Wednesday, December 20, 2017

A Holiday podcast....and the World's Biggest Pawn Shop!

Well, we've had a great year here in Cleveland and we hope that you, wherever you are, had a great year too!  That said,  it's now that time of the year where we reflect on our lives and become, formally, officially thankful.....I'd like to take a minute to wish everyone a Happy/Merry:

Christmas 
Hanukkah
春節 (In advance)
Kwanzaa
Pancha Ganapati
Diwali (Belated)
Boxing Day
Las Posadas
Feliz Navidad
Eid al-Adha (Belated) 
and, of course
Festivus (for the rest-of-us)

Most of all, I'm honored and blessed that you, my wonderful readers have chosen to spend some of your precious time, apparently on a regular basis, reading and contemplating our favorite, cutting-edge genre....

"Financial Comedy"  

I'm also really grateful that some pretty important, savvy thinkers are taking notice of my work as well.  (Don't worry, I won't name names....but you know who you are!)  

In that light, I'd like to attach a link to a podcast (Episode 11) I did with Anne Stevenson-Yang just before Thanksgiving this year.  I've known Anne for years, and frankly, without mincing words, I think she's brilliant.  What else can I say?  She's done everything I'd ever want to do, seen everything I'd ever want to see, and she's much more polished than I could ever hope to be. (As you will experience first hand from my sometimes rambling/mumbling dialogue on the podcast)  

I am flattered that Anne chose to spend some of her valuable time chatting with me on "tape".  When reviewing some of her other podcasts, you'll also note that she has interviewed some pretty heavy hitters, for example, one of my all-time heroes, Roger Lowenstein (Episode 9) ("When Genius Failed") gives his thoughts on the economy and investing in a prior podcast.....tough act to follow!   

In any case, I hope you enjoy, and can get through, my extemporaneous musings (45 min.) relentlessly framed by Anne's best effort to keep me on topic.  I must say, when I first heard the finished product, my immediate reaction was "Hey! I've got a future in Presidential Politics!"....followed by "Yeesshhh....stick with the blog..."  But, as they say, it is what it is.  I hope you enjoy my/our thoughts.

Finally, a note to all of you trolls out there that are just waiting to pounce at every one of my slip-ups. Since this is an unedited, shoot from the hip interview, I freely admit that there are a few errant "facts", and dare I say, outright misstatements in what I had said.....my memory fades from time to time.  Forgive me.

I've already identified these miscues, but I'll leave it up to you good folks to find them and report them in the comment section, like I know you are itching to do....consider it a Christmas Quiz!  There might even be a prize for the most thorough troll-job!  

All the best!

DT


OK....One last bit of Financial Comedy for the Year

I just couldn't let this one go without mention.  From a reader.....here's another page from TaoBao....


You might want to point out that Alibaba has a whole site dedicated to selling non-performing assets: 

https://www.taobao. com/markets/paimai/zc_npl?spm= a213w.6688509.0.0.fhERXC

The banner says "Marketplace for collateralized assets. Recommended by banks! Starting from 50% off."

You can buy financial assets, real-property collateral, or valuables like cars and watches (https://paimai.taobao.com/? spm=a219w.116665.a214uxf.9. 879aa89TjPtx4), 

Participate in court-organized auctions. Today the featured offering is discounted parking spaces.
(https://sf.taobao.com/?spm= a219w.116665.a214uxf.8. 879aa89TjPtx4 



Isn't that wonderful!  "Well.....if these deals are recommended by banks!....they've gotta be a good!"

There are hundreds of thousands of these "asset" listings...So Alibaba's fastest growing business segment is "Winding down the busted Chinese economy"??  Alibaba is a giant on-line pawn shop?

I wonder why they don't showcase this huge, lucrative,  gold-mine business segment in the 6-K/20-F, Investor Calls, Press Releases, Presentations or the filings?  Why do they keep focusing on all that low margin cookware, socks, coats and underwear?....and I thought these guys knew how to market?.....Samsonite!.....I was way off!


Saturday, December 2, 2017

A Helping Hand.....

In the spirit of the holidays I thought I would take some time to extend a helping hand and some unsolicited guidance to those of us who are less fortunate....those of us who have had, or are about to have, a tough year.

