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 user 2010-01-18 at 11:30:32 am Views: 39
  • #23267


    Contrarian Investor Sees Economic Crash in China,Billionaire
    investor’s big warning

    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.”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.

    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.

    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.

    Mr. Chanos, 51, whose hedge fund,
    Kynikos Associates, based in New York, has $6 billion under management,
    is hardly the only skeptic on China. But he is certainly the most
    prominent and vocal.For all his record of prescience — in addition to
    predicting Enron’s demise, he also spotted the looming problems of Tyco
    International, the Boston Market restaurant chain and, more recently,
    home builders and some of the world’s biggest banks — his detractors
    say that he knows little or nothing about China or its economy and that
    his bearish calls should be ignored.”I find it interesting that people
    who couldn’t spell China 10 years ago are now experts on China,” said
    Jim Rogers, who co-founded the Quantum Fund with George Soros and now
    lives in Singapore. “China is not in a bubble.”

    acknowledge that Mr. Chanos began studying China’s economy in earnest
    only last summer and sent out e-mail messages seeking expert opinion.But
    he is tagging along with the bears, who see mounting evidence that
    China’s stimulus package and aggressive bank lending are creating
    artificial demand, raising the risk of a wave of nonperforming loans.”In
    China, he seems to see the excesses, to the third and fourth power,
    that he’s been tilting against all these decades,” said Jim Grant, a
    longtime friend and the editor of Grant’s Interest Rate Observer, who is
    also bearish on China. “He homes in on the excesses of the markets and
    profits from them. That’s been his stock and trade.”

    Mr. Chanos
    declined to be interviewed, citing his continuing research on China. But
    he has already been spreading the view that the China miracle is
    blinding investors to the risk that the country is producing far too
    much.”The Chinese,” he warned in an interview in November with, “are in danger of producing huge quantities of goods and
    products that they will be unable to sell.”In December, he appeared on
    CNBC to discuss how he had already begun taking short positions, hoping
    to profit from a China collapse.

    In recent months, a growing
    number of analysts, and some Chinese officials, have also warned that
    asset bubbles might emerge in China.The nation’s huge stimulus program
    and record bank lending, estimated to have doubled last year from 2008,
    pumped billions of dollars into the economy, reigniting growth.But many
    analysts now say that money, along with huge foreign inflows of
    “speculative capital,” has been funneled into the stock and real estate

    A result, they say, has been soaring prices and a
    resumption of the building boom that was under way in early 2008 — one
    that Mr. Chanos and others have called wasteful and overdone.”It’s going
    to be a bust,” said Gordon G. Chang, whose book, “The Coming Collapse
    of China” (Random House), warned in 2001 of such a crash.Friends and
    colleagues say Mr. Chanos is comfortable betting against the crowd —
    even if that crowd includes the likes of Warren E. Buffett and Wilbur L.
    Ross Jr., two other towering figures of the investment world.

    contrarian by nature, Mr. Chanos researches companies, pores over public
    filings to sift out clues to fraud and deceptive accounting, and then
    decides whether a stock is overvalued and ready for a fall. He has a
    staff of 26 in the firm’s offices in New York and London, searching for
    other China-related information.”His record is impressive,” said Byron
    R. Wien, vice chairman of Blackstone Advisory Services. “He’s no
    fly-by-night charlatan. And I’m bullish on China.”Mr. Chanos grew up in
    Milwaukee, one of three sons born to the owners of a chain of dry
    cleaners. At Yale, he was a pre-med student before switching to
    economics because of what he described as a passionate interest in the
    way markets operate.

    His guiding philosophy was discovered in a
    book called “The Contrarian Investor,” according to an account of his
    life in “The Smartest Guys in the Room,” a book that chronicled Enron’s
    rise and downfall.After college, he went to Wall Street, where he worked
    at a series of brokerage houses before starting his own firm in 1985,
    out of what he later said was frustration with the way Wall Street
    brokers promoted stocks.

    At Kynikos Associates, he created a firm
    focused on betting on falling stock prices. His theories are summed up
    in testimony he gave to the House Committee on Energy and Commerce in
    2002, after the Enron debacle. His firm, he said, looks for companies
    that appear to have overstated earnings, like Enron; were victims of a
    flawed business plan, like many Internet firms; or have been engaged in
    “outright fraud.”That short-sellers are held in low regard by some on
    Wall Street, as well as Main Street, has long troubled him.Short-sellers
    were blamed for intensifying market sell-offs in the fall 2008, before
    the practice was temporarily banned. Regulators are now trying to decide
    whether to restrict the practice.Mr. Chanos often responds to critics
    of short-selling by pointing to the critical role they played in
    identifying problems at Enron, Boston Market and other “financial
    disasters” over the years.”They are often the ones wearing the white
    hats when it comes to looking for and identifying the bad guys,” he has