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Short-seller James Chanos called the fall of Enron, and now he's on record about the coming...

Short-seller James Chanos called the fall of Enron, and now he's on record about the coming biggest crash: China Inc. (FXI) (PGJ) (GXC) (XPP) (FXP). Real estate there is “Dubai times 1,000 - or worse,” he says.
Comments (56)
  • tripleblack
    , contributor
    Comments (13451) | Send Message
     
    Brave man, right there, very brave.

     

    I like his style. Win or lose, he thinks big.

     

    Could he be right? Maybe, just maybe...
    7 Jan 2010, 06:41 PM Reply Like
  • robert.b.ferguson
    , contributor
    Comments (10802) | Send Message
     
    I recall reading another article speculating on this subject. I think it may have been from Motley Fool. Their take was that China is inflating a real estate bubble and that it would burst this year or next. Step right up and line up your short plays now.
    7 Jan 2010, 06:46 PM Reply Like
  • Jeff Nielson
    , contributor
    Comments (2464) | Send Message
     
    I get a HUGE chuckle out of all these American "experts" who can see "bubbles" EVERYWHERE...except in the United States.

     

    U.S. Treasuries are currently the world's biggest bubble - with PRICES at their highest level in history as their SUPPLY is being increased by the most in history.

     

    And when it comes to housing-bubbles, how about the 2nd U.S. housing-bubble. The U.S. government has spent the entire last year creating a BRAND-NEW sub-prime sector - with taxpayers guaranteeing 100% of the debt, and Fannie and Freddie's Treasury Department guarantees lifted from $400 billion to infinity.

     

    Meanwhile, more than half of all new mortgages in the U.S. last year effectively had ZERO down-payments, MILLIONS of homes have been hidden from the market by U.S. banks, and the BIGGEST spike in mortgage resets for the infamous option-ARM mortgages is just about to BEGIN - and last for at least 2 years.

     

    The 2nd collapse in the U.S. housing sector will be worse than the first, because there is no cushion (anywhere) for either banks or individuals to absorb further losses.
    7 Jan 2010, 06:47 PM Reply Like
  • Teutonic Knight
    , contributor
    Comments (2023) | Send Message
     
    Jeff

     

    Excellent comment. I concur with you viewpoints.

     

    As a former Canadian-now-living-in... I would invite you to visit my recent Instablog article: "A Tale of Three Empires" about my perspectives on the economic rise of China vis-a-vis the US and Britain.

     

    Just click on Teutonic Knight's Instablog link. A few top-rated SA commenters had also provided thought-provoking comments. Your comment is welcome.

     

    TK
    8 Jan 2010, 06:34 PM Reply Like
  • eastofwest
    , contributor
    Comments (138) | Send Message
     
    WOW,,,phone China,,tell them before it is to late????,,or read the fact, China is aware of problems in the real estate sector,,and deal with it in an open fashion,,they do not hide it,,all they can do watch the said market, and issue caution,,no market to date has found a way to stop bubbles,,China market,s are in good shape,,,to point at one sector and shout foul,,shows a lack of understanding of where China is going,,and more inportant where it has come from.
    7 Jan 2010, 07:07 PM Reply Like
  • Jacob Wolinsky
    , contributor
    Comments (464) | Send Message
     
    You believe the Chinese government deals with matters in an open fashion?
    8 Jan 2010, 01:15 AM Reply Like
  • acttang
    , contributor
    Comments (176) | Send Message
     
    no, not in a way our congress, senat, and administration would. but our congress, senat, and administration are just darn right stupid. sure, shouting, yelling, and spitting at each definitely seems very open, but does it ensure good policies and results?
    8 Jan 2010, 04:01 AM Reply Like
  • Jacob Wolinsky
    , contributor
    Comments (464) | Send Message
     
    lol I dont think our government is transparent but that doesnt mean china's government is
    8 Jan 2010, 07:34 AM Reply Like
  • Ricard
    , contributor
    Comments (3829) | Send Message
     
    Executions are public knowledge.
    8 Jan 2010, 04:03 PM Reply Like
  • R Square
    , contributor
    Comments (162) | Send Message
     
    China market is doing well? Really? Based on what? Please define your terms and site the data.