I am, of course, referring to the Alibaba analysts listed below and copied on this post, who participate in the incredibly entertaining Quarterly Investor Call:

Alan Hellawell - Deutsche Bank - alan.hellawell@db.com
Alex Yao - JP Morgan - alex.yao@jpmorgan.com
Alicia Yap - CITI - alicia.yap@citi.com
Chi Tsang - HSBC - chitsang@hsbc.com.hk
Eddie Leung - Bank of America/Merril Lynch - eddie.leung@baml.com
Gregory Zhao - Barclays - gregory.x.zhao@barclays.com
Piyush Mubayi - Goldman Sachs - piyush.mubayi@gs.com
Thomas Chong - Credit Suisse - thomas.chong@credit-suisse.com
Wendy Huang - Macquarie Capital - wendy.huang@macquarie.com

The purpose of this post is to help the above listed, wonderful, talented people make the painful transition from unwitting cogs in the Alibaba PR Machine to tough, effective, doggedly relentless analysts.  Hopefully, going forward they will begin asking the difficult questions, always promoting full disclosure and erring toward protecting the wealth of the investors who depend on them for solid, well vetted, objective and impartial recommendations.  Capital Markets only work when everyone does their job.

To that end, that's right, you guessed it.....I'm joining their team!

(Yaaayyy!  Awesome!!.....Wild Applause!!!)

So Let's Get Started!

Remember, as an analyst (or a Regulator), if you ask a question, and you don't get a straight answer, you don't have to recommend the stock (or approve the filing....Jay?....are you out there?).  I'd also  remind you, that if you aren't diligent about your responsibilities, your firms could be facing some significant legal exposure.  Especially if this thing is as far off the rails as I suspect it to be.   

Since I like to keep things direct and simple, I'd like to propose that prior to the next Investor Call that "we" (now that I've volunteered to join the team) ask Alibaba management to complete the three (3) simple schedules, described below.  Remember, as an analyst, auditor or regulator "we" hold all the cards.  If management doesn't want to provide the information, "we" can keep reminding them that they are the self-proclaimed masters of "data-driven-big-data".  They should be able to "push a button" and parse any/all available data, any way "we" want to see it.  In fact, in order to come up with their consolidated totals, they absolutely must know what the totals are comprised of.  Wouldn't you think?  If they insist on presenting the same goofy stuff they've been giving you/us for the last three years, "we" don't have to recommend the stock.  In fact, I know this is unheard of today, but "we" might even consider slapping a big fat "Sell" recommendation on this mess.

Remember, the absolute worst (non-illegal) thing Alibaba Management can do to "us" is kick "us" out of the club... "No More Investor Calls for YOU!".... which would certainly tell us something....and we'd likely be better off in the long run.  Getting bounced from the team would probably be less time consuming than negotiating those tricky plea bargains and testifying at the inevitable, incommodious Congressional hearings.  It might even eliminate a mandatory stay at the gray-bar hotel!  It's a win-win!  Remember, we have all the leverage, all we need to do is choose to use it.

Here's the problem:  We need to somehow get from the below gigantic mess ( page 88 of the IPO filing).....more then 600+ related consolidated entities now, with all sorts of contractual, dotted-line, "I'll scratch your back if you'll scratch mine" pseudo-quasi relationships.....and connect it somehow... to the financial statements in the 6-K's & 20-F's....no small feat indeed.



So how are we going to do it?  We are going to use the three (3) schedules I referenced above.  Here they are:
















These three (3) simple schedules should prove to be illuminating.

Schedule #1- GMV By Segment (if at all accurate) will tell us just how big this business really is.  To standardize the data, which Alibaba must report to the China's National Bureau of Statistics (NBS), I used the NBS categories like, Beverages, Tobacco and Liquor, Garments, Footwear, Hats, Knitwear, etc. and added the categories that Alibaba has become famous for (i.e. "broken" Jumbo Jets, Yachts, Bad Loans, Bankruptcy Assets, Knock-Offs, etc.) The total should "tie out" (an old fashioned accounting term) to the GMV reported in the 6-K/20-F.  In the end, we will be able to see just how much "Fast Moving Consumer Goods" are shipped by every segment of the business.

Schedule #2 - Segment "Data-Driven-Big-Data" (again, if non-fiction) will tell us whether the carrying values of the "Investees", intangibles and other "Questionable Assets" are reasonable/rational.  We need to see "Assets by Segment".  So, if we examine the column headings, we are asking Alibaba management to provide us with Asset Detail for the 22 Major Operating Segments listed on the schedule, "Other" (Alibaba management loves "Other"), The Guangzhou Mother Ship (CORP HQ) and "Eliminations" (an accounting process which eliminates all of the inter-company transactions).  Again, all of these Segments should "tie out" to the total reported on the 6-K/20-F Financials.

