Chanos is back….This is getting sad

Chanos is back! His short China thesis is very long in the tooth but
as it goes with most ego maniacs he cannot accept failure or that fact
that he might be wrong. Being wrong on an entire country where you have
never visited and don’t speak the language…who could have seen that coming?
Chanos was back presenting his latest short China thesis that he has been
pitching for 5 years now.

His presentation is so poor without much fact and looks to be some stuff
one of his analysts has just pulled off the net but allow me to dismantle
a few of his arguments that are reasonable.

(1) Chanos: The Chinese economy has quadrupled in nominal terms in the last
10 years,” he says. “Western investors in the Chinese stock market have
basically made nothing in that 10-year period. That’s a staggering indictment
of the form of capitalism that exists in China.

CMR: Western Investors have made nothing? Has he not been reading of major
Wall Street firms with gains of hundreds of percent in shares of Chinese banks
and real estate companies? Has no one else made money? How about the wages
of the Chinese workers which are up 5 times in the last ten years? How much
are American wages are up in that time period? How much is the American stock
market up over the last ten years? The people involved in the
“real economy” in China have done well. Anyone moving or producing real
goods has done very well. Its only the paper speculators who have not had an
avenue to come in a pillage the real economy as China’s financial system is
cordoned off to the hot money speculators. I guess this is what disappoints him
the most.

(2) The Real Estate Bubble –

He uses another chart which is very old showing the price of property in China
on an affordability index. Anyone with real experience in China will tell you
this chart is non-sense as their is so much unreported income in China.
The chart is meaningless in the same way that the U.S unemployment rate is
only 7%.

China for several years now has draconian policies to STOP people from buying
properties WITH CASH. Normally properly bubbles are created by easy lending
standards as found in the U.S. where people with no income or jobs were getting
loans. The amount of home equity in China is MASSIVE, Easily in the trillions
of dollars. No one is under pressure or even wants to sell their homes. So much
for a real estate crash. And by the way Jim, home prices and transactions are
up again this year.

13 comments

  1. Mike says:

    Mr. Collins,

    I was wondering what you thought about this article by the other naysayer, Gordon Chang: http://www.forbes.com/sites/gordonchang/2013/04/21/global-banks-are-divorcing-china/

    Did you catch the article? What are your thoughts?

    • D.Collins says:

      Gordon Chang? This guy is a joke. He has been to China once and he wrote “The coming collapse of China” 12 years ago.
      I actually had the unpleasant experience of picking it up and reading it. There was not one point in the entire book.
      It reminded me of a high school writing level

      I still remember he claimed that China would collapse as you could see the taxi lines in Hongqiao airport were so long
      which proved China could not organize. I guess he didn’t count on China building 100 new international airports since then.
      When he wrote the book, China produced 2 million cars per year. This year they produce 20 million. Was he wrong? Actually
      the U.S. financial system collapsed, not China.

      My take on Gordon is he is an intellectual fraud and quite possibly loosely connected to intelligence organizations in the U.S.
      who pay him to write his drivel. Don’t know that for sure but only explanation how he gets as much press as he does.

      • Mike says:

        His is just another case of wishful thinking – something smells rotten when ICBC takes the top spot in profitable corporations worldwide and an agent is screaming SELL! SELL!

        I could be misled, but a nation of savers (and now spenders to boot) sounds pretty fundamental. And, the element which is key to this is confidence in the financial institutions. It isn’t an accident that “hot” money is flowing to China, but to start a panic, one merely needs to stand in a crowd and yell “FIRE!” Will there be any takers? I doubt it. The day will come when these frauds are fingered and everyone standing there with their soggy bag of wet USDs will be sorry they let their xenophobic paranoia rule the day.

        Like you have said many times, there is VALUE IN PRODUCTION! Who is producing?

        Thanks for the response, Mr. Collins.

        • Keith says:

          Chanos’s ghost cities presentation was proven to be wrong. All of the tier 3 and tier 4 cities are filling up quite nicely. Most of the empty malls from 3 years ago are now getting heavy traffic.

          Jim Chanos and Gordon Chang have their clear agendas. Just follow the money. Jim Chanos made his fortune as a short seller and I actually do have respect for his abilities. He may actually be right when it comes to commercial real estate assets in the coastal tier 1 cities of China; however, for the overall economy in China, he is wrong.