     

    As an aside: I was on an institutional DB conference call last week in which DB's top China economist (Jun Ma) mentioned in passing that, at a minimum, 20% of retail sales were the direct result of govt purchases.

     

    The reality is that domestic consumption accounts for only around 35% of GDP. It is still an export driven economy and exports have fallen precipitously and are not likely to bounce back as US unemployment will likely remain relatively high and the economy remains weak.

     

    Small businesses (account for a little over 60% of PRC GDP) are taking it on the chin during this downturn with rising business failures. Around 20% have died and another 20% are on life support. These figures are a stark contrast to the generally upbeat tone and tenor of the news from investment banks and the Chinese govt.

     

    Strip out the flood of money and make work projects and real GDP growth is probably half the official figure or less. The flood of money was a stop-gap measure but the consequences are significant malinvestments, massive supply overhang, exploding NPLs and inflated asset bubbles.

     

    Contrary to official news, NPLs are actually a pretty big problem and something like 11 banks recently needed an additional $75 billion to meet capital adequacy ratio requirements. The problem is, this is an under recognition of the extent of the problem due to the problem of rolling loans, equity swaps and the emergence of Trust vehicles, all used to obfuscate the extent of the problem.

     

    China is a momentum play but but recognizing a top is not as easy as it would seem (real estate, dot com).

     

    Some have asked how to short a China bubble, the answer is to recognize the 1st derivatives of a China play. For example, one can identify Australian companies that are highly leveraged, have significant exposure to China and would be significantly impacted as a result in a curb in industrial production/consumption of certain materials.

     

    There are more and better examples if you do a little research.
    10 Jan 2010, 12:04 AM Reply Like
  • tunaman4u2
    , contributor
    Comments (2784) | Send Message
     
    Print money... cover up... nothing to see here

     

    Hard to be a short seller\bear with this garbage going on!
    7 Jan 2010, 07:25 PM Reply Like
  • Harry Tuttle
    , contributor
    Comments (2221) | Send Message
     
    “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.”

     

    Discredit the messenger.

     

    Wait! Andy Xie, who I believe is Chinese, agrees with Mr. Chanos
    7 Jan 2010, 08:23 PM Reply Like
  • TMR
    , contributor
    Comments (20) | Send Message
     
    Jim Rogers also explains that China WILL have bumps across the road. But that's only normal. In the long run, growth and economic prosperity is going to be for those who produce and save anyway. And that is Asia.
    There is a rare video debate with Jim and Marc Faber, recorded in 2005, where they outline in a brilliant fashion the economic future we are headed to and which role the US, Asia, Europe and Japan will play herein. Must see! www.commoditypress.com.../

     

    Thomas
    8 Jan 2010, 01:23 PM Reply Like
  • Tack
    , contributor
    Comments (12976) | Send Message
     
    This is just male-Meredith-Whitney syndrome: make one right call --maybe, pure luck-- and you're now an expert on everything.

     

    All the folks waiting for the economic world to end are in for a long, long wait.
    7 Jan 2010, 08:37 PM Reply Like
  • Econdoc
    , contributor
    Comments (2944) | Send Message
     
    I like it.

     

    Male Meredith Whitney Syndrome. Good one.

     

    You are right. Everyone wants to be Dr. Doom.

     

    We haven't heard from Roubini for a week or so - expect him to surface next with his latest forecast. Isn't Davos in a few weeks. Should be any day now. His 15 minutes are over.

     

    SA should do a whatever happened to....series. Would love to know where Elaine Gazzarelli is now.

     

    E
    8 Jan 2010, 02:43 AM Reply Like
  • NOCSM
    , contributor
    Comments (84) | Send Message
     
    Well, whatever happens to China lets hope that it is orderly. The last thing we want is 30% of the Chinese, population of the US to be upset about an economic collapse. Chinese factory workers who've lost their jobs have been rioting. Lastly, the Chinese can easily blame westerners for corrupting their country and kick the multinationals out and nationalize companies. Basically, a collapse of any kind in China is not good for anyone.
    7 Jan 2010, 09:03 PM Reply Like
  • Jolly_Rancher
    , contributor
    Comments (548) | Send Message
     
