Chanos' Summary Thoughts On China: It's Bad And Will Get Much Worse

Tyler Durden's picture

Chanos presents the summary observations regarding China's real estate bubble, and some strategic comparisons between China and the US:

The fun fact I'll give you is there is almost 70 billion sq. feet under construction right now in high rises, commercial, residential and light manufacturing. We estimate about 30 billion sq. feet is commercial, what we would consider is office space. That's a 5x5 cubicle for every man woman and child in China. They are building high rises in cities with already 15-20% vacancy rates, and those are the government's numbers. The real vacancy rates are higher... The Chinese banking system is the problem, it is loaded with bad debt...Our geostrategic position is a lot better than China. Keep in mind China imports almost all its essential materials... They send us stuff, we send them pieces of paper, who would you rather be.

Full clip below:


h/t MaoZeBong

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girl money's picture

in other words, China is the new Dubai.

lovejoy's picture

Chanos indicated Dubai X 1,000

Kissy Ass's picture

in other words, girl money is the new stupid money.

Leo Kolivakis's picture

Please TD,

Enough with Chanos on China. Just like raving bulls, these short sellers all have an agenda. For Pete's sake, the guy is brilliant at analyzing company balance sheets, but clueless on macro themes and certainly clueless on  China. This market is rigged - BIG TIME. Tomorrow we fly up after the jobs report. Continue buying