Latest China Small-Cap Report Is Puzzling

I was surprised that the authors received such detailed feedback from Wal-Mart sales managers regarding product sales because when I asked the same questions, I was told adamantly that Wal-Mart won't release that kind of information to anyone, period. In fact, Wal-Mart employees wouldn't even allow me to photograph inside the store without advance written permission. (But I did sneak a few photos when they weren't looking.)

As for my visit to the factory near Xi'an, the equipment I saw was obviously new and imported from Italy, which is at odds with the authors' view that the equipment was old and out of service. I saw robust production of bottled juices and juice concentrate and a level of inventory that seemed appropriate.

I could continue with quite a few more examples, but I am expecting management to provide a detailed rebuttal sometime soon, so I will leave that to them. As for responsiveness, SPU gets an "A+." When faced with fraud allegations, some companies choose to "go dark" and simply avoid investors by hiding behind an IR firm. This is always a troubling sign and, to me, indicates that worse things are yet to come. I am currently in Shanghai and don't have contact details for SPU management with me, so I simply called the general phone number listed on Google Finance and left a message for the chairman. He called me back within 15 minutes and was happy to answer all of my questions.

If this were 2010 again, I would currently be pouring money into shares of SPU, feeling confidant that I could successfully and effortlessly rebut much of the authors' arguments. However, we now live in the post-CCME world and there is enough skepticism in the market that I am hesitant to jump in. Even though I liked the stock at $4.50 (prior to CCME and the onslaught of China hit pieces), I am hesitant at $2. As I have written in the past, even if I can debunk 90% of the arguments made by the authors, that doesn't provide an ironclad guarantee that there isn't a problem somewhere.

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