To bolster our understanding of the importance of this schedule, I'll rehash a snippet from my "Finding Inner Peace in Dharamsala.... Enlightenment" post:

Significant equity transactions, restructuring transactions, mergers and acquisitions and equity investments 

The above heading is actually one "roll off your tongue" topic under Note 4 of the most recent 20-F.  Note 4(c thru ae) of the 2017 20-F describes all of the unique deals, structures and devices Alibaba has used to build its e-commerce ecosystem over the last few years. According to the footnote the company spent US$33.9 Billion purchasing all of, or portions of 28 separate businesses along with an undetermined number of "other" businesses as described in footnote "m".  The general modus operandi with these transactions is to purchase shares in step transactions, revaluing the previously purchased shares, booking gains, as new funding becomes available at higher per share price.  These magic machinations have produced gains of US$7.3 Billion since the IPO.

Of greater interest, incredibly, EVERY investment they've ever made, even through the Stock Market crash of the Summer of 2015, has maintained or increased in value (except for that pesky "other" which lost about $1.5 million.)  They are clearly financial wizards!  Alternatively, perhaps they actually have made a few mistakes, and just haven't written them down/off yet.  (Alibaba Pictures and Alibaba Health carrying values alone are about $3 Billion greater than the Market Value.)

Remember, the September 30th, 2017 $87 Billion in asset value didn't even exist four (4) short years ago.  Let's see what the values assigned to these businesses really are and compare them to the Segment Income.  Hopefully, we can get a handle on that big "Blob" of "China Marketplace" and see exactly how their capital is allocated and how productively it's being used, even though Alibaba Management freely admits they do not manage their segments to any profitability metrics.  Per Joe Tsai, in an Alibaba PR Department video (provided by Bloomberg), "'free' is not a viable model......but patience is..".  To paraphrase, "we're not going to talk about profitability....don't worry everything will work out eventually....trust me".


Schedule #3 "Show Me The Money!" will tell us where all of Alibaba's cash is as of 12/31/17.  Alibaba had $22.4 Billion on the books at the end of September, so once their $7 Billion junk bond sale closes in the next week or two (it's probably being accelerated as I type), they should report something North of $30 Billion in Cash and Equivalents at year end.  I, for one, think it's important for investors to know what this balance is comprised of and where the money is.

Money moves around the globe at lightening speed nowadays, but through the magic of financial accounting, we're able to at least take a snap-shot at quarter/year end, reconcile the bank balances and simply "add the balances up"!  That shouldn't be too hard for a global "big data" savant like Alibaba.

Of course, they could just wire it all back to China on the last day of the month to cover their tracks, but I digress.  This schedule should, of course "tie out" to the "Cash and Equivalent's" line item on the Balance Sheet.  Note: We'd expect to see most of the cash in the PRC since Alibaba does most of it's business there, but since Alibaba is a global enterprise, and since the Mossack Fonseca and Appleby leaks, we investors now understand that cash could be hiding just about anywhere.

I put a few cute sounding examples like "Jack's Basement" and "Del Boca Vista Hedge Fund - Phase II" on the schedule, illustrating what we might expect to see.  But of course, I'm just having some fun here.  I'd expect Alibaba management to come up with more believable sounding fake entries and line item explanations on the schedule.   

Escrow Services

This next schedule will help us focus on a very common potential accounting/auditing problem.  The Alibaba 20-F (pg.16) goes through great lengths to explain the risks involved in the Alipay escrow services provided, but nowhere in the document does it describe the mechanics of the escrow service.

We rely on Alipay to conduct substantially all of the payment processing and all of the escrow services on our marketplaces

Simply put, cash, perhaps "escrow cash" comes in somewhere, and it's not "Alibaba's" cash.  It belongs to someone else (customer payments in anticipation of a Merchant shipment, perhaps).  Which is fine, as long as an offsetting liability (i.e. "cash due to someone else") is properly booked as a liability.  When "escrow" transactions are handled correctly, Assets, Liabilities and Revenues are properly recorded.  If not, as described below, as Sales (GMV & Revenue) increase and/or float increases, Assets and Revenues are overstated.  Liabilities are understated.  There's a good chance that some of this is going on somewhere in the "ecosystem".  It's referred to as "Revenue Recognition" issues in accounting parlance.  Here's an simple, understandable example of "Double Entry Bookkeeping" Revenue Recognition.


