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.
"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.
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."
colleagues 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 politico.com, "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 markets.
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.
a 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 said.
German Newspaper: The World Bids Farewell to Obama
01/21/2010
The World from Berlin
The World Bids Farewell to Obama
US President Barack Obama has had a difficult first year.
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AFP
US President Barack Obama has had a difficult first year.
US President Barack Obama suffered a painful defeat in Massachusetts on Tuesday. With mid-term elections looming, it means that Obama will have to fundamentally re-think his political course. German commentators say it is the end of hope.
US President Barack Obama has had a number of difficult weeks during his first year in the White House. Right after he took office, he had to wade through a week full of partisan bickering over his economic stimulus package combined with a tax scandal surrounding Tom Daschle, the man Obama had hoped would lead his health care reform team.
Then there was the last week of 2009, when a failed terror attack on a flight inbound for Detroit exposed major flaws in US efforts to identify and stop potential terrorists.
This week, though -- a week when Obama should have been celebrating the first anniversary of his inauguration -- may have been the president's worst yet. Scott Brown, an almost unknown Republican member of the Massachusetts Senate, defeated the Democratic candidate Martha Coakley for the US Senate seat vacated by the death of Senator Edward M. Kennedy. The defeat in a heavily Democratic state not only highlights Obama's massive loss of popular support during his first year in office, but it also could spell doom for his signature effort to reform the US health care system.
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There were immediate calls for a suspension of health care votes in the Senate until Brown is sworn in. The loss of the Massachusetts seat means that the Democrats no longer control the 60 Senate seats necessary to avoid a filibuster. Obama's reform package, which aims to provide health insurance to most of the over 40 million Americans currently lacking coverage, may ultimately fail as a result.
More than that, though, the vote shows just how quickly the political pendulum has swung back to the right following Obama's election. The seat Brown won had been in Democratic hands for all but six years since 1926. Now, its new occupant is a man who not only opposes the health care bill, but also favors waterboarding as a method of interrogation for terrorism suspects and rejects carbon cap-and-trade as a means of limiting carbon emissions.
The omen could be a dark one for the Obama administration heading into a mid-term election year. German commentators take a closer look.
Center-left daily Süddeutsche Zeitung writes on Thursday:
"Obama made a serious misjudgement. Right at the beginning of his first year in office, he saved the banks, rescued the automobile industry from collapse and passed a huge economic stimulus package. He had hoped that these enormous deeds would give him the space to address those issues which are dearest to him: health care reform, climate change and investment in education."
"Those issues, however, are clearly not priorities for people in the US at the moment. Scott Brown campaigned on two promises, both of which apparently struck a nerve with the electorate. He wants to block health care reform and he wants to find ways to reduce the enormous budget deficit. It is here where the roots of dissatisfaction with Obama are to be found. His reform agenda, in its current form, is highly suspect to Americans. And they have the impression that, if he continues piling up debt, he will be gambling away the country's future."
The Financial Times Deutschland writes:
"For Obama, the election in Massachusetts means that he will have to re-evaluate his political style. He could now focus his concentration on his political base and push through his policy agenda. After all, he still has a majority in Congress -- he could back away from his strategy of bipartisanship ... which would mean giving up much of what he spent his first year in office creating."
"More likely, however, is that Obama will interpret the Massachusetts loss as a signal that he should move further toward the middle and make more concessions to the conservatives -- even if this alienates his base even further, a base which had high expectations from the 'yes we can' candidate."
"For everyone else in the world, this means that they will have to bid farewell to a candidate for whom the hopes were so high. They will have to say goodbye to the charisma they fell in love with. Obama will be staying home after all."
The left-leaning daily Die Tageszeitung writes:
"In addition to health care reform, Obama's reputation has primarily been harmed by the high unemployment rate and the increasingly unpopular war in Afghanistan. It will become even more difficult in the future for the president to push projects through successfully. Not just because Republicans now have a means of preventing it, but also because the Democratic camp is deeply divided. Some would like to see the party shift toward the center -- wherever that may be -- whereas others want the party to position itself to the left. Such a battle is hardly a good sign for the mid-term elections in November. Massachusetts could prove to be an omen."
The center-right Frankfurter Allgemeine Zeitung writes:
"Of course the president rejects the interpretation that the Massachusetts election was a referendum on his first year in the White House. But he cannot ignore the fact that his health care reform package is not popular, the situation of the country's finances is seen as threatening and many voters blame the high unemployment rate on the party in power -- on the Democrats, led by Obama. The result is a second year in office full of very different challenges than the first. To save what there is to be saved, Obama will have to be prepared to fashion a bipartisan compromise on health care -- a compromise with a Republican Party which has tasted blood and can now dream once again about a return to power."