    The Chinese bubble isn't built on credit. There's very little to no consumer credit in China. The "consumer" is on a cash basis, and so it is difficult to see much of a "pop." This is also true for the "consumer" in other developing markets, such as Brazil and India. It is just a fact of life that the Chinese would rather place their savings in hard assets such as gold and real estate rather than deposit accounts. I can't blame them.
    7 Jan 2010, 09:42 PM Reply Like
  • Harry Tuttle
    , contributor
    Comments (2221) | Send Message
     
    There is credit for Real estate and stocks.
    8 Jan 2010, 09:24 AM Reply Like
  • The Geoffster
    , contributor
    Comments (4011) | Send Message
     
    Anyone who tries to keep track of what is happening in China is going to end up by wearing all the skin of his left ear from twirling around on it.
    -Robert Benchley
    7 Jan 2010, 09:53 PM Reply Like
  • Joe Shareholder
    , contributor
    Comments (183) | Send Message
     
    It's not only China that's blowing bubbles. Ben Bernanke, please step forward.
    7 Jan 2010, 10:28 PM Reply Like
  • Teutonic Knight
    , contributor
    Comments (2023) | Send Message
     
    Some Americans don't even know where Singapore is on the world map. In processing some legal papers many years ago, I recall the person insisted that Singapore is part of China. So I wonder if Mr. Chanos would be able to point his finger at the world map where China is.
    7 Jan 2010, 10:55 PM Reply Like
  • DrBenway
    , contributor
    Comments (300) | Send Message
     
    I spent spent a few weeks in Shanghai and Beijing in May and, at a glance, it did seem that China was in a hell of a real estate bubble. There were a ton of 4/5 star half empty hotels in Shanghai next to a myriad of cranes blocking the sun.

     

    As far as for Mr. Rogers, I just cannot take his seriously since he adopted his bow-tie "aging pedophile" outfit which by the way is so 80's. His typical argument lately goes something like this: "what I am telling you is so obvious, even my 5-year old granddaughter understands, if you disagree with me you are more stupid than a 5-year old."

     

    The easiest way to short China Real Estate is either to short TAO (if you can borrow cheaply) or to short copper.
    8 Jan 2010, 12:32 AM Reply Like
  • SlingWing9
    , contributor
    Comments (480) | Send Message
     
    For the last 5,000 pts on the Dow these people have been calling the U.S. market a bear market rally and to stay clear of equities. Now they're turning all this intellect toward China and the same pundits think we should believe them now?

     

    Every market goes through periodic corrections; some sector specific, some the market as a whole. Big deal, just pay attention. Sooner or later Chanos' prediction will come true just like that one moment when a stopped clock shows the correct time.
    8 Jan 2010, 12:39 AM Reply Like
  • SethM
    , contributor
    Comments (600) | Send Message
     
    China is without a doubt within a huge investment bubble. Debt exists in vast amounts but is held by institutions instead of individuals.

     

    For the details that lead to Chanos taking his position read this: www.pivotcapital.com/r...

     

    This is the key sentence in the report: "It is important not to forget that China was a big beneficiary of the global credit bubble as it had an effect of stimulating demand for its exports."
    8 Jan 2010, 02:37 AM Reply Like
  • Rahul Deodhar
    , contributor
    Comments (4) | Send Message
     
    Investments have a tendency to get ahead of fundamentals. Chinese economy is driven by (to an extent) competing politicians keen to meet GDP targets. Within the GDP (C+I+G+X-M) growth they have little control over C or I so they depended on G and (X-M). This is good time to get in very long gestation projects ready (e.g. 3-gorges dam)

     

    But it appears that the investments have gotten way ahead of fundamentals. Empty cities are case in point. So either China stops investing waiting for private consumption (C) to catch up or it might simply junk the current govt investment (G) and start afresh. Second option is wasteful and inefficient but as good as a Keynesian stimulus.

     

    The question is have the investments gone so far out of whack as to neutralize the currency gain eminent in near future. I don't think it is very clear as a whole. But real estate sector does seem way out of line. The sector is deeply interconnected with banking and other industries.

