Chanos: China Could Be Dubai times 1000
By Daniel at 15 December, 2009, 11:40 pm
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December 15, 2009
by The TopStock Team
One of the really important tricks of the trade in the investing business is to learn who to listen to. Too many investors spend their days listening to every Tom, Dick, and Harry on T.V. or reading every article they can find on the gazillion investment websites. And while we are not against investors educating themselves, it is important to understand who knows what they are talking about and who is simply taking up air time “talking their book” (i.e. promoting the stocks they own).
Our Chief Investment Strategist, Dave Moenning, has been in the business of investing since 1980 and has run his own money management firm since 1989. And one of the key lessons Dave says he has learned is this: “Stop listening to everyone and learn to think for yourself.”
“Don’t get me wrong,” Dave says “There are people that I listen to intently in order to help me with my thesis or strategy. But the key is there are only a handful of people that I will even consider listening to… I just tune out the rest of them.”
If you know Dave, he is not an egotistical guy and he is most definitely not saying that you need to hang on his every word. His point is that it took him a very long time to learn who he should consider accepting input from when they offer their opinions. And he encourages all of our readers to do the same (and it is our sincere hope that you will put us on your list of people to listen to and trust).
One of the most well-known hedge fund managers is James Chanos. Jim is President and founder of Kynikos Associates, which is the largest exclusive short-selling firm in the country. Mr. Chanos opened his firm in 1985 and now serves both domestic and offshore clients, focusing on unusually high alphas on both the long and short side of the markets.
But enough of the company bio, let’s get to this big-time hedge fund manager’s outlook. In an interview with CNBC’s Melissa Lee, Chanos first touched on his view of the banking sector. Chanos says he sees the balance sheets of major banks as “better than they were 6-9 months ago,” but he is hesitant to say that the banks are where they should be from a balance sheet standpoint. “I wouldn’t be a buyer here,” he says, “I don’t know if I’d be a seller, but I would be pretty ambivalent about the sector.”
In terms of his overall market outlook, Chanos’ reminds viewers that his firm is always net-short, but he did say that he is “long the market, but short our stocks.” Right now he sees opportunities for short sellers in individual companies and sub-industries, but not the overall market.
One of the most interesting points of the interview was Chanos’ view of China. While most investors are quite optimistic about the future of investing in China, Chanos says that China could be “Dubai times 1000, or worse.”
Chanos goes so far as to say that China may be the next great bubble. He points out that “bubbles are best identified by credit excesses, not valuations… there is no bigger credit excess right now than China.”
Mr. Chanos goes on to say that one of the problems for a short-seller is you can’t short China directly. However, there are short plays are in the “first derivative industries” that support the materials used for growth such as copper, cement and iron ore producers.
Chanos says that he is actively shorting this theme and is “looking for plays on the China investment pool, which we think will burst at some point… Demand in China is over-inflated, that is clear.”
While we don’t necessarily agree with the view offered up by Mr. Chanos at this time, we will most definitely keep his input in the back of our minds.
Jim Chanos: We’re Shorting Autos, China, And Commodities But Not Financials
Kynikos Associates founder Jim Chanos stopped by the Fast Money set for an interview with CNBC’s Melissa Lee this afternoon.
A few highlights from the video:
* He’s not short the financial sector right now, although he thinks there may be another shoe to drop and more losses. He is short some select financial names but not the sector.
* There are opportunities for shorting individual companies in this market but he would recommend shorting the market as a whole.
* He’s shorting autos again, after covering in late 2008 and 2009. He said he is short manufacturres. Which ones? “I wouldn’t be long Fiat and Ford, the F brothers, right now,” he said.
* China is Dubai times 1000. The government has too much control of the economy. The GDP numbers are not credible.
* Because China bans short-selling, you have to short derivative plays. Short commodities and people shipping raw material into China. Not gold but those commodities involved in the China construction boom. Copper. Cement. Iron Ore.
* “We’re often early. You never get the top tick. You never get the bottom tick. And anyone who says they do is probably…doing the Chinese GDP reports.”
One thing Chanos hints at but doesn’t quite explain is that his fund is always net short but long the market. How can that be? The positions of the fund are always tipped toward short selling
. But the returns on those shorts are bench marked against the market. This means that in a bear market, Chanos’s shorts must out-perform to the downside for the firm to make its perfomance targets. In a bull market, things are a bit easier.
Here’s the video:
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