Interestingly, both methods get to the same result when the customer "deposit" and the Merchant payments are both processed (and goods are shipped), on the same day.  There are no "Revenue Recognition" issues at all.

In the above example, if float increases, let's say Alibaba doesn't pay the Merchant for 30 days, and our merchandise Sales remain constant at $100 a day,  in the "Correct" example, we are holding $3,000 of customer cash and $3,000 of Liabilities "permanently".  Revenue would remain constant at $1.00 per day and GMV would remain constant at $100/day as the transactions close. 

Under the "Incorrect Method" Revenue, GMV and Cash would be permanently overstated by $3,000.  The amount of the float.

Of course, I have no hard evidence of any of this going on at Alibaba or Alipay.  There's a cone of silence surrounding the inter-company relationship.  The financial statements and disclosures aren't at all clear as to what's going on.  For all we know, these transactions aren't even on the Alibaba books.  Maybe some are and some aren't?  The cash and escrow services could be on Ant Financial's books, or anywhere really.  Unfortunately, nobody on "our team" has access to these records.  We just see a big "Blob" of China Marketplace.

Hypothetically, if fake GMV really were $600 billion and Alibaba took 30 days to pay it's merchants, that would generate $49 Billion in interest-free cash/float sitting somewhere.  That's a huge number.  Of course, I'm just thinking out loud since "little birds" are telling me that Alibaba seems to be taking longer to pay merchants.  Perhaps some of my readers will chime in?


What to Expect From Our Efforts

Once Alibaba management gleefully and expeditiously completes these schedules (they are the sultans of big data) we can ask them to provide same for the last three (3) 20-F year(s) end figures and all the quarterly 6-K's.  Then we'll have something to analyze!

Now, being a realist, I understand that there may be some push back.  Alibaba management will claim that "it's against Chinese Law" to provide work-papers and documents, just like they, and all/most Chinese companies do, when dealing with the SEC.  Selling FMCG on the Internet is a closely guarded State Secret!

There's not a prayer in the world that they will provide the Schedule #1, #2 & #3 information voluntarily.

So, rather than saying:

"Well....if it's illegal, under Chinese law then our hands are tied.....but what the heck, let's still slap a Strong BUY on it since our underwriter's are on the same team!".

Let's remember, again, we analysts hold all the cards and it's our job, and our legal and moral responsibility to protect investors from shenanigans.  We'll need to get tougher.

When we refuse to buckle under, our team will be subjected to a full-court-press, invited to lavish "conferences" where we will be wined and dined, so we can fully understand the Alibaba magic.  We might even be given job offers and promises of lucrative financial arrangements, if we just choose to "see things their way".  It will be really hard for us to "push these checks back across the table", but for the sake of our investors, we'll have to do it.  We will be tempted to think... "after all, it's only an opinion, if I don't slap a Strong BUY rating on it, somebody else will.  What if I'm wrong?  I don't want to be the odd man out ....it'll ruin my career...and I really had my eye on that Condo in the Caymans."  Of course, we must resist.....and do our jobs.

If the "wining and dining" fails, unfortunately, some of us may just "go missing".  Some of us may not make it home.  I'd understand if some of my new team members don't want to go on. I'd respect your decision to quit.  We all have families and loved ones to consider.  But sadly, that's the price that we analysts must be willing to pay to insure accurate financial statements and the integrity of the markets.

The truth shall set you free....


Full Disclosure

Of course, in the interest of open dialogue, I want to make sure that you, my readers, understand, that if you have any questions at all about Alibaba's Financials, you should feel free to email any member of our team directly.  We are an open book.  Anything we know, you, the investors we serve, should know as well.  If a team member has had any non-public, previously unreported, material conversations with Alibaba management, we'll go through our notes and email and be happy to "provide color".  You all have our email addresses now.  This is the essence of a "public" company.  All investors, big and small, get the same information at the same time.  We'll anxiously await your "Q" and I hope you will appreciate our "A".

After reading my work, some of our team members (Specifically, Alicia at Citi; Thomas at Credit Suisse; Piyush at Goldman and Alex at JP Morgan) might also be thinking about frantically running into to their respective bond underwriters offices at their firms, letting them know that there may be a problem with Alibaba's financials, and consequently, the $7 Billion Bond issue that they are about to sell, might be, to use an industry term of art, "dog-shit".  In order to protect our team members and their firms from the inevitable legal fallout, I wouldn't be adverse to that course of action.

