Market Abuse - Ramping and De-ramping

[This post has been edited and a new link demonstrating Market Abuse from the Wall Street Journal added to it Thursday 12th July 2007]

Have you been on a shareholders bulletin board (BB) or forum recently where something looks fishy?

Well over on the iii BB for Stanelco, a shareholder has taken things into his own hands and reported the company to the LSE for what he/she perceives to have been the company's deliberate attempts to ramp their position in the market by sending out overly positive statements whilst in reality everything wasn't as rosy in their garden after all as was evidenced by the failure of their Greenseal Trials with Asda.

Prior to their admission of the trial failure, all company statements had said the trials were going well. So what might the company have been guilty of (allegedly)? Well maybe they were guilty of suppressing the negative price sensitive news that should maybe have been issued at a much earlier stage.

A company has an obligation to their shareholders to issue ALL price sensitive news within a timely manner, whether that be in the Positive or the Negative as this is what shareholders use to make financial decisions on their stakes within the company ie their shareholding levels.

It is understandable to a degree that no company wants to have to issue bad news as they want the shareprice to go up not down obviously. Keeping the price heading up makes it easier for them to get institutions on board and to secure funding when required. Negative news hinders this.

So what is Ramping?

Well ramping can take many forms, from a company not issuing the negative news, a shareholder who has lost a lot of money in the past and has maybe bought in at a new low and now wants to make back his losses, a company owner overstating the future potential of the company, to even someone circulating rumours of a take over bid on it's way.

A ramper might use a BB to constantly espouse the future potential revenue of the company even if unfounded, put ridiculous valuations on a company for possible take over bids and post so often as to drown out other peoples opinions. They might also pick on other posters and mis-represent what they are saying if they take a even a slightly different view to them or an obvious opposing position. This can even go so far as to go offline and become a personal attack if they have access to your email address.

What is De-ramping - and who does it benefit?

This, also, can take different forms. Perhaps a shareholder has gone short on a share, they obviously then need a decline in the shareprice to make a profit, so they will go onto BB's and say anything they can to persuade others that the company is going to fail or a particular product is going to fail. Directors who want to perform a management buyout, might similarly suppress the positives about how the company or products are progressing to a degree where they are not fully informing the market of 'positive' price sensitive news, for their own ends.

A de-ramper can and will also use all of the same tactics as the ramper when it comes to BB's and making sure their message is the only one heard.


So what is the difference between the ordinary shareholder and the ramper or de-ramper?

Well the ordinary shareholder, while they probably enthuse about any company they have bought shares in, they will also take on board the possible negatives and be happy to have both sides of any argument openly aired so that they can make an informed decision. They might not like to hear the negatives or have their excitement quelled a bit, however, they will listen and accept that no company or product market is buoyant ALL the time and they will want to hear clear arguments from both sides of the fence and from that, they will then decide to continue to hold a share or sell up and move on. At least they will have had all the information available to them to do this.

Now lets face it, we all get a bit excited when we hear a rumour and the old adage goes, Buy on Rumour Sell on Fact, the market operates a lot on rumours, but I suppose the important thing to think about when you hear a rumour is. Where did the rumour start, has the person posting the rumour backed it up with any research and/or links to that research. If it has just appeared completely out of the blue and has absolutely no basis in fact, then bide your time and wait for confirmation or you could just be supporting a shorters dream situation, or helping someone who's lost a lot of money to sell into a rise created by the rumour. They will then be off, while you are left sitting with the shares and the price drifting down again.


Related Articles
thisismoney.co.uk published an article entitled Avoid the Pump And Dump last year, warning people about email and BB campaigns to ramp or de-ramp shares.

And what happens if someone is found out.......
'City Slicker' Hipwell Jailed
Livedoor founder arrested
'Lie for me' asked Morgan
High-risk journey to the unknown
Wall street Journal

Enjoy BB's they can be a lot of fun and you can meet a lot of very nice, knowledgeable, witty, trustworthy people on there. But be wary, you can also become a gullible victim of someone elses game very easily, but be careful of getting dragged into something that could see you entrapped in an illegal situation.