     

    It might cascade into a China collapse. If you ask me the probabilities are still not high enough for going short just yet. The shorter-sellers might be doubling down as we head towards 2Q10.
    8 Jan 2010, 02:55 AM Reply Like
  • Wyatt Junker
    , contributor
    Comments (4503) | Send Message
     
    China's rich/poor demographic rift was more stunning back before Hong Kong was given back over by the Brits last decade. And in HK, real estate was outrageously expensive then. Nothing's changed really. Perhaps its broadened out some now.

     

    BTW, wasn't this same exact bit of plagiarism in Newsweek last week?

     

    Does everyone copy everybody else these days? I guess it must be lonely out there.
    8 Jan 2010, 03:00 AM Reply Like
  • Nik
    , contributor
    Comments (10) | Send Message
     
    What most people do not understand about the Chinese real estate market is that:

     

    a) There is no subprime. Nobody has EVER bought ANYTHING for less than 20% down, and often 30% or more.
    b) You can't use your apartment as an ATM in China. You can't refinance in China. There is NO such thing. It works like this: you have $100K savings. Instead of buying ONE apartment for $100K, you buy 3, put $33K down on each and take a loan on each (leverage). There are some obstacles here, but you put each apartment in a different name of some relative. You wait two years, price appreciates, and you sell two apartments (presumably you live in the third), and make, say 100% profit on each ($66K from each of the two you sold), so now you have $132K plus one apartment you live in and pay mortgage on. You take $32K in cash to live on, and REPEAT.

     

    This is the way speculation is done in China. It's bad enough because it encourages OVERBUILDING but it is nowhere NEAR as bad as taking EQUITY out. In this case you are actually completing a transaction. You are out of the game. You don't BORROW against the house. This is what was done in the US, and this is why US was screwed when housing prices collapsed, because the consumer BORROWED and SPENT the appreciation in price. The buyer in China does NOT borrow against the property. He sells it and makes money.

     

    And a word on overbuilding. There are millions of Chinese still living in caves. No that's not a figure of speech. It's a fact. The middle class still lives in 800 square feet per family.

     

    It's going to take a lot of years before China is overbuilt.

     

    So does that mean that there are no problems with real estate in China? No. The market has gotten a bit ahead of itself. It's a bubble. The government is going to intervene and pop it. Prices will stop appreciating for a year or so, and will then continue to go up, Government hopes in step with the actual growth of the economy.

     

    There will be no US-style crash in China.

     

    And another thing. You have no idea how difficult it is to get a loan in China. You don't just walk into a bank, show them your income proof, and get a loan a week later. You need to KNOW someone. You often need to pay someone off to get a loan, especially a loan on decent terms. When they say that Chinese Government gave a lot of loans out, they mean that it was about 5 times more difficult to get a loan in China during that period than it was to get it in the US during 2008. Normally, it's about 50 times more difficult.

     

    So again, yes, more loans, more bad loans, but still FAR, FAR, FAR, FAR, FAR from an illegal-aliens-making-...

     

    Disclosure: I live in Beijing and have recently completed purchase of a property.
    8 Jan 2010, 03:48 AM Reply Like
  • Tekatl
    , contributor
    Comments (106) | Send Message
     
    @ Nik
    I agree for the most part except b) is speculation and overleveraging which did add to the problems here, but you are spot on that they do not have lax lending standards. Everyone needs to remember that China has a lot of cash, unlike everyone else. I think a lot of countries would be more than willing to extend credit to the Chinese need be. Maybe this is why they have been getting so buddy-buddy with the middle east and arabs, who also have a lot of cash and commodities.
    8 Jan 2010, 04:38 AM Reply Like
  • Art Trader
    , contributor
    Comments (120) | Send Message
     
    Nothing purchased for less than 20% down - sure, unless their 20% cash came from a parent (or shell) company that raised funds (debt) to provide the cash. It's happening. Maybe not with individual households, but commercial real estate is doing this all over, and the people putting up the housing that individuals are buying are, too. We'll see how it works out for you!
    8 Jan 2010, 09:16 AM Reply Like
  • Uppai Mappla
    , contributor
    Comments (113) | Send Message
     
    The most famous contrarian of all James P Chanos calling China a bubble, equivalent to Dubai x 1000 or worse! Cannot be ignored.
    His most worrying observations are ...
    (a) China may be cooking books to look their GDP growth figures look good.
    (b) The Chinese are in the danger of producing huge quantities of products they will be unable to sell.
    (c) Chanos is looking for ways to short China, which he admits, is tough.

