if you had to pin me down. i’m a little bit more negative on a couple other places in the world. yeah, i’ve heard about one of those. well-known and documented negative on china, which i want to get to in a second. let me ask a question along those lines. is it harder to be short? is your job more difficult when the tide is going in seemingly one direction? well, it’s not hard to get uptick, scott. when the market is going up — look, it’s — it’s problematic, because it’s more frustrating. but on the other hand, you’re just given opportunities that i think in all — when the tide lifts all boats, it lifts even the leaky boats for a little bit. but ultimately, usually the fundamentals roll out and when the market begins to discriminate a little bit, that’s when generally the shorts begin to behave better. we mentioned china. you just gave a presentation a week or so ago. reiterating, really, how negative that you are. ou’ve been for several years. so nothing has changed in your mind on your opinion what’s happening there. i actually think it’s gotten worse. what’s happened more recently after the new party leaders took in, was another burst of investment. but more importantly, another burst of credit expansion. and what really has us concerned now, you have credit actually accelerating in china. but gdp growth still slowing. in the last quarter, china pronounceded some staggering numbers a couple weeks ago. new credit outstanding jumped by $1 trillion u.s. now this is an $8 trillion u.s. economy. so on an annualized rate, that’s 50% gdp. new credit creation. and to put that also in perspective, total new credit globally went up by $1.5 trillion in the first quarter. china is $1 trillion of that, yet only 10% of the world economy. so there is a credit bubble that’s actually not only huge, but getting bigger. how do you trade? what do you look for? what are your positions to take advantage of that? well, one of the things we have talked about historically is being short booms that go bust. and i’ve always defined that very strictly in that you look for asset inflation where the asset being inflated by credit does not serve — does not generate cash to service the debt. so you get the so-called ponzi finance moment. and that would be almost anything related to real estate or construction in china. so property companies, cement companies, steel. and then, of course, companies selling into that, that bubble. iron ore and mining. that sort of thing. so inexorably, you can’t keep growing your credit at 50% of gdp. something is going to give. when, i don’t know. but it has been a pretty good place to be short as we were talking about before the show. yeah. and don’t you think that it’s a little misguided to assume that the chinese government is so magnanimous and so generous they’re going to come in and bail out all the citizens, all the bankers, all the corporations, the shadow financing. because even if you just look at the report numbers, which can’t believe anyway, under any circumstance, you’ve got the whole shadow financing situation. right. well, they’re not going to bail you and pete out, that’s for sure. right. i mean — pete doesn’t need baling out. you never know. that’s true. but i think that one of the things we keep pointing out to people, to just understand what you’re dealing with. the sort of state-directed capitalist model that everyone is enamored with. keep in mind, the chinese economy has gone up four-fold in the last years, and the stock market has gone nowhere. i dare say if the u economy quadrupled it’s growth in ten years, we would have a pretty good stock market. and the fact that they haven’t tells you that, you know, the insiders, the party members, are taking their cut. and you are last in line. and i think that that — that may still generate growth for the country and for the economy. but certainly not fort capitalists providing the capital. when does it fall apart, if at all? because there are others who are on the other side of you. yeah. say that, no, it’s just wrong. it’s not as bad as jim chanos and some of the other negative voices on china are seeing it. yeah, i think people are kind of expecting smoking ruins to appear, you know, imminently. and that’s just not going to happen. it’s a credit bubble. and so what is happening is that you’re seeing just slow erosion in share prices and profitability. last year, economic growth was just about 8% in china. profits collapsed. and that’s using their accounting. so with 8% growth. so it is happening, scott. i mean, this has been — if you look over the last three years, i mean, despite some really hair-raising rallies along the way, investing in china has been really not a very good place to be. you negative the kind of companies that big multinationals that have big exposure into china, as well? well, we’re — you could basically surmise we would be short anyone who is wholly dependent on the chinese construction boom. so, again, you know, the sort of obvious character is iron ore. we have been public on a few of those names and things like that. but also in china, keep in mind, the chinese are still building capacity internally in places they don’t need more capacity. you know, steve has talked about some of this in the past. steel. steel and cement, yeah. steel, they keep building and is building. and what’s interesting it is that last year one of their top five initiatives was that the government was to cut back steel production. instead they have grown steel production. how many times have we debated on this very desk, companies like valay, one that frequently comes up. and we have been public, we talked about that in the fall. and valay is highly dependent upon the chinese market. and has a different business model than it did in the past. and that’s one of the problems with the minors fundamentally, scott, the model change. in the old days, the governments would work with the mining companies to help them get their product to market. they would help them build railroads and ports and this sort of thing so that these big companies could sell into the global market. now governments have gotten smarter. and are actually requiring the companies to build this infrastructure themselves. so the capital employed in this industry has gone up dramatically. i read something yesterday and i don’t remember who said it, but perhaps an analyst, who made a statement of the recovery there in manufacturing being painfully slow. right? the expectation is just that endless stimulus is going to come to keep gdp to the level the chinese want. you make an interesting statement as well that gdp drives economic growth in china, not vice versa. yeah, we call it the gdp tail wags the economic dog. and i think that is important, because of the obsession with gdp and not missing targets, and also keep in mind that the party cadres at the local level and at the regional level are all judged and promoted on gdp. really means it’s sort of back to the old dot com takes ten years ago when you had to beat numbers by a penny. that was important. and how you did it became sort of secondary and for many companies very telling. on a negative basis. the whole country is structured that way in china. jim, if we could circle back to valet for one secretary, to get inside the mind of a gentleman like you shorting and it hasn’t bust yet over in china. it’s gone down, as you said, but we haven’t seen it completely implode. do you continually accelerate your short positions in a name lake val bayecause valay is so exposed over there you were short last fall, shorter again in december. it’s been a good — but are you continuing, in other words — if you see this thing coming and it hasn’t bust yet, are you continuing to sell into this? is . one of the things that is important to understand about an institutional short seller as optd to individual or trader, in our global fund, we have 100 positions. so, you know,