If it looks fishy and smells fishy, then take care, we all know what bad fish does to us. :o)

Oh and by the way, I hold Stanelco shares at a loss, but I'm not afraid to hide the negatives because of that loss....LOL....the truth is the truth.

Caterpillar Inc

I'm still watching this one with a view to adding to my ISA, but as it is drifting down just now due to the uncertainty in the Dow with US economic worries, I'm waiting. But I still see their growth coming from their depth of coverage in Asia a growing economic climate.

I still think that moving their Asian headquarters to Beijing is significant to where they see their future growth happening too. There seems to be a lot of activity in Japan, China and India for the company.

Some articles below, you may already have read, but pulled together it provides a picture.

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http://www.msnbc.msn.com/id/17185839/
Caterpillar (CAT), known for its yellow bulldozers, could be called a trailblazer in Asia. The Peoria, Ill.-based construction equipment maker has been moving much of the business overseas and investors are finally noticing. Shares of the compnay rose 2.5% to $67.82 on Feb. 15 on news that Caterpillar executives are discussing a plan to buy most of Shin Caterpillar Mitsubishi Ltd. [SCM].
The company's global expansion started way back in 1963, when Caterpillar and Mitsubishi Heavy Industries Ltd. formed Caterpillar Mitsubishi Ltd., one of the first joint ventures in Japan to include partial U.S. ownership. They eventually renamed their shared construction and mining equipment making business Shin Caterpillar Mitsubishi. Now Caterpillar and Mitsubishi have signed an agreement to complete a new plan under discussion, in which Caterpillar would own most of Shin Caterpillar Mitsubishi's shares while Mitsubishi has the rest, according to a statement released from Tokyo on Feb. 14.
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http://www.jconline.com/apps/pbcs.dll/article?AID=/20070313/NEWS09/70313011
Caterpillar Inc. plans to shift production of a large engine from its Lafayette plant to India next year. But company officials don't expect the move will come at the expense of employment at the Large Engine Center, which has a work force of approximately 1,600 employees.The Cat 3508 engine can provide power to electric drill rigs that are used in oilfields, and is increasingly being utilized in oil exploration in Southeast Asia."The 3508 production is moving from Lafayette to India in 2008," said Caterpillar chief corporate spokesman Rusty Dunn. "The demand for the 3508 engine continues to be greater than the manufacturing capacity in Lafayette today. A portion of that demand is currently being driven from increasing volumes of the 777 mining truck ... mainly used in Southeast Asia."With this move Lafayette is going to be able to alleviate some of its current capacity constraints. There will be no negative impact on our Lafayette work force. In fact, we're in the process of hiring additional people as they prepare for production of the new C175 (diesel engine)."

http://www.boston.com/news/world/asia/articles/2007/02/15/caterpillar_to_raise_stake_in_mitsubishi_heavy_jv/
Late last year, Caterpillar said it expected sales in China to quadruple as a percentage of its global sales by 2010 as the country rapidly builds more ports, energy projects and roads, and moved its Asia Pacific Operations headquarters to Beijing from Tokyo.
Caterpillar Asia Pacific Operations spokesman Jim Dugan said Japan represents a mature market for his company where it makes high-quality products, and China is a market with a large growth potential.
"It (the announcement) is really a sign of our recognition of the importance of the Japanese market to Caterpillar and our commitment to that market and our customers in Japan," he said.
Goldman Sachs analyst Kunio Sakaida wrote in a note to clients that he sees the news as positive for Mitsubishi's stock price as it would enable the company to concentrate its resources on diesel engines and turbo chargers, the outlook for which is good.
The venture, established in 1963, produces and sells hydraulic excavators, wheel loaders and bulldozers. It booked sales of 386 billion yen ($3.2 billion) in the business year ended March 2006.

Recovery Stocks........cont...

Well I'm still looking for recovery stocks to dip my toe into and my current list is

1. Tadpole Technology - still doing well and price holding considering a lack of news.
2. Global Coal Management - up since I first posted on it a couple of weeks ago, although it dipped back a little today. Not a problem, nothing rises in straight lines.
3. Ramco Energy - nothing on it as yet, but the fact that they are in discussions regarding getting into Iraq is positive, so this one might start moving once the legislation is all sorted out regarding foreign oil companies being allowed to operate blocks out there.
4. Caterpillar Inc - I've not done anything with this one yet, but it's still my intention to get it into my ISA at some point even if just for the dividend payments.