"Should I Short It?"

Over the last few weeks I've fielded this question more often than I care to count.  I've long opined that this is a "Blutarsky Stock".....(Zero...point...Zero).

Surprisingly, and I must admit, I was a little vague on this in a post last summer entitled  Follow Up Thoughts on..."I would Never Say...(Part Deux)...."

The answer to the "Should I Short it?" Question is:

This has always been a "Sell", but it's never been a "Short".

This beast is Teflon....it could go to $300 unless Mr. Market figures this out.

Of course, it may be a "Short" at some point, but we'd need to see a really strong sign that the Chinese Government is ready to capitulate....we're not there yet.

I know, of course, you're dumbfounded, confused and flummoxed by that statement.  What in the world does the Chinese government have to do with the BABA stock price?

I also know, that it will take a while for this to sink in.  Take a pause and clear your mind.

I thought it to be far fetched at first as well.  Let me elaborate.  Simply put, if you are a US Shareholder and you want to short Alibaba....the Peoples Bank of China is on the other side of your trade.  Of course, this is un-proveable, other than the presumption that what was disclosed in the MF-ers (Mossack Fonseca) Panama Papers and Appelby leaks is absolutely happening in the Caymans and the BVI as I type.  Note the list of Chinese "Royalty" caught in the MF-ers net.  Disturbing to say the least.

I've re-posted a list of the Alibaba insider controlled vehicles (pg. 250 of the Original IPO Documents from 2014).  We note that nearly all of the US$ share value was housed in Caribbean Financial Institutions shortly after the IPO, per the footnotes.  Also note that roughly 80% of the shares, prior to the lockup expiration, were held by insiders.  Moreover, this schedule is three years old.  There is/was absolutely nothing preventing China's elite from starting oodles of additional shells to facilitate this state sponsored master plan going forward.

Think of it this way, each of these insider controlled investment companies, hedge funds and such (OFI's or "Other Financial Intermediaries") borrowed (and continue to borrow)  "newly printed" money from Chinese banks  (Note: The PBOC just discovered that they had an additional US$ 24 Trillion in Shadow Debt on the books...Ooooppsss!)

With the indispensable aid of US Banks, Caribbean offices and trading desks, the investment companies and hedge funds convert the RMB to US$ with the expectation that the shell companies will support the shares.  Since the money isn't "real" and the borrowers have no intention of ever paying any of the loans back to the Chinese banks (they'll be rolled over forever like most Chinese debt), much like the 40 year mis-priced junk bonds Alibaba just filed to float, the borrowers have nothing to lose.  They need US$ to support the stock, borrowing in the US credit markets and/or converting "Mao-nopoly money" to US$.  They coordinate and keep the Ponzi going.  I've often said that if I could just print money in my basement I'd own half of Cleveland (I'm a simple man with limited vision) and some prime island property in short order.....if I made a bad investment it wouldn't matter!  I'd just print more money.

My working theory is that the initial IPO Money and the proceeds from the two US Bond issues, (the original $8 Billion from 2016 and the pending $7 Billion) were/will be transferred to Cayman accounts (or anywhere there's a Banker/Broker willing to provide market access) and used to purchase/trade BABA ADRs anonymously, permanently propping up the stock.  This would be another plausible explanation for Alibaba's unquenchable thirst for USD$ when they do comparatively little business outside of China.


"Bailing Out" 

So let's fast forward to today.  Per Yahoo Finance, Institutions and Mutual Funds have been snapping up Alibaba shares at a consistent pace.  Alibaba Insiders silently sold off nearly 30% of the company in just three short years.  Why in the world would all of these insiders bail out on this gold mine?
















Half of Alibaba is now owned primarily and accidentally by dumb-ass US Investors (aka you & me).  Unfortunately, most of the shares are held in our Profit Sharing Plans, SEP's, IRA's, Pension Plans, 401k Plans, ETF's, Endowments and other vehicles that we don't check every day or are just told by money managers to "trust me" and play the part of Rip Van Winkle, betting on America for the long haul.  The recurring pitch is that, hopefully, when we wake up in 20 years and check our portfolios we'll be rich and able to retire.  At least that's the plan.

