Where Chanos is wrong on China

Jim Chanos was among the earliest folks to go short on China real estate developers. Those shares are now being killed.  It is just amazing that there are some people who are still mocking him.

If you really want to mock Jim Chanos, it is the long corruption bit, his long bets on Macau casinos shares, where he is vulnerable.  Not that he was wrong about corruption.  In fact, every human being should be uber-bullish on corruption in China.  Yet if the overall economy isn’t doing well, and if the government is going to cut back on investment (which is happening in railroads, for instance), ultimately there will be less money sloshing around for bribing corrupted officials and/or businessmen, and they will have less money left for gambling.

So those shares are being killed as well, and it was a total bloodbath yesterday. SJM Holdings (880.HK) was down 25.5%, MGM China (2282.HK) was down 20.4%, Melco was down 16.1%, Sands China (1928.HK) was down 14.3%, and Wynn Macau (1128.HK) was down 10.9%.

James Packer is not alone.

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  1. When commodity prices fall, our terrible state of economy would be exposed: we spent a lot more than we earned, the gap was being filled by overseas borrowing through our banking system. Housing overvaluation was just a device to keep the borrowing and spending up. To paraphrase Warren Buffet, we have been swimming naked while the tide of commodity prices was high.

    We could be in for a protracted period of low growth or even outright deep recession. The boom was too great, and I am afraid the hangoevr will be pretty bad, too.

    The RBA is right to keep restraining our excess spending which goes straight to imports anyway. It should wait until the commodity prices are bust before any easing, to ensure that in the next phase we will save and invest rather than borrow and spend.

  2. Interest rates should go up to encourage domestic saving and local lending to productive enterprise instead of reliance on foreign funding. The world’s financial structures are so bad, as MB reaaders know, that the eventual cure will be bank nationalisations, restructuring and eventual resale. Pity the current bankers are making off like thieves with the connivance of pollies and regulators.

    • i second this rod. it is also a far more elegant solution than a carbon tax as it will smash consumption, lower the cost of housing etc and will directly address the real problem–too many of us, consuming too much with cheap debt! it will also prevent corporations monetising carbon certificates, overcompensation to households and banksters and traders getting rich. (and i work for a renewables company as a trading analyst!). raise the cost of money it will solve so many problems around the world. there will be pain but in long term we will all be better off.

    • That’s too much punt on politics rather than the economy. Jim was right on the economy, but might be wrong on the politics, as the Asian experience elsewhere has shown that democratization and transparency will inevitably follow economic growth. Long on corruption, via the Macau gambling outlets as proxy, may not be the winning trade. Not in the long-term anyway.

  3. Interesting move on the bonds of developer Country Garden as well… the 2018’s gone from 100 to 75 in 2 weeks and hearing they are trading lower still than Bloomberg has them.