A new one I want to add to this list today is The Stanelco Group. I held shares in this company a couple of years back and they didn't perform well, but unlike my Tad holding which I forgot to let go of, I sold them at a loss but yet again kept them on my watch list. Asda were running trials on one of their products when I held them before but nothing much seemed to come of that at the time.

Today the price hit 1.08 : 1.11. Not the lowest it's been in the last 3 months but just o.01 off of it. The prelim results are due out 21st March 2007 and according to an RNS on the 5th March they have had an offer for a part of the business with other suitors looking at it. The market expects the losses to be in the region of 5.7million, but this is probably already priced into current shareprice since it has been made public.

I might buy a few with a view to adding to them if the price goes up or down. Never go too heavily into a recovery stock.....it might not recover after all. I've added some info from various sites below to give you a start for your own research.

Extract of news from 5th March

"India's Arrow Coated Products, a mid-sized packaging firm, has made a bid to buy UK-based Stanelco PLC's unit Adept Polymers, a maker of biodegradable plastics, the Economic Times reported citing sources close to the deal."

"Stanelco is selling Adept to focus on radio frequency welding technology and that it has received bids from packaging companies in France, the US and the UK."

http://finance.google.com/finance?q=LON%3ASEO

Stanelco Plc is an investment holding company. Its wholly owned trading subsidiary, Stanelco RF Technologies Limited is a developer, manufacturer and supplier of high frequency thermal processing equipment and processes, applications for which include the GreenSeal process of sealing plastic and biodegradable containers, using radio frequency (RF). Its other subsidiary undertakings include, InGel Technologies Limited, which is a research and development company; Adept Polymers Limited a company that specializes in the formulation and manufacture of biodegradable plastic based on polyvinyl alcohol and starch, and Aquasol Limited, which specializes in designing packaging solutions and has specific expertise in water-soluble packaging. In September 2005, the Company acquired Biotec Holding GmbH Group and disposed 50% to SPhere. Biotec is one of the exponents of starch technology and specialize in formulations for packaging, pharmaceutical and edible applications.

http://www.stanelco.co.uk/index.htm

The info from below relates to an exclusive deal started in March 2005, whcih was then extended by a year. It doesn't say whether that was extended March to March in which case that would be about to expire or if it continued from August, the time of the RNS.

RNS Number:5121H Stanelco PLC 10 August 2006
10th August 2006
Stanelco plc Re agreement with ASDA
Stanelco plc ("Stanelco") is pleased to announce an update regarding its GreenSeal technology following its initial 12 month exclusivity period with ASDA. Stanelco will continue to work with ASDA as they support our GreenSeal technology as a way to achieve part of ASDA'S greater business objective of meeting their obligations around sustainability.
The original terms of the agreement between ASDA and Stanelco, as announced on 24 March 2005, for Stanelco's GREENSEAL technology have been extended for another 12 months, other than the exclusivity arrangement with ASDA which has been waived. This will allow Stanelco to offer the GREENSEAL technology to non-exclusive ASDA suppliers, as well as ASDA.
Martin Wagner, CEO of Stanelco said:
"This is an important development with ASDA and shows the strength of our relationship. Whilst all the major components of our agreement remain ASDA have agreed to relax the exclusivity of usage for non ASDA suppliers. This means that suppliers to ASDA who also pack for other retailers can now be approached.
A significant hurdle for us has been identifying packing lines that were exclusively for ASDA usage. By removing this obstacle we can now effectively offer our GreenSeal technology to any user. This negotiation with ASDA has been over a protracted period of time and we are grateful for their unwavering support."

There is nothing jumping out of a google search regarding greenseal since 2005. Time for an update on that I guess.

