It turns out that sugar prices are up about 47% in the past year while ethanol prices, which are set by the government, often don’t meet production costs, according to Bloomberg.

Part of the problem is that Brazilian drivers have figured out that when ethanol pump prices exceed 70% of gasoline prices, gasoline is a better value because it contains more energy than ethanol. Thus, in order to keep pump sales going, ethanol revenue is effectively capped despite the production costs.

Another part of the problem is that the government regulates gasoline prices through a division of Petroleo Brasileiro SA (NYSE: PBR), or Petrobras. This has the effect of regulating ethanol pump prices at the same time.

Sugar has none of these problems. It is widely and freely traded globally. This is leading at least some ethanol producers to invest in sugar mills as opposed to ethanol production capability.

One interesting side-light from this is that as Brazilian ethanol production fails to keep up with demand, US producers may find a market for more of their corn-based ethanol in Brazil. That would be ironic, given the US duty on ethanol imports. Still, this could be a boon to ethanol producers like Archer-Daniels-Midland Co. (NYSE: ADM) and Valero Energy Corp. (NYSE: VLO).

Paul Ausick

The company is set to sell 1,600,000 ordinary shares and selling shareholders are selling 4,400,000 ordinary shares. Morgan Stanley and Deutsche Bank are the joint book-runners for the 6 million shares being sold, and co-managers are listed as Pacific Crest Securities and Oppenheimer & Co.  MakeMyTrip and its selling holders granted the underwriters an over-allotment option for up to 900,000 ordinary shares.

Just last week, before the announcement of the secondary offering, the shares were trading at $27.12.  Shares were at $25.05 by Monday’s close, and shares are now flirting with $23.50.

What is odd is that this share sale is coming the day before a three-day weekend that many Americans will be treating as a 5-day weekend or even longer.  That throws a wrench into the evaluation of the offering.

Shares are currently down about 4.4% at $23.65 and the trading range since its August IPO has been $20.75 to $42.88.

JON C. OGG

Aluminum Corporation of China, or Chinalco, is a holding company and the controlling shareholder in Aluminum Corporation of China Ltd. (NYSE: ACH), or Chalco. Along with China National Offshore Oil Corp. and China Unicom, which respectively control Cnooc Ltd. (NYSE: CEO) and China Unicom (Hong Kong) Ltd. (NYSE: CHU), Chalco has been named as one of 17 state-owned enterprises to have irregularities and other violations in their financial statements to the Chinese government in fiscal year 2009. China’s Xinhua news agency reports that by March of this year 735 irregularities had been corrected and “65 people responsible for the irregularities or violations have been punished.”

The accounting irregularities for the 17 companies included overstatement of assets, profits, and liabilities by $292.4 million, $405 million, and $528 million, respectively. Undercounted assets totaled $446 million, while undercounted profits totaled $185 million, and undercounted liabilities totaled $385 million.

In the case of Chinalco, the problems appear to be violations of Chinese rules more than accounting irregularities. Chinalco included 11 companies in its 2008 financial report that failed to meet profit targets by the end of 2009 and launched or acquired 10 projects for which Chinalco did not have permission from the state. The total investment in the 10 projects topped $1.4 billion in 2008. Chinalco also got slapped for some irregularities in its senior managers’ shareholdings.

The troubles at Chinalco are reasonably small, but they should be the final straw needed to kill speculation about the company’s rumored intention to buy Alcoa, Inc. (NYSE: AA). The truth could be that China just doesn’t want to be embarrassed by another rejection of a bid for a large US firm. And Chinalco probably doesn’t want more scrutiny from the SEC after getting raked over by Chinese regulators.

Running afoul of China’s regulations governing state-owned enterprises is not the only issue. The so-called “Facebook of China,” Renren Inc. (NYSE: RENN) had to correct its financial statements just before its IPO earlier this month. Shares officially opened at $19.50, climbed to $24, and closed the first day’s trading at $18.01. Shares are now trading at around $12. Busted IPO for sure.

Hong-Kong based financial software maker Longtop Financial Technologies Ltd. (NYSE: LFT) lost its CFO, saw its auditing firm resign, and watched the US SEC initiate an investigation of the company’s financial reports. Shares had fallen -25% since the beginning of May before trading was halted last week. Longtop’s CFO was also an independent director and chairman of Renren’s audit committee.

