ValueWiki Blog

As the Dow touches 13,000 I am nervously watching Apple’s stock (which I own for myself and for others). Fred Anderson, former Apple CFO, has settled with the SEC and agreed to turn over $3.5 million in personal option backdating profits.

Meanwhile, Apple General Council Nany Heinen has refused to admit wrong doing to the SEC, stating that hundreds of executives engaged in options backdating without knowingly breaking the law. She also takes the SEC to task for its well-known tactic of only going after high profile targets, while ignoring hundreds of smaller fish. The fact that Martha Stewart is about the only person to go down for insider trading in the past decade is fairly illustrative of this morally questionable SEC policy.

But the news of gravest concern for Apple stockholders is the fate of Steve Jobs. While the SEC has now stated they will not pursue action against Apple, Inc., they have not announced whether they will pursue action against Steve Jobs. Since part of Fred Anderson’s settlement seems to be to wag his finger at Steve Jobs, this is unsettling news. Valleywag already sold their Apple stock this morning.

As of this writing, Apple is up $1.22 at $94.46.

Google has endorsed DoubleClick’s CPC advertising model and created a generous valuation for this type of business. This rising tide lifted all ships in internet advertising yesterday, sending both TFSM and AQNT up more than 10%.

Many believed this would be good for ValueClick as well, although their stock has remained largely unchanged, and their Investor Relations insists ValueClick and DoubleClick have little in common besides the word “click.” Two weeks ago I blogged that ValueClick may be involved in shady business practices, although word-on-the-street is that my source, ShoeMoney, has occasionally written unfair posts against competing internet marketers in the past.

Markus Frind, CEO of Plenty of Fish, has a pretty good analysis of why DoubleClick is good for Google.

Now we wait for the next move. Will Microsoft or Yahoo snap up AQuantive or 24/7 Real Media?

ShoeMoney posted an anonymous editorial today, accusing ValueClick (VCLK) of shady business practices.

Dummy Corporations

The allegation is that online advertising company ValueClick is anonymously offering shady marketing schemes through a battalion of Delaware dummy corporations. Various commenters on ShoeMoney’s blog have chimed in to allege their own personal experiences of ValueClick’s business practices, claiming everything from unpaid bills to serving inappropriate ads.

Criticism

Nadacollar.com corroborates that the shady websites ShoeMoney lists do indeed share wording, terms of service, and source code. However, NadaCollar claims the sites are owned by the notorious 180Solutions, Inc. It is difficult to tell if ShoeMoney’s whistleblower has inside information, or simply has an axe to grind. Either way, this seems to be prompting some investigation and review of VCLK’s online marketing practices.

ValueClick Stock

I owned ValueClick from 2005 to 2006, back when I was feeling particularly bullish about Internet Advertising. So I generally have a warm, rosy feeling when I think about VCLK.

Chart from BigCharts.com

Though I owned VCLK, I must fully admit, I never completely understood where their money came from. At the time, I simply bought three internet advertising companies and held them for seven months.

This was about the time I bought an extremely sketchy internet marketing company called Intermix, which was being sued by New York Attorney General Elliot Spitzer for installing spyware. Intermix developed a little social media company called MySpace and was snapped up by News Corp for $580 Million. So you never really know what to expect from an internet marketing company.

The VCLK page is not yet started on ValueWiki, so if anyone wants to get started…have at it!

Fox News Corp’s shareholders are getting an unexpected bonus in the latest proxy filing.

NWS shareholders calling the Proxy Agent’s listed number are reaching a “nasty girls” phone sex-line.

Turns out page 5 of News Corp’s March 1st Proxy Statement incorrectly lists Georgeson Inc’s 1-800 number. Unsuspecting Fox shareholders calling the number are greeting by a woman’s seductive voice, saying, “Hey sexy guy…want to talk to hot, horny girls in your area?” The voice then suggests that NWS shareholders chat with real live hot students, waitresses and “nasty girls”…for just $2.99 a minute.

And you thought SEC Filings weren’t interesting…

Communist China passed major legislation Saturday, protecting the rights of individuals to their private property. This is a major milestone towards creating a free market economy and a potential death knell for Chinese communism.