     

    Chanos cannot be ignored. He prediced the Enron crash. Run for exit?
    8 Jan 2010, 11:43 AM Reply Like
  • Ruthanne Williams Roussel
    , contributor
    Comments (74) | Send Message
     
    Nik, everything you have said was also true about Russia leading into the Asian/Russian economic crash of 1998.
    8 Jan 2010, 12:52 PM Reply Like
  • Rahul Deodhar
    , contributor
    Comments (4) | Send Message
     
    @Nik
    The conditions you mention make no difference.

     

    It is not a pre-requisite that customers use apartments as ATMS. Down payment only creates a barrier for customers. The crash starts from developers end.

     

    Developers in China, like everywhere else, have bought high cost land. The consumer prices they lead to are not really tenable till income growth catches up or developers for go their steep margins.

     

    Developers (some not all) start project for 100 unit complex and sell 20 units to recover cost (break even). Thereafter they release extra units (say 20) to finance new land bank acquisitions. But they keep some inventory (60units) with themselves to take advantage of rising prices.

     

    In boom times developers believe land prices will keep going higher and therefore sell out most of their inventories to buy land. Some even keep past projects unfinished so that they get to use the debt for financing land purchases. This makes the system weak.

     

    At such point if there is adverse interest rate change or any shock that weakens prices we get a crash. It gets aggravated once buyers start seeing prices collapse - they don't want to get into falling price real estates.

     

    Individual buyers, in my experience, end up buying at peaks and selling at troughs.
    8 Jan 2010, 09:19 PM Reply Like
  • Nik
    , contributor
    Comments (10) | Send Message
     
    You should remember that developers are all state companies. Some will be allowed to fail, but most won't.

     

    I seriously question the "crash" scenario.

     

    How is the economy affected when growth stops in China? Chinese consumer never spent to begin with. On top of that, unlike the debt ridden US consumer, the Chinese consumer is padded with cash savings. Sure, the ever increasing stock market and real estate prices stop going up.

     

    This is not to say that whether China grows or not is irrelevant, this is just to say that China has a major cushion, both on the consumer side AND, of course, on the government side.

     

    Back in late 2008 China was hit. Everyone said China is doomed: US consumer is toast and China with it. Some factories closed, some people lost their jobs, but a lot just had their salary and hours cut. Migrant workers went back to their old lives in the country side. Six month later, and after some stimulus sure, China was back on track, with or without the US consumer.

     

    The "problem" with China is that it started from a very low starting point, and that it is a VERY big country. It has an enormous room for growth in enormous number of areas. Take banks and finance. Chinese financial system is.... oh... 1850s Europe, with some on-line banking on top. Improving productivity there is enough to drive GDP by a few percent a year. Transportation and telecom systems, of course, are up to par now after many years of exponential growth.

     

    And China hasn't even really begun to expand outside its borders and project its economic power. So sure, there will be some bumps on the road, and as I said, I do not dispute that the current real estate market is in bubble territory, but it's nowhere near the bubble that US had, and it's nowhere near as critical.

     

    And any fallout will be a) muted by lack of transparency (transparency is a double-edged sword); b) will be a lot easier to manage for the Chinese government that it was for the US government to manage its fallout -- what with all the free media, elections and other annoyances.

     

    An ideal system? Not saying that. Just saying that for the stage of development that China is in, this system works. Proof is in the pudding.
    9 Jan 2010, 12:52 PM Reply Like
  • zblument
    , contributor
    Comments (10) | Send Message
     
    While it's not a secret to anyone who does a little digging, that China's real-estate has been rising at blazing speeds, they are taking actions to curb this now.

     

    Further as others have pointed out, China is not leveraged like the US was for it's sub-prime fallout. The Chinese people (those who have money) are savers compared to the western countries.

