Discussing the fear for current market conditions in China, and where to invest, with Kynikos Associates president Jim Chanos.”It’s better to stay away from investments focused in China,” he says.
Video segments and transcript below
Corsair Capital was down by about 3.5% net for the third quarter, bringing its year-to-date return to 13.3% net. Corsair Select lost 9.1% net, bringing its year-to-date performance to 15.3% net. The HFRI – EHI was down 0.5% for the third quarter but is up 11.5% year to date, while the S&P 500 returned 0.6% Read More
caution people that we’re getting more excited about is the whole — the rollup acquisition game. there’s a number of high flying stocks that have gone up as much as ten-fold in this bull market that are basically growing by doing one acquisition after another. and doing bigger and bigger acquisitions. such as? i think that — that — well, as i say, one of the great things about the short side is you don’t always have to disclose your positions. but i would caution your viewers that if they hold stocks that are growing strictly by acquisition, and do not have any organic growth, have gotten big, big multiples — like biotech. using aggressive, goodwill accounting. there’s some areas in the medical technology area that i think are really guilty of this. i think you can comb over your portfolio. these kinds of stocks do very, very well in bull markets. and they do very, very poorly in flat or down markets. is that what you see for 2014? flat or down? i have no idea. but all i know is the risks are rising. and i’m kind of bemused by all the people that come on your show and others who try to compare where we are with other sort of substantive market tops. and say, well, you know, in 2007 it went to this level. right. or 2000 it went to this level. that’s sort of like saying, well, yeah, we know a car probably goes out of control and hits the wall at 200 miles an hour. but i feel pretty safe at, you know, going 160 or 170 here. look, it’s riskier than going 60. and i think the risks have increased in the u.s. market rather dramatically in the last year. are we at some sort of top? i have no idea. but i do know that people that were echewing risk in 2009 when they should have taking it are embracing it in 2011. the same arguments can always be made at other times that the fed has your back or my stocks are cheap relative to the market. all i know is the risks have increased dramatically in the u.s. market where that wasn’t the case in 2009-2010. you’re finding — jim, last question. you’re finding more value — or more opportunity, i should say, on the short side as a result? we’re finding a meaningfully larger amount of opportunities on the short side at the end of 2013 than at any time since ’06-’07.
while everyone was focused on ben bernanke and his exit and tapering and dovish language, we’ve had a bit of a banking crisis brew up all over again in china this week. there were reports of a major coal company defaulting on huge amount of loans. and then more importantly, a major bank admitted that back in june it had missed overnight interbank payments. that got the market skittish again this week. rates have skyrocketed. overnight the people’s bank of china injected some money into the system to calm these fears down. but it just seems like we’re going through this now every threeo six months in china. jim, people are talking about those as growing pains to some extent for this country of almost a couple billion people. it’s hard to bet against — it’s hard to bet on china’s failure. i guess the question becoming tactically speaking, if you’re worried about the outlook there — it’s actually not — go ahead. it’s actually not that hard, kelly. in that, look, there’s a lot of things that are dependent upon china’s continued investment boom. that’s what we’re really questioning. we’re questioning the credit driven nature of this investment-led economic growth model. we debated that here last night at the waldorf, land of the 1% at the yale ceo summit. we had a round table on china. and there was a lot of give and take on the value of that economic model going forward under reforms. jim, what are the specific positions that you have expressing this view that china’s really going to be in trouble? well, i think for the average viewer, it’s just better to just stay away from some things that are focused on china. you know, we’ve talked about caterpillar tractor at the seeking alpha conference back in the summer. you know, i think they’re continuing to struggle. they put out numbers today that were, again, very, very weak in terms of their shipments. commodities. hard commodities, i think, are still going to be under a cloud for the next couple of years, whether it’s iron ore or coal or other hard industrial commodities. i think that increasingly, as more and more supply comes on, the fact that china will be the source of unending demand could be questioned.