Advanced Battery Technologies, Inc. (NASDAQ: ABAT) and China MediaExpress (OTC: CCME) are both Chinese reverse merger companies. Advanced Battery’s chairman has been accused of selling a key subsidiary to himself without compensating the company. A report by a short-seller has led to a -33% drop in the share price and a bevy of shareholder lawsuits. Advanced Battery makes lithium-ion batteries for electric vehicles, including its own line of motorbikes and scooters. China MediaExpress, the billboard company, saw its share price fall from near $20 to around $1.50 following a short-seller’s report regarding reporting irregularities.

China Shen Zhou Mining & Resources, Inc. (AMEX: SHZ) is one of China’s leading miners of rare earth minerals and other metals. If any company should be making money, this is one. But the company’s auditing firm issued a “going concern” note to China Shen Zhou’s 2010 10-K. The auditors apparently don’t agree that a private placement of $20 million in common stock and another $7.2 million in warrants is enough to keep the company going for all of 2011. China Shen Zhou’s stock peaked at $10.84/share in January, and trades at about $4.10 today.

While each of these companies may exemplify a different aspect of what’s going on with Chinese firms, they all have one thing in common: they’re Chinese. That is, they must operate under the constraints of Chinese regulations, which are a little hard to pin down at times. The major problem that firms face is that the Chinese government has given inflation fighting a pre-eminent position in its policy making. Higher interest rates, lower lending limits, and reduced liquidity make profitability uncertain.

There are also, apparently, more than a few executives willing to cut corners in pursuit of riches. Accounting rules in China are different from US SEC GAAP accounting rules, and taking advantage of those differences leads to different numbers on both Chinese and US reports, which leads to reports from short-sellers who smell blood in the water, and eventually to government investigations on both sides of the Pacific.

Finally, it’s also worth noting that China faces a serious real estate bubble and that many well-known investors are counseling short positions on Chinese real estate. But real estate, like copper, can be used by China’s small- and medium-sized firms as collateral for low-cost loans while the country’s banks are prohibited from making more loans.

China wants to grow its economy by about 8% annually in an effort to keep up with population growth, rising wages, and large numbers of retirees. To date the country’s exports, wild lending, and government funding have pushed GDP growth above 10% for a number of years. Ratcheting back to 8% means cooling the economy, as the government has done.

The problem is that the constant accelerate/brake pattern is hard to control. China essentially has no choice but to keep the shell game going. If it stops, no one will know for sure where the pea is. 

We have a saying here at 24/7 Wall St.: KNOW WHAT YOU ARE INVESTING IN!  It is getting hard to trust anything out of China at the moment.  Maybe trusting Chinese accounting is becoming the same as trusting that Chinese vitamins are even half of what they are supposed to be.  Welcome to the World of Knock-Off Accounting.

Paul Ausick

The IPO was roughly 52.5 million shares which priced at $25.00 after a final price range of about $20.00 to $22.00 per share.  It is safe to assume that any overallotment has already been spoken for.

When a company is touted as “The Google of Russia” and on the backs of a mega-success like LinkedIn then the premium is going to go your way.  Despite today being the first day of short selling in LinkedIn shares, the stock is down only 0.2% at $88.11.

The reception is good enough that even Renren Inc. (NYSE: RENN) is up over 3.5% at $12.85 today.  That one is still a busted deal and still the source of much shareholder pain.  The company called “The Facebook of China” should have been called “The About-Face in China.” 

The comparison that many investors want to measure Yandex is either Google Inc. (NASDAQ: GOOG) or Baidu Inc. (NASDAQ: BIDU).  Whether you choose to use those for real comparison is up to you.  Yandex is the top site in Russia and has expanded to Belarus, Kazakhstan, and Ukraine.  Yandex was worth about $8 billion at the IPO price and that compares to $167 billion or so for Google and compares to about $45 billion for Baidu.

So, here is our take on Yandex and why this deal matters so much to the investing public.  Yandex is a Russian outfit.  We have seen many hot IPOs come out of China and India, but we have also seen many flukes.  Reverse mergers have tainted the reputation of what might have been otherwise respectable companies, and now it just hard to know “what is what” and “who is who” when it comes to China.  Investors have been taught over and over to gobble up the better investments of the BRIC nations of Brazil, Russia, Indian and China.  Investors just need to remember that corruption and political risks are generally key business risks in these lands compared to most developed nations.