     

    Disclosure: No investments in China, my BRIC country of choice is still Brazil. I do expect China to expand in 2010, so shorting/going bearish this early doesn't make sense. There is plenty of time to follow them down after seeing more confirming signals in the market.
    8 Jan 2010, 05:06 AM Reply Like
  • Shonkypom
    , contributor
    Comments (169) | Send Message
     
    China will crash for the same reasons that all booms turn to bust - something seemingly innocuous which turns out to be the card at the bottom, and everyone will be wise after the event. For my two cents, the opaque and manipulative actions of the quasi-socialist regime in a fake capitalist environment will eventually come back to haunt them in a big loss of confidence. If you were an importer of Chinese goods, and started to see a high degree of political unrest, wouldn't you start to shop elsewhere?
    8 Jan 2010, 05:29 AM Reply Like
  • bukdow
    , contributor
    Comments (834) | Send Message
     
    Frankly, I think Chanos is looking for attention. Yes, China will eventually cool and will experience sector corrections, but to make this over-the-top apocalyptic call on China now is merely an attempt by Chanos to re-focus the spotlight on him. A big deal made over banality.
    8 Jan 2010, 07:20 AM Reply Like
  • winnersdon'tquit
    , contributor
    Comments (211) | Send Message
     
    Hi Nik...
    Your analysis appears fair,balanced, and most importantly...logical.
    Thanks for your commentary.
    8 Jan 2010, 08:09 AM Reply Like
  • Slowflyer
    , contributor
    Comment (1) | Send Message
     
    Let's get some perspective here shall we? There's undoubtedly a property bubble forming in China. But that doesn't mean it's going to blow up and bring the whole temple down. Yes China is opaque, corrupt and inefficient in its allocation of resources. It is, after all, still ( largely) run by people who not very long ago were waving Little Red Books around and who still cheerfully lock people up for saying " Boo". Yes company valuations are not especially meaningful. Yes its economy is too export-focused and has a long way to go before it develops a dependable domestic market, saves less and spends more. But the Chinese are not stupid. I interviewed a top Chinese official just before they raised the 5-star flag over Hong Kong in 1997 who confirmed Peking would take full control of the colony. Cripes!! Markets tanked fuelled by nightmares of the Yellow Peril sweeping south destroying Hong Kong's idyllic free spirit. Nothing of the sort happened. The transition has been managed with considerable skill. Hong Kong lives and booms. The Chinese are fast learners and supremely practical. " I don't care if the cat is black or white as long as it catches mice": Deng Xiaoping. They have a tricky balancing act to perform sure: Keep growth pumping to create jobs ( and stay in power) but put the brakes on when needed. The fact that China is a one-party state may be distasteful but it's not all bad. They watched ( appalled) at what happened in Russia post-Gorbachev ( having spun out of control Russia is now a kleptocracy) and they've learned. They watched how our puerile, pin-striped Masters of the Universe brought us to the edge of ruin in the West and they're thinking about that too. I'm not an apologist for China. I don't entirely trust their numbers either. I think the lack of transparent information is a major weakness. I also understand that Chinese investors are even more herd/lemming-like than we can be. But give the leadership some credit. And let's stop patronising them. They are, essentially, a conservative ( small 'c') and cautious bunch advised by a new generation of bright, often-western educated technocrats. It will, be a bumpy ride. But look how far they've come in less than 60 years. And think how much further they have to go. They have no more interest in gambling their future away than we do. So stick around and enjoy the ride. But caveat emptor
    8 Jan 2010, 09:47 AM Reply Like
  • Robert Radano
    , contributor
    Comments (41) | Send Message
     
    Chanos is a bright investor and should not be ignored. However, the problem with his thesis is that he can be right, get short, but still not make the kind of money people like Paulson made shorting the US real estate markets.

     

    China is not an open society, nor is it an open economy. The ruling elites will do everything in their power, which is considerable, to perpetuate what Chanos calls a bubble. The larger macro story is important with respect to China's role as an engine for global growth.