-- Charles Hawley
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Too Much of a Bad Thing. Someone finally noticed.
too much of a bad thing
who’s panting for obama speech number 412? exactly no one.
by mark steyn
so what went wrong? according to barack obama, the problem is he overestimated you dumb rubes’ ability to appreciate what he’s been doing for you. “that i do think is a mistake of mine,” the president told abc’s george stephanopoulos. “i think the assumption was if i just focus on policy, if i just focus on this provision or that law or if we’re making a good rational decision here, then people will get it.”
but you schlubs aren’t that smart. you didn’t get it. and barack obama is determined to see that you do. so the president has decided that he needs to start “speaking directly to the american people.”
wait, wait! come back! don’t all stampede for the hills! he only gave (according to cbs news’s mark knoller) 158 interviews and 411 speeches in his first year. that’s more than any previous president — and maybe more than all of them put together. but there may still be some show out there that didn’t get its exclusive obama interview — i believe the top-rated grain & livestock prices report — 4 a.m. update with herb torpormeister on wzzz-am dead buzzard gulch junction’s newstalk leader is still waiting to hear back from the white house.
but what will the president be saying in all these extra interviews? in that interview about how he hadn’t given enough interviews, he also explained to george stephanopoulos what that wacky massachusetts election was all about:
“the same thing that swept scott brown into office swept me into office,” said obama. “people are angry and they’re frustrated, not just because of what’s happened in the last year or two years but what’s happened over the last eight years.”
got it. people are so angry and frustrated at george w. bush that they’re voting for republicans. in massachusetts. boy, i can’t wait for that 159th interview.
presumably, the president isn’t stupid enough actually to believe what he said. but it’s dispiriting to discover he’s stupid enough to think we’re stupid enough to believe it.
so who’s panting for that 412th speech? not the american left. as paul krugman, the new york times’s “conscience of a liberal,” put it: “he wasn’t the one we’ve been waiting for.”
not the once-delirious europeans, either. as the headline in der spiegel put it: “the world bids farewell to obama.”
and not any beleaguered democratic candidates trying to turn things around in volatile swing states like, er, massachusetts. the barack obama who showed up last sunday to help out martha coakley was a sad and diminished figure from the colossus of a year ago. he had nothing to say, but he said it anyway. as he did with his copenhagen pitch for the olympics, he put his personal prestige on the line, raised the stakes, and then failed to deliver. all those cool kids on his speechwriting team bogged him down in the usual leaden sludge. he went to the trouble of flying in to phone it in.
the most striking aspect of his performance was how unhappy he looked, as if he doesn’t enjoy the job. you can understand why. he ran as something he’s not, and never has been: a post-partisan, centrist, transformative healer. that’d be a difficult trick to pull off even for somebody with any prior executive experience, someone who’d actually run something, like a state, or even a town, or even a commercial fishing operation, like that poor chillbilly boob sarah palin. at one point late in the 2008 campaign, when someone suggested that if governor palin was “unqualified” then surely he was too, obama pointed out as evidence to the contrary his ability to run such an effective campaign. in other words, running for president was his main qualification for being president.
that was the story of his life: wow! look at this guy! wouldn’t it be great to have him . . . as community organizer, as state representative, as state senator, as united states senator. he was wafted ever upwards, staying just long enough in each “job” to get another notch on the escutcheon, but never long enough to leave any trace.
the defining moment of his doomed attempt to prop up martha coakley was his peculiar obsession with scott brown’s five-year-old pickup:
“forget the ads. everybody can run slick ads,” the president told an audience of out-of-state students at a private school. “forget the truck. everybody can buy a truck.”
how they laughed! but what was striking was the thinking behind obama’s line: that anyone can buy a truck for a slick ad, that brown’s pickup was a prop — like the herd of cows al gore rented for a pastoral backdrop when he launched his first presidential campaign. or the iron chef tv episode featuring delicious, healthy recipes made with produce direct from michelle obama’s “kitchen garden”: the cameras filmed the various chefs meeting the first lady and then picking choice organic delicacies from the white house crop, and then for the actual cooking the show sent out for stunt-double vegetables from a grocery back in new york. viewed from obama’s perspective, why wouldn’t you assume the truck’s just part of the set? “in his world,” wrote the weekly standard’s stephen hayes, “everything is political and everything is about appearances.”
howard fineman, the increasingly loopy editor of the increasingly doomed newsweek, took it a step further. the truck wasn’t just any old prop but a very particular kind: “in some places, there are codes, there are images,” he told msnbc’s keith olbermann. “you know, there are pickup trucks, you could say there was a racial aspect to it one way or another.”
ah, yes. scott brown has over 200,000 miles on his odometer. man, he’s racked up a lot of coded racism on that rig. but that’s easy to do in notorious cross-burning kkk swamps like suburban massachusetts.
whenever aspiring writers ask me for advice, i usually tell ’em this:
don’t just write there, do something. learn how to shingle a roof, or tap-dance, or raise sled dogs. because if you don’t do anything, you wind up like obama and fineman — men for whom words are props and codes and metaphors but no longer expressive of anything real.
america is becoming a bilingual society, divided between those who think a pickup is a rugged vehicle useful for transporting heavy-duty items from a to b and those who think a pickup is coded racism.
unfortunately, the latter group forms most of the democrat-media one-party state currently running the country. can you imagine bill clinton being so stupid as to put down pickup trucks while standing next to john kerry? and what’s even more extraordinary is that those lines were written for obama by paid professionals.
but fine, have it your way. tuesday’s vote was really a plea by a desperate people for even more obama. we’re going to need even more obama teleprompters, even more obama speeches, even more sonorous banalities unrelated to action, even more “let me be clears” prefacing even more tinny generalities, on even more reams of even more double-spaced paper. and we’re gonna need a really heavy-duty rig to carry all that verbiage.
maybe scott brown can sell ’em his truck.