          Gordon Chang is a complete joke. He makes his money from appealing to xenophobic westerners who are hoping for China to crash. The more nonsense he writes in books and articles, the more money he makes. I can’t blame the guy. I only wonder if he actually believes what he writes and says.

  2. stanley forrest says:

    I also saw the Chanos presentation, but I did not come to the same conclusion as you.

    Matter of fact, I think he made a very good argument that China’s economy is a “house of cards.”

    Can you be more precise when criticizing Chanos’ data?

    • D.Collins says:

      Don’t have time to address all the points. If you have a specific one, let me know.

      1) Banks:
      Bank lending: He says its high.
      Actually modestly over pre-2009 crash levels. He says the banks are poorly capitalized,
      3 of the top 4 Chinese banks make more money than Apple, the 4th bank made $18 billion in 2012.
      He says banks are poorly capitalized, they are backed by the state with $3.4 trillion in FX
      reserves which is the size of the entire German Economy.

      2) Property:
      He says “no one can identify the buyers”? Thats non-sense, makes no sense.
      All you have to do is check the property deed.

      He says “property mgt. fees are rarely paid”. Once again , nonsense.

      He has been calling properly bubble since 2009, prices are up 35% since then.

      3) No longer workshop of the world

      Not true. Go check your Walmart. Some offshoring has gone on but Wages
      rising for the lowest levels I’m the economy is a good thing. Any lost
      production is being offset by increased domestic demand. I know this from
      my friends in textile business as well as I employ over 400 people and its
      not easyto find workers.

    • stanley forrest says:

      Thank you for your reply.

      However, I believe Chanos makes a better presentation indicating China is a Ponzi scheme. I’m getting out while I can.

      • Keith says:

        I doubt you have ever invested in China. The Chinese are the world’s #1 source of tourists these days. All the Chinese going around the world buying up assets and paying for services in CASH. Yeah, quite a ponzi scheme alright.

      • D.Collins says:

        Everyone does what they think is best. I had an MBA professor who back in 2003 shouted to the class about the
        dangers of buying Chinese property ten years ago hence missing one of the greatest bull markets in history.
        So much for your “China expert”. He couldn’t speak the language but unlike Chanos at least he has been to China.

        I often tell people, imagine an investor in China, who has never been to the U.S., can’t speak English, but is giving
        you advice on the U.S. markets. Would you believe him?

  3. Mike says:

    Keith,

    I think you are dead on when you say, “He makes his money from appealing to xenophobic westerners who are hoping for China to crash. The more nonsense he writes in books and articles, the more money he makes.” I have been living in China for seven years and was one of those who used to scoff and make all kinds of off-the-cuff remarks based on my own bias. The more I educate myself, the more I have been proven wrong. There are plenty of xenophobic foreigners living here who don’t even know what is happening in their own country, much less China, and they are drawn to the negativity.

    In addition, there are elements of China’s (continued) rise which cannot be expressed on a chart but instead require understanding of the human condition. People here WANT to work, produce, create and invent. This is far different from the entitlement craze in the U.S. and other up and coming socialist countries. This, coupled with a patience and conservatism that is still evident in the majority of the population, is a powerful force for good. Michael Pettis makes a draws some interesting parallels between rising China and (then) rising U.S. in an article on his website and it is far more illuminating than any drivel coming from Chanos and Chang.

    Dan is right…these guys have been wrong again and again. Keith is right as well…Chanos is a short seller. Always consider the source! I watched an interview with Chanos the other day where he alluded to getting past this positivism of investors! That’s a great way to approach everything.

  4. Jay Zhao says:

    As a Chinese,and a government staff I can feel the negative side of the economic development and also feel worry about this.

  5. D.Collins says:

    Good points Mike. Its hard to explain to people not in China about the desire here to work hard, create, build, etc. You see it everywhere here.

  6. D.Collins says:

    Hi Jay-
    China has HUGE problems. Environment and corruption I would call the largest ones.
    I try and treat them in perspective though as compared to the U.S.

    Chanos acts like everything is fine in the U.S. when our major cities have become third-world, we have 100 million people of working age with no job, and half the households are getting a check from the government. We of course send them a check by printing $1 trillion a year.

    China’s problems resolve around the environment and corruption. Continuing free market capitalism and letting the RMB balance naturally will resolve some of those issues. By keeping the currency too low, China is artificially propping up U.S. living standards by exporting goods for paper. Which the U.S. just prints more of. Chinese then live in the pollution created by all of the factories.

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