     

    When China has a downturn, it will be short-lived as global investors will step-up and provide additional capital. The central planning, opaque nature of China's economy will have inevitable negative consequences, just not as dire as some think.
    8 Jan 2010, 10:39 AM Reply Like
  • Djvu
    , contributor
    Comments (574) | Send Message
     
    my views in basic algebra ...lol
    China = 1000 x Dubai
    US = Spain + Ireland +Portugal + Greece + Italy + AAA rating
    8 Jan 2010, 11:07 AM Reply Like
  • silver-bug
    , contributor
    Comments (157) | Send Message
     
    The US will crash decades before China crashes. China has surplus in billions, while the US has deficit in billions. US is an empire in decline, while China is an empire being built. China has a growing middle class consuming more goods to propel it's economy, while the US has a shrinking middle class burnened by debt and unemployment.

     

    Now, decide who is likely to fail first.
    8 Jan 2010, 12:53 PM Reply Like
  • jfk2010
    , contributor
    Comments (9) | Send Message
     
    It's safer not to short China, reasons below:
    1. Chinese govenment has absolute power while US govenment does not have at all. So if the Chinese govenment want everything to be up, they will go up.
    2. Chinese people are not spoiled like US people, they will not go riot unless they really do not have any food to eat plus no pint of water to drink which will not happen. They are very easy to be led without much complaints, very unlike US people. They have experienced Japanese invation, Communist cultural revolution, 3 years near starvation during 1960-1962 while some 10 million people died of starvation without rioting, contrasting to New Orleans during Katrina.
    3. Much more students in China learn technology than in the US.
    4. China currently is like US 100 years ago. After 50 years from now, China will become spoiled and the progress will diminish by then.
    5. Stop saying that US has been agaist China in the past 100 years. US helped China in some ways: helped funded the best tech university (China's MIT) 100 ago while US could choose not to; supported China in defeated Japanese invation.
    8 Jan 2010, 05:38 PM Reply Like
  • R Square
    , contributor
    Comments (162) | Send Message
     
    "2. Chinese people are not spoiled like US people, they will not go riot unless they really do not have any food to eat plus no pint of water to drink which will not happen. They are very easy to be led without much complaints, very unlike US people"

     

    Truth is, there are protests and riots in China.

     

    Everything from corruption:
    www.straitstimes.com/B...

     

    to housing, land issues and the closing of factories.
    10 Jan 2010, 12:44 AM Reply Like
  • Tack
    , contributor
    Comments (12976) | Send Message
     
    So few seem to "get it."

     

    China won't bust because their internal development is funded by local currency and/or dollars, which they hold in huge abundance. It is not a debt-driven expansion, but one based of expenditures of their vast equity reserves. Even if China's internal growth were to stall, they'd owe nobody anything, and the government could wait until hell froze over for things to resume expansion, with no need to foreclose on anything.

     

    The differences between earned-income expansion and debt-driven expansion are so huge as to almost defy comparison, but here in the U.S. most insist on seeing the world through the lenses of our own problems.
    8 Jan 2010, 10:43 PM Reply Like
  • gotribe
    , contributor
    Comments (156) | Send Message
     
    He's a short seller. What would you expect him to say?
    9 Jan 2010, 09:39 AM Reply Like
  • wcfields
    , contributor
    Comment (1) | Send Message
     
    i was hoping to see some specific investment suggestions if one agreed with the premise. how do you short China if you think its a bubble?
    9 Jan 2010, 10:52 AM Reply Like
  • rca123
    , contributor
    Comment (1) | Send Message
     
    There's an excellent article in the December issue of Forbes that discusses chinese real estate. The article hints that unlike the US, the chines real estate problem is not one of over-leverage by individuals but that pricing has been established by entities such as state owned enterprises and municipalities who have no problem borrowing from the state...and no problem selling their properties back and forth to one another. These real estate sales fund current consumption so in fact the money disappears as soon as the ink is dried. Because the municipalities and SOE's have bid the price of real estate up beyond where the citizenry can afford it the conclusion is that the chinese real state industry is staring at a 25 yr supply of pre-built un-occupied buildings.

     

    LS
    9 Jan 2010, 03:57 PM Reply Like
  • R Square
    , contributor
    Comments (162) | Send Message
     
    Yes, this is an accurate account on how the govt benefits from real estate inflation. Land sales have added a significant amount of revenue to local govt coffers.