This cancer has now spread to 1,672 institutions with nearly half of those shares ($88 Billion @ $190/share) held by the "Top 20".    These funds are managed by the likes of Blackrock, T.Rowe Price, State Street, Oppenheimer, Vanguard, iShares, etc.  Even if you are not "into" finance, these names should ring a bell.  You probably have some money invested with them....but you might not even know it.































So Now What?

The first step in any twelve (12) step process is to admit you have a problem.  Yes America, we've been snookered.  We've been hosed, screwed, ripped-off, etc. once again by our friendly all-American Investment Bankers, this time, unwittingly (or not) in cahoots with the Chinese government.  They, unfortunately, have chosen not to "push the checks back across the table".  There's no way around it.  All we can do now is try to limit the damage and move forward.

If you doubt my thesis, ask yourself the following, relatively long, drawn out, rambling "if/then" question below:

If you think my thesis is wrong, and you really, truly believe that:
  • The roughly US$8 Trillion, of rapidly expanding Caymans money, much of it Chinese, is really used for charitable, philanthropic purposes (To my knowledge Mother Theresa didn't have any Cayman accounts), and:
  • Alibaba is a historic model of "asset lite"capital efficiency creating $87 Billion in incredible balance sheet value, most of which are "intangible" assets, in just four short years, and:
  • All of the "Jumbo Jet", "Yacht", "Industrial Goods", "Loans", "Knock-Offs" and "Busted Real-Estate" listings are legitimate "Fast Moving Consumer Goods", and:
  • Alibaba's "Singles Day" $25 Billion GMV (the equivalent "work" of 51 million people in one day....140,000 Sears/Kmart Employees x 365 days) is accurate/real,  and:
  • Chinese Bankers have lost their competitive fire and are willing to let this golden goose procure financing exclusively off-shore, and:
  • The "On Shore CNY"/"Off Shore CNH" dual currency system, where the "Off Shore" supply is controlled as tight as a drum to create the illusion of real trade value, while the "On-Shore" supply is printed faster than the Deutsche Mark in the post WWI Wiemar Republic, is just a quirky, non-purposeful aberration of Chinese Monetary Policy, and:  
  • Alibaba continually shows up on the doorstep of US Investment Banks begging for US$ when 90% of their business is transacted in RMB, and: 
  • The Bookrunners (JP Morgan, Citi, Goldman, Morgan Stanley, Credit Suisse, et. al.)  of the brand spanking new US$7 Billion plus Junk Bond issue (mis-priced at only 120 bpts. over US Treasuries) are selling 40 year "BABA Bonds" as an altruistic, joint, "hands across the water" gesture, without regard to compensation and fees, and:   
  • The 600+ related, consolidated, entities scattered all over the planet, have nothing to do with money-laundering and are indeed the most efficient way to run this enterprise, creating millions of as yet undefined future jobs in America, and:
  • The "franchise" office of PWC Hong Kong can effectively audit and verify the financial statements of these 600+ related, consolidated entities, with a few dozen staff, for approximately the same fee that PWC US would charge to audit a large domestic, auto dealership, and:
  • Jack, Joe, Daniel and Maggie are somehow untouchable, cutting edge entrepreneurs, operating as rebellious, disruptors to the appall and chagrin of the helpless, powerless, Chinese Communist Party, and:
  • By management's own account, Alibaba is the most profitable business in history, beyond anyone's wildest imagination, and:
  • You believe that American Financial and Political Leadership is both smart enough and honest enough (i.e. ..they patriotically push the huge checks back across the table) to prevent any "systemic financial contagion that nobody could possibly anticipate" from ever again happening.....like it has been happening roughly every decade since I was a little boy. 
Then, if all of that makes perfect sense to you, you're telling me there's a chance:
  • That the Chinese government, a government that believes North Korea to be good neighbor and human rights standard bearer; a government that controls every aspect of its society, routinely grabbing it's executives for re-indoctrination sessions; a government that ignores property rights, thinks nothing of  restricting Western, "subversive" media content, including this silly little blog;  a government that goes out of its way to "fake" its global image (Hey...we all have issues) and is, indeed, the very definition of an iron handed, good-old-boy institution......would ever, ever, ever in a million years, want to give up HALF (80% if you count Softbank) of Alibaba, this crown jewel, the secret sauce, the cornerstone of their new Internet economy, to a bunch of ignorant American and non-Chinese Investors?  Huh?....Really?...
Why the hell would they do that?
Although I don't, and would never, presume to give anyone financial advice, I'm hoping that this thing holds together at least a little longer so that some of you Leo DiCaprios about to be sucked under by this sinking barge can get to a life boat.  Please, everyone, don't panic.  Don't make any sudden moves.  Hang onto a deck chair, slip into your flotation device and calmly move toward the rail.