A successful IPO from Russia could unleash many more ADR offerings.  We have seen almost no Russia IPO in America and Mail.ru went public in London.  If this one remains, it would seem logical that other Russian IT-companies and even other BRIC-based and emerging market companies will try to follow suit.

This one matters for many IPOs even if it was not listed in our TOP 17 IPOs TO WATCH IN 2011, and the real ramifications will depend upon whether or not this IPO can hold up.

JON C. OGG

This company is yet another “So and so of some other BRIC nation” and this one is compared to Google Inc. (NASDAQ: GOOG) more than anything.  Yandex’s reference is “The Google of Russia” even though Google s really “the Google of Russia” when you consider the market share in adjacent nations where both companies operate.  Others are comparing it to Baidu Inc. (NASDAQ: BIDU) as “The Baidu.com of Russia” and that is probably more appropriate.

The lead underwriters are Deutsche Bank, Goldman Sachs, and Morgan Stanley. 

Our indications are that the deal is being priced at closer to 25-times next year’s expected earnings.  There are several key reports to consider here:

• Seeking Alpha calls it a value under $50.00
• Here is Gaskins IPO Desktop summary of the deal
• Here is IPO Home’s reference with a link to Yandex’s roadshow.

JON C. OGG

The new ETF allows investors in America one more avenue to get into domestic Hong Kong via small-cap stocks.  The ETF aims to track the performance of the IQ Hong Kong Small Cap Index in a market cap-weighted index.  

Index IQ already has two cousins of this ETF… IQ South Korea Small Cap ETF (NYSE: SKOR) is the first South Korea small cap ETF and IQ Taiwan Small Cap ETF (NYSE: TWON) is the first Taiwan small cap ETF.

The Hong Kong version of this shows that there are 100 holdings per the factsheet and the top ten holdings are as follows, with sector and weighting percentage:

• Skyworth Digital Holdings Ltd. (Consumer Discretionary) 2.24% weighting
• Great Eagle Holdings Ltd. (Financials) 2.19% weighting
• Kingdee International Software Group Co. Ltd. (Technology) 2.18% weighting
• G-Resources Group Ltd. (Materials) 2.13% weighting
• Giordano International Ltd. (Consumer Discretionary) 2.11% weighting
• Pacific Basin Shipping Ltd. (Transportation) 2.08% weighting
• China Gas Holdings Ltd. (Energy) 2.07% weighting
• Luk Fook Holdings International Ltd. (Consumer Discretionary) 2.06% weighting
• China Modern Dairy Holdings Ltd. (Materials) 2.04% weighting
• Yuexiu Property Co. Ltd. (Financial) 2.03% weighting

The saying is becoming more and more true each day.  There really is getting to be an ETF for just about every form of investment class.

JON C. OGG

The charges filed against Strauss-Kahn include a criminal sexual act, attempted rape, and unlawful imprisonment.  It is our understanding that his plea is ‘not guilty.’ The IMF statement offers no insight at all on its website:

“IMF Managing Director Strauss-Kahn was arrested in New York City. Mr. Strauss-Kahn has retained legal counsel, and the IMF has no comment on the case; all inquiries will be referred to his personal lawyer and to the local authorities.  “The IMF remains fully functioning and operational.”

Strauss-Kahn was expected to announce in the coming weeks or months that he would leave his Washington post to run for president of France under the Socialist Party.  It turns out that he had to make a public apology over an affair at the IMF in recent years.  His reputation for being among the first to declare that the recession would globally take trillions of dollars to avoid a depression has just taken what would appear to be an unrecoverable turn for the worse (or worst).

His full biography is still on the IMF site.  Strauss-Kahn was a member of the French National Assembly and Professor of Economics at the Institut d’Etudes Politiques de Paris. He was reelected three times from 2001 to 2007 to the National Assembly in France, and in 2006, he ran for the Socialist Party’s nomination for the French presidential election. He also served as Minister of Economy, Finance and Industry of France from June 1997 to November 1999.