     

    This gets back to how the narrative is rigged. Local govt officials are evaluated (in part) by their ability to hit GDP growth targets, noting the creative ways in which Chinese count GDP. This is another reason why we see continued malinvestment in industrial sectors with significant oversupply.

     

    It is a production/export driven economy with a large political dimension that tends to distort market behavior. If the fastest and easiest way yo move up through the party is to hit your economic targets is to produce more steel (regardless of steel supply) you make more steel. If you can crown more "land kings" through the local govt/SOE/ Banking system loop, then that's what you do, massive oversupply, exploding vacancy rates, underutilization and NPLs be damned.

     

    That's how you end up with a brand new city built for 1 million residents but remains uninhabited.
    10 Jan 2010, 12:30 AM Reply Like
  • Petra Gajdosikova
    , contributor
    Comments (44) | Send Message
     
    Just wondering... has anyone actually seen these apparently uninhabited cities? I certainly haven't. Granted, I haven't been to every single city on the mainland, but those I know are quite the opposite.
    13 Jan 2010, 11:32 PM Reply Like
  • Joshua Hayes
    , contributor
    Comments (362) | Send Message
     
    Just follow the trend in China NOW and making money TODAY. When it tops, you will have PLENTY of time to get short. The trend is ALWAYS your friend and topping signals will appear before a downtrend starts. More scare tactics.
    9 Jan 2010, 07:22 PM Reply Like
  • DrBenway
    , contributor
    Comments (300) | Send Message
     
    I have heard David Lereah has been signed to a new book deal:

     

    1. 2010: "Are you missing the China Economic boom?"

     

    2. 2011: "Why Chinese Economy will not bust and how you can profit from it!"

     

    3. 2012: "All Chinese real estate is local"

     

    4. 2013: "How to seal your country border to keep Chinese unskilled labor out"
    10 Jan 2010, 02:18 PM Reply Like
  • R Square
    , contributor
    Comments (162) | Send Message
     
    Dr. Benway, it took me a minute to get the joke as I am unfamiliar with this guy. The absolutely perfect contra indicator, sort of like a surgeon-investor I know.

     

    Unbelievable:
    2000 How to profit from internet stocks
    2006 Why real estate boom will not bust
    2007 All Real Estate is Local.

     

    Here's Lereah's 2006 book entitled: Why The Real Estate Boom Will Not
    en.wikipedia.org/wiki/...

     

    Thanks for the comic relief.
    10 Jan 2010, 04:12 PM Reply Like
  • Jacob Wolinsky
    , contributor
    Comments (464) | Send Message
     
    Does anyone have data on chinas real estate such as increase in home prices versus inflation over the past several years, or the change in income to home prices etc?
    13 Jan 2010, 11:21 PM Reply Like
  • Lisa
    , contributor
    Comments (330) | Send Message
     
    Thomas Friedman just wrote an article on this: "First, a simple rule of investing that has always served me well: Never short a country with $2 trillion in foreign currency reserves."

     

    www.nytimes.com/2010/0...
    14 Jan 2010, 04:57 AM Reply Like
  • Jacob Wolinsky
    , contributor
    Comments (464) | Send Message
     
    I saw the article and it was one of the dumbest things I ever heard. When was he going to short a country of two trillion dollars of reserves

     

    and BTW countries with large foreign reserves and high domestic savings rates have also had a financial crisis
    14 Jan 2010, 07:27 AM Reply Like
  • Lisa
    , contributor
    Comments (330) | Send Message
     
    More from the Thomas Friedman article:

     

    All the long-term investments that China has made over the last two decades are just blossoming and could really propel the Chinese economy into the 21st-century knowledge age, starting with its massive investment in infrastructure. Ten years ago, China had a lot bridges and roads to nowhere. Well, many of them are now connected. It is also on a crash program of building subways in major cities and high-speed trains to interconnect them. China also now has 400 million Internet users, and 200 million of them have broadband. Check into a motel in any major city and you’ll have broadband access. America has about 80 million broadband users.

     

    Now take all this infrastructure and mix it together with 27 million students in technical colleges and universities — the most in the world. With just the normal distribution of brains, that’s going to bring a lot of brainpower to the market.
    14 Jan 2010, 05:04 AM Reply Like
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