The announcement comes about 8 hours after I called for Chinese property rights in my blog post, China Reigns in Corruption; Markets Plummet. I don’t know what the connection is, I just wanted to mention that…

96.9% Parliamentary Vote

The National People’s Congress passed the Property Law of the People’s Republic of China by a 96.9% majority of the 2,889 legislators attending (NB: Wikipedia gets this percentage correct, while the BBC gets it wrong). Landslide votes are common in the Chinese parliament, which only meets once a year largely to rubber stamp policies pre-determined by the Communist Party.

What the Law Provides

The government is offering its guarantee to private business owners that it will no longer randomly seize property, thereby adding confidence, security, and incentives to Chinese business owners.

But There’s a Catch…

The Chinese Government will continue to own all land in China, only granting temporary land use rights to individuals.

So why is this a step forward? Consider the words of Vice-Chairman Wang Zhaoguo who told the Congress the law will “safeguard the fundamental interests of the people”, adapting to the new “economic and social realities” in China (quote translated from the Chinese BBC by Wikipedia). The Chinese Government is aware it cannot create sustainable growth solely through its cheap manufacturing export business. Chinese business cannot grow and innovate until business are given the right to keep and own their money and property. After five years of debating this law, the government is publicly accepting this reality.

Cause for Hope

Moreover, the wording of The Property Law of the PRC leaves it somewhat ambiguous what “property” refers to. As I understand it, the law may actually set precedent for much more than mere land rights, but may extend to all property. This is real progress.

I am not a big fan of communism. By an order of magnitude, Communism has killed far more people in the world than any other ideology. An estimated 72 million Chinese were starved or murdered under Mao Zedong alone. History shows that ultimately it is economics rather than politics, that defeats Communism. I am patiently bullish on China.

On February 26, China’s cabinet, the State Council, approved a joint task force to tackle Chinese stock market corruption. This is believed to be the prime cause of the 9% Chinese Market crash that sparked last week’s worldwide market collapse. This should give a clear indicator of how business is conducted in China; the government finally decides to investigate its markets, and the smart money bails!

The fact that the government task force seeks to unite seven disparate state run agencies should give some insight into the efficiency of communist administration. Nevertheless, this change is welcome. The recent market upsurge was attracting swarms of new and uninformed individual Chinese investors; and Chinese brokerages were getting rich selling them stocks in companies that didn’t exist.

Chinese Corruption

I have spent a fair amount of time in China, and it is amazing how much the economy runs on government corruption. Bribing a government official is an accepted part of conducting any business. It is the only way to make communist bureaocracy run efficiently. In Chinese law, “money laundering” is specifically worded to only include funds connected to drugs or terrorism. All other money transfers can not be investigated, and there is no fund transfer flagging system as in the U.S.

Occassionally, with a high publicity project such as the environmental disaster at the Yangzse River’s Three Gorges Dam, the west catches a glimpse of Chinese corruption. Chinese government officials embezzled 473 million yuan on the project in 1998 alone. An estimated 12% of the 4 billion yuan budget was illegally diverted to government officials by January 2000, for a project that has displaced 1.9 million villagers and destroyed invaluable archaeological and cultural resources.

Cause for Hope

China’s move towards policing their markets is a very good sign. The current Chinese economic might is only a tiny fraction of China’s potential. Consider that China essentially has no real estate market (the government owns all the land in China, and grants leases to home owners for up to 75 years 70 years). Also consider that China’s credit and debt market is in its infancy. Once the average Chinese consumer has the ability to borrow or shop on credit, the retail economy will double, and business development will skyrocket.

Capitalism Topples Autocracies

It worked with the Soviet Union, and it will work with China. Through the internet and world trade, Chinese citizens are becoming increasingly aware of the rights and priviliges of western countries. Currently, only ten American movies are allowed into Chinese movie theaters every year. They are carefully selected by the government so that the Chinese working class will not see America’s wealth. It’s very odd to be homesick in China, pop into a movie theater, and have your only selection be “Anaconda II!”

Currently, even ValueWiki.com is blocked by the Chinese government. But as the internet and world trade seeps into China, the government will ultimately be faced with two choices. Either cut off all connects with the west entirely, or give in to capitalization and westernization. Now that China has a taste of economic success, I believe they are hooked.

Longterm, I’m bullish on China.