Strauss-Kahn holds a PhD in economics from the University of Paris; and he also graduated in law, in business administration, in political studies, and in statistics.  Based upon his education, Mr. Strauss-Kahn could probably defend himself if chose to.  He would also know statistically that his career is probably toast.

You can imagine that this will become a political spectacle in France, and now it drags the U.S. courts into it also.  With France having a more than forgiving attitude toward sexual affairs, it is probably just a matter of time before allegations surface that Mr. Strauss-Kahn was either set up or lured into this situation.  This is politics, and this is going to be a situation that likely has implications on both sides of the Atlantic Ocean.

Charges like this do not always result in conviction, but they usually end a career and destroy a reputation.  The IMF has been one of the helping factors in the bailouts in Europe.  This agency has also not been without controversy.  Its aim is to foster global growth and economic stability, often assisting with policy advice and with financing for its members under economic strain.  It also aims to help developing nations to achieve economic stability and to reduce poverty.  The IMF’s entire purpose has been challenged before, and a recent book from 2004 called “Confessions of an Economic Hitman” has only added more scrutiny over aid from the IMF.

This is one of those instances where even the real media will be full of news fit for the tabloids.

JON C. OGG

If we were to use the same calculation for a 10% correction from the high point and the high close of the S&P 500 Index we’d get a range of about 1,227 to 1,233.  The S&P 500 Index closed out 2010 at 1,257.64 and Wednesday’s close was 1,347.42.  Suddenly, a 10% correction doesn’t sound so damaging after the markets have roughly doubled from the peak of the early 2009 selling.

We have focused on ten key points that may derail the stock market rally.  A pullback of any size could easily reach 10%, and it might not even matter all that much in the long-term.  It might even be yet another buying opportunity for long-term investors seeking value.  Call this “Ten Reasons for a Ten Percent Correction”…

First off, SELL IN MAY AND GO AWAY!… There has long-been a saying of “Sell in May, and go away.”  The calendar is against the stock market.  As summer nears, many businesses see their businesses slow. Summer is also when investors are taking their longer vacations and can be out for one week or even two weeks (or longer in Europe).  This all leads to thin trading volume and a general disinterest in stocks.  Trading volume was already slow this year before summer has even started.  Just go back one year and you had the DJIA drop from a peak of about 11,200 in May on the heels of a large rally to a low of just under 9,600 in July.  It was also in May of 2010 that the Flash Crash came about. Just this week came word from Doug Cliggott, equity strategist at Credit Suisse, that we could see a 10% correction this summer even if he raised his price target objective on the S&P 500 Index to 1275 from 1250 for year-end.

Precious Metals… Gold was the old darling in 2010, but then it was replaced by silver in 2011.  Many investors and speculators became enthralled with the devil’s metal as they bet on the death of paper money and to hedge against inflation and uncertainty.  Last week silver peaked above $48.00, and the calls became crazy enough that we even saw “$80 silver” predicted. But silver was back under $39.00 per ounce by mid-week.  The iShares Silver Trust (NYSE: SLV)  fell about $10.00 right after trading volume on the way up reached historic highs.  The losses and margin calls here in silver have probably created a few orphans and widows in the trading circles.  The drop in silver is a good thing for the economy, but this is just one more damaging move for the nervous speculators.  Those who might have rotated into equities may be forced to seek the safety of the boring bond market.

Topping Out or Stalling…The stock market and many of the key leading companies you would expect to lead the market have seen a stalling out as we led up to May.  In fact, these have been a dull three months if you just measure gains.  Market leaders like Apple Inc. (NASDAQ: AAPL), JPMorgan Chase & Co. (NYSE: JPM), and General Electric Co. (NYSE: GE) had all risen steadily up until the last ninety days or so.  Now it is food, consumer products, and utilities hitting 52-week highs.  It is hardly fair to assume that a bunch of defensive stocks will drive the broader stock market higher.  The DJIA acted like it was topping out when it hit 12,800 in late April and the trading action shown in the “Sell in May…” comes right back to mind.