If US Investors just start dollar-cost-averaging out of this leaking scow, and the Chinese government doesn't notice, we might stay afloat for awhile.  (This blog is blocked in China, so unless the Alibaba PR department spills the beans, which would get them called into the bosses office for screwing up the CCP master plan, we should be able to keep Xi and the PBOC from figuring out that we've figured this out.... at least for a little longer.)  Maybe we can sell another 10%-20% of this beast back to China's elite, above our cost, before it hits the propellers.

So what if we didn't triple our money?... at least we didn't take a huge loss... and we live to fight another day.  If we move slowly and deliberately perhaps we can get out of this with minimal damage.  The best result we can hope for is that China's "Royalty" will be selling Alibaba shares to other China "Royalty" through Caymans shell corps. on the NYSE forever, continuing to drive up the stock price, and our indexes, without any meaningful US Investor involvement.

Ironic, to say the least.

Holy Cats!

Would ya' look at that.....Alibaba was down 8.5% last week in heavy volume....$40 Billion of Market Cap gone.....poof!

Perhaps some decision makers are starting to take a look at my work?  It looks like the Caymans crew and the Alibaba PR Department are going to be putting in some OT for the next couple of weeks.....


Oh....Crud.....One More Thing....

One of my readers emailed me this Bloomberg photo.  It's a hoot.  At first blush it looks like a "Jersey Landfill"....(Oh great....now I'm going to get hate comments and e-mail from New Jersey readers....come on man, you have to admit you have huge landfills!....Sheeeshh)... Anyway, this picture shows junk as far as the wide-angle lens can see, being shoveled around by hard working, industrious, grossly-underpaid Chinese workers while China's elite count their billions socked away in the Caymans, but it's actually a highly efficient sorting hub for ZTO Express! (ZTO:NYSE US$11 Billion Market Cap)  ZTO is yet another goofy Cayman Islands domiciled business ....and one of Alibaba's largest "partners".

Here's are a couple of tidbits from their 9/30/2016 F1:

We are a leading express delivery company in China and one of the largest express delivery companies globally, in terms of total parcel volume in 2015, according to the iResearch Report.

Operational efficiency and cost management are critical to the success of an express delivery business. We have achieved strong operational efficiency through centralized control and management of 74 sorting hubs and a fleet of over 3,300 trucks, route planning and optimization, as well as our proprietary waybill tracking system and transportation management system. Our operational efficiency and economies of scale have resulted in our cost leadership with unit cost per parcel.

From my perspective, the biggest problem with this stock is that they misnamed it.  Rather than ZTO, the moniker should have been WTF Express.

How in the world does this stuff get listed on US exchanges?  Jeeezzzzus.... I mean really?
























Additional Info....

Leo Dicaprio
https://www.youtube.com/watch?v=en8SRbLX6t8

Alibaba PR Video - Bloomberg
https://www.bloomberg.com/news/videos/2017-09-15/inside-alibaba-jack-ma-on-disruption-and-dominance-video

ZTO Express - F1
https://www.sec.gov/Archives/edgar/data/1677250/000104746916015850/a2229567zf-1.htm

11/17 Bond Issue Analysis
https://www.washingtonpost.com/business/this-new-alibaba-bond-has-a-lesson-for-the-stock-crowd-gadfly/2017/11/29/aa743f9c-d4d3-11e7-9ad9-ca0619edfa05_story.html?utm_term=.7d5c5729e948

BABA Bond Issue - Prospects
https://www.sec.gov/Archives/edgar/data/1577552/000104746917007364/a2233928z424b2.htm 

NBS October Stats
http://www.stats.gov.cn/english/PressRelease/201711/t20171115_1553775.html

Alibaba - Big Brother
https://www.wsj.com/articles/chinas-tech-giants-have-a-second-job-helping-the-government-see-everything-1512056284?cx_testId=16&cx_testVariant=cx&cx_artPos=2&cx_tag=contextual&cx_navSource=newsReel

Gone Fishing
http://money.cnn.com/2017/06/14/investing/china-missing-executives-anbang/index.html