FrogPack (A Stanelco product) http://www.frogpack.com/

A rugged, high-impact resistant packaging application has been developed for suppliers wanting to minimise breakage and waste during shipping and transporting.Stanelco, the UK-based company behind the innovation, believes that the concept will take off because it taps into a key concern of both suppliers and retailers – the protection of goods throughout the supply chain. In addition the packaging uses biodegradable material and uses less energy in the actual production process.
The company is in the process of trying to break into the lucrative US market.
Designed to withstand substantial punishment, Stanelco's FrogPack features a unique energy-absorbing design, combined with Cradlewrap, a biodegradable air-cushioning wrapping material that can be used within the containers.
This, says Stanelco, provides remarkably secure protection for goods that require shipping. The company claims that tests undertaken to challenge FrogPack's sturdiness have confirmed that highly fragile items such as glass champagne bottles dropped from a helicopter from as high as 200 feet in the air suffered no damage or signs of their fall.
"FrogPack can take a hard punch,” said David Edwards, the inventor of FrogPack. “Retailers will be impressed when they see how much punishment FrogPack absorbs.
“The packaging is a superior alternative for protecting goods during shipping. "FrogPack's capability to protect, combined with its potential for reducing costs in packaging and shipping, is unlike anything currently in use in North America."
FrogPack utilises a unique technology called shock-absorbing arcuate panel technology (SAAP) for its added strength and protective qualifies. The technology, designed by Aquasol, a subsidiary of Stanelco, is already in use in the United Kingdom by a packager of lighting supplies and a packager of electronic components.
In addition to its ability to withstand high-impact punishment, FrogPack possesses environmentally attractive features that will be attractive to North American retailers. FrogPack can be either recycled or composted.
FrogPack's high-impact design means that the packaging, which can be manufactured on a customized basis, can be produced in smaller sizes, requiring less material and less energy in the actual production process.
"Eventually, we believe that FrogPack will replace padded envelopes and boxes that utilise polystyrene inserts and plastic air bubbles," said Edwards.

A client for frogpack http://www.merlindirect.com/product-list.cfm?catId=18&depId=16

Contrarian view - Stock picking

We all have our own way, reasons or not for picking the stocks we decide to invest in.

My own personal method, is usually to look for a company that used to be priced higher than it currently is, see if I can find any information as to why it's price dropped and then search to see if I can find any news or information that might suggest a recovery. Why is this contrarian? 'Cause I'm usually just going into a stock after everyone else has run away to the hills. Ok it can mean you have to wait for a result, but it can be worth the wait and if it never recovers.........well thats the risk and the volume of shares bought should refelct that possible risk.

On the occasions that I have stuck to this method, Ive had some success. eg Tadpole I first bought at 3.5p or thereabouts and it went up to 20+p so I had profits as I bought and sold on its wobbly way up and down. However.......I held more than I sold and am currently down on them to the tune of several thousand, as are a great many. Not to worry though. You don't have a loss until you sell, so I might yet get my stake back there if I live long enough......lol

Tadpole when I first bought it, was a recovery stock. I'm kicking myself 'cause I found another one- Paypoint, 2-3 years ago (different name then) but they had had a massive drop, but they were making these machine thingies so folk could pay bills when they did their shopping.....good idea me thinks........Shame I didn't buy any (didn't have spare cash at the time) as they went up 195% since i put them on my watch list at £2.11. They were actually up more than that but have retraced to £6.22. Oh dear, thems the breaks. I still think they might be worth a punt and might put some of them into my ISA this year, we'll see.

The company that I'm looking at just now is a Blue Chip one, shares currently £34.23 each - ouch I hear you say...but ok So I might just buy 10 or 20 of them but if they go back to the £56.00 approx that they were just over a year ago then hey Bob's your uncle. Who am I talking about - Caterpillar but why.....

Well Caterpillar (CTA.L) did a 2 for one stock split in June 2005, which is why the massive dip in their chart occurred. They pay a quarterly dividend and never miss one, so even if the price stays static, you make something. What I'm most interested in though is that they have just announced another $7.5 billion share buyback (they are just completing a previous buyback early) AND they are moving their Asia /Pacific HQ from Tokyo to Bejing.
http://www.chinadaily.com.cn/bizchina/2006-11/22/content_739474.htm

China are on a massive ifrastructure spend just now and CAT are right in the middle of it. They were main suppliers of heavy equipment for Hong Kong International Airport, are involved in 3 Gorges Dam (massive) and are placed well for the upcoming olympics requirements.

This might be a buy and hold........wow that sounds a bit safe for me. I'll post some data on Caterpillar soon.