and governments can ease the pain of defaults and deleveraging.”

Mr. Dalio has been compared to George Soros and has become something of a philosopher king in recent years — though it is worth noting that his firm’s returns in the last year have been a bit lackluster.

Mr. Dalio has always believed he can see more clearly than others. His approach to running his firm, for example, is based on 210 rules he devised in a handbook for his firm, called Principles. (Among them: “Ask yourself whether you have earned the right to have an opinion.”) As a result of his unconventional management style, his firm has been likened to a cult, a description that irks him because he believes it undervalues the success of the approach.

Unlike traditional economists — Mr. Dalio isn’t one — he does not focus on the much-watched statistics that most economists depend on. He also doesn’t focus on basic theories like supply and demand nor does he believe that monetary policy makers can control inflation simply by controlling the money supply. He derides the MV=PQ formula that is a central principle of economics. (A quick economics lesson, by way of TheStreet.com: “M is the money supply; V is velocity — the number of times per year the average dollar is spent; P is prices of goods and services; and Q is quantity of goods and services. The equation suggests that if V is constant and M is increasing, there must be an increase in either Q or P.”)

That theory, developed by the esteemed Milton Friedman, leads to the wrong conclusions, he says.
Ray Dalio, the founder of Bridgewater Associates, a hedge fund with some $150 billion under management.Anja Niedringhaus/Associated PressRay Dalio, the founder of Bridgewater Associates, a hedge fund with some $150 billion under management.

Mr. Dalio said in an e-mail that his template indicates the formula “is misleading because there really isn’t much ‘velocity’ of money happening as most of what we call velocity is credit growth, which is very different and has different reasons for happening. Velocity is made out to be some vague force that drives the rate that money goes around, and it’s not that at all. I believe that we should agree that spending comes from either money (with a bit of velocity) or credit and we should understand how each is made up and spent to make nominal G.D.P. (gross domestic product).”

If that sounds a bit confusing, that’s because it is. But his video is more straightforward.
For example, he says that there are only two types of economic cycles, but investors always seem to miss them. “One takes about 5 to 10 years and the other takes about 75 to 100 years. While most people feel the swings, they typically don’t see them as cycles because they see them too up close — day by day, week by week,” he says in his video.

So where are we now in the economic cycle? He doesn’t exactly say. But based on his theories, we are probably in the back half of a long deleveraging, which Mr. Dalio says he doesn’t believe has to be a bad thing.

“The key is to avoid printing too much money and causing unacceptably high inflation, the way Germany did during its deleveraging in the 1920s,” he says. “If policy makers achieve the right balance, a deleveraging isn’t so dramatic. Growth is slow but debt burdens go down. That’s a beautiful deleveraging,” he continues. “It takes roughly a decade or more for debt burdens to fall and economic activity to get back to normal — hence the term ‘lost decade.’ ”

So if you studied his lesson, you can estimate that it will be 2018, or at least 10 years after the crisis, before you can begin to proclaim all clear."