Market Confidence… Investors remain  concerned about the integrity of the stock market.  Many feel that the stock market is rigged with Goldman Sachs Group Inc. (NYSE: GS) and others knowing how to make money at your expense.  There is still a lack of confidence about the integrity of the system, understandably so.  While the Raj Rajaratnam insider trading case is embarrassing for regulators and while the Bernie Madoff case is outright infuriating, the latest trading scandal with Berkshire Hathaway Inc. (NYSE: BRK-A) is just another psychological blow to the integrity of the stock market. If the great Warren Buffett is getting duped into believing what his cronies are telling him about companies and he is still drinking the punch, how does the retail investor class know when they are being duped?  The little investor has so far not participated as much as the broad market recovery, and that group of investors may not be back in the market if any more confidence issues arise.  The first anniversary of the Flash Crash is just one more reminder and many feel that the same thing can occur again.  It is possible that the recession might have even removed an entire generation of investors from wanting to invest in the stock market.

We would also be watching these two:

• Wipro Limited (NYSE: WIT) with a $36 billion market cap in the same space of IT-outsourcing in India. Wipro is indicated down around $14.20 on no volume as of yet versus a close of $15.85 yesterday and versus a 52-week trading range of $11.30 to $16.81.
• Cognizant Technology Solutions Corp. (NASDAQ: CTSH) is technically US-based but has many employees for the same sort of work outside of the United States (including India and many other countries).  Volume is thin, but Cognizant shares are indicated at just under $79.00 versus an $80.78 close on Thursday and versus a 52-week trading range of $45.85 to $82.86.

The IT-outsourcing outfit reported that its fiscal fourth-quarter earnings translated to $0.70 EPS per ADR after revenues grew about 23% to $1.6 billion.  Thomson Reuters had estimates of $0.70 EPS and $1.63 billion in revenues.

The company also issued some mixed guidance for the first fiscal quarter.  It now sees earnings at $0.62 to $0.63 on implied revenues of about $1.64 to $1.66 billion.  Where the problem arises is that Thomson Reuters is calling for estimates of $0.69 EPS and $1.65 billion in revenues. 

For Fiscal-2012, earnings guidance is $2.83 to $2.88 in earnings per ADR and revenues are being forecast at $7.13 to $7.25 billion in revenues.  Thomson Reuters has consensus estimates of $3.10 EPS per ADR and $7.25 billion.  The company’s stance is that it expects the demand environment for its IT services “to be normal this year” in its sector.  Normal?  In short, the company is not seeing a jump up in business and it is asking you to trust what is obviously a back-end loaded year.  Even if the summer months are traditionally not robust in IT, software, and hardware spending, asking investors to be patient and to trust guidance seems a bit much when you consider the markets.

Infosys continues to add to its headcount, with a gross employee additions of 8.930 in the quarter to a whopping 130,820 employees.  The company ended its quarter and fiscal year with right at $3.8 billion in cash and cash equivalents versus what was a $41.7 billion market cap as of yesterday’s close. 

There are two key departures from the Infosys board of directors that investors will want to consider.  Mr. K. Dinesh is co-founder and he is leaving after the annual meeting; Mr. T. V. Mohandas Pai is also leaving after the annual general meeting in June.

Infosys shares at 8:00 AM EST are indicated down around $67.00 on thin volume in pre-market trading after a $73.01 close yesterday and the 52-week trading range is $53.28 to $77.92.

JON C. OGG

We were expecting a price range of $13.00 to $15.00 but that price came in at $17.00.  The shares being sold were about 73 million but investors need to know that only about 9.5 million shares are being sold by the company.  Insiders are the big seller here in this IPO and it is worth noting that McDonald’s Corporation (NYSE: MCD) does not have an equity stake here even if it does control the food supply and controls the company’s standards at the restaurant level.

You can imagine that the demand was there for this when you consider how well McDonald’s has done in its same-store sales trends and in its share price.  Because of Latin America’s growth, the valuations are close to double that of McDonald’s Corporation (NYSE: MCD) here in America at roughly 30-times earnings versus about 16-times earnings here.  This appears to be at a slight discount to the value of McDonald’s franchisee in Japan.

A consortium of private equity groups own Arcos Dorados, but Chairman & CEO Woods Staton controls about 39% of the company but has a majority of the company votes even after the offering.

Bank of America, J.P. Morgan, Morgan Stanley, Citigroup, and Itau Unibanco Holding were the underwriters in the group.

JON C. OGG