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  • AikenLaw AikenLaw Aug 15, 2003 4:27 PM Flag

    Familiar faces

    Hey UP. Good minds think alike I guess.

    CHDX is a little more of a risk in my book, in that they are a legitimate business and there is the lingering effects of a China mania. However, CHDX is simply not a high growth type of company, and I don't see anything changing that in the foreseeable future.

    I have been short anywhere from 1000-2000 shares for a while now. I tend to slowly add to my position when it goes over 33.00, and slowly lighten up when it drops below 27-28.00. I have been doing this for over a month, and have made a good bit of money just playing the swings. I plan on holding the bulk of my position to cover under $ 20, but this may take a few months or even longer.

    What do you think of CHRB? I know where it is heading ultimately, but it is sort of hard to figure out the dynamics of what is really going on there. You have the company owners selling over 60% of the stock in the last several weeks, and the company does not appear to be anything other than a shell, but people are still will to pay $ 7 a share for it? I am still holding a ton of it short, and have made a lot of money. The volume has really dropped off on it, so I guess the day traders have moved on. I just can't figure who the few people are that are coming in and paying $7. I guess there must still be a number of shorts that are covering and taking quick profits..

    Good to hear from you..

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    • Aiken - sorry I haven't really had a chance to dig through CHRB although I'd agree that it is a certain fraud. My only concern, as I mentioned before, was that the market cap is sufficiently low (from an absolute standpoint) that there is a slight chance of an RTO. I'm pretty sure the listing owners will be shopping it around to squeeze every last dollar they can. The value of a shell is between $3-$5MM so I would expect CHRB to fall, but not to zero.

      I actually think CHDX is a slightly better short. For starters, there's more borrow and no forced cover. Larger market cap rules out an RTO. Gross fundamental over-valuation. The clincher for me though, was the fact that the price jump was initiated by rogue Chinese funds on June 17.

      If you're not familiar with the situation, there's currently a massive H share bubble in China, fueled largely by a dearth of publicly listed companies and severe limitations on investing in foreign securities. There's a huge economic incentive for provincial pension fund managers to find some illegal means to move $$ overseas and we saw a wave of illegal funds hit the US markets on June 17. The funds were immediately channeled to foreign listed chinese companies, without care for fundamentals, to arb the H share valuation gap. The impact of these fund flows are negligible for a China Mobile or Petrochina even Sina, but it has been dramatic (understatement) in the micro-cap sector.

      Having made a killing on the gap-up, and with regulators hot on their tail, the rogue funds have started to withdraw meaningfully over the past couple weeks. US daytraders, who caught the wave late, are providing the liquidity for the funds to retreat and will ultimately be left holding the bag. Hit most severe will be the small-caps which have the poorest fundamentals.

      Run a price history on all the China small/micro-caps you know and you will discern a volume spike and gap-up on June 17 which defies explanation.

      • 1 Reply to unlimited_partner
      • Thanks for your insight. You and Huson are clearly much more knowledgeable about the China stocks game than most; certainly myself. I believe you indicated before you had been an investment banker in Hong Kong for a while?

        One last question, going back to CHRB. If a reverse merger was in the works, would it make sense that insiders have sold over 60% of the stock they were holding in the last several weeks? I hope the two of you keep posting, you provide very helpful information.