Billionaire investor's big warning (China is Dubai x 1000)

[marmar]

via Yahoo:



Contrarian Investor Sees Economic Crash in China
by David Barboza

Friday, January 8, 2010

provided by
The New York Times


James S. Chanos built one of the largest fortunes on Wall Street by foreseeing the collapse of Enron and other highflying companies whose stories were too good to be true.

Now Mr. Chanos, a wealthy hedge fund investor, is working to bust the myth of the biggest conglomerate of all: China Inc.

As most of the world bets on China to help lift the global economy out of recession, Mr. Chanos is warning that China's hyperstimulated economy is headed for a crash, rather than the sustained boom that most economists predict. Its surging real estate sector, buoyed by a flood of speculative capital, looks like "Dubai times 1,000 -- or worse," he frets. He even suspects that Beijing is cooking its books, faking, among other things, its eye-popping growth rates of more than 8 percent.
More from NYTimes.com:

"Bubbles are best identified by credit excesses, not valuation excesses," he said in a recent appearance on CNBC. "And there's no bigger credit excess than in China." He is planning a speech later this month at the University of Oxford to drive home his point.

As America's pre-eminent short-seller -- he bets big money that companies' strategies will fail -- Mr. Chanos's narrative runs counter to the prevailing wisdom on China. Most economists and governments expect Chinese growth momentum to continue this year, buoyed by what remains of a $586 billion government stimulus program that began last year, meant to lift exports and consumption among Chinese consumers.

Still, betting against China will not be easy. Because foreigners are restricted from investing in stocks listed inside China, Mr. Chanos has said he is searching for other ways to make his bets, including focusing on construction- and infrastructure-related companies that sell cement, coal, steel and iron ore. .............(more)

The complete piece is at: http://finance.yahoo.com/retirement/article/108534/contrarian-investor-sees-economic-crash-in-china?mod=retire-planning

[NightWatcher]

1. the entire global economy is nothing but derivitives and countless bubbles....

the entire thing is a house of cards

[tridim]

2. Can we just go back to trading beads?

[lurky]

3. I was just reading about this Chanos guy.

While he may or may not be right about China, he's up to his neck in some of the sleaziest circles of Wall Street. He's been charged with short-selling companies, then trying to make them collapse to push his profits up. He also provided Eliot Spitzer's hooker friend with a rent-free house at the same time the Governor was messing around with her. In other words, I wonder what he's up to...

[JVS]

4. If China crashes, the CPC is going to have some major challenges.

Over 20 years of policy going back through Deng Xioping will be overturned.

[marmar]

5. If China crashes, it's taking the planet with it.......

nt

[JVS]

6. That is not necessarily the case. The Chinese economy is currently in about the same ranking as...

that of the USSR in 1990, which had recently been passed by Japan to become 3rd largest in the world. China just passed Germany to become #3. The Soviet economic collapse really only took out Soviet client states and Finland (they had a lot of trade with each other). If China crashes, some Western investors will lose their investments, but the world will continue to function.

[marmar]

7. Perhaps, but the United States at least wasn't dependent on Soviet credit....

....like it is on Chinese credit.

[JVS]

8. In 1997 the US benefited from the Asian financial crisis when a "flight to quality" occurred.

Basically it went like this. Investors were really excited to get involved in the Pacific economies, but when things started going badly they freaked and took their money out. The money has to go somewhere though, and the safest place to be was in the US. As a result credit became extremely loose here. If China is unable to lend, it is likely that capital will have fled China as being too risky and the US and Western Europe look like the places where the money can be safely stashed (likely to the US gov.).

[JVS]

9. In 1997 the US benefited from the Asian financial crisis when a "flight to quality" occurred.

Basically it went like this. Investors were really excited to get involved in the Pacific economies, but when things started going badly they freaked and took their money out. The money has to go somewhere though, and the safest place to be was in the US. As a result credit became extremely loose here. If China is unable to lend, it is likely that capital will have fled China as being too risky and the US and Western Europe look like the places where the money can be safely stashed (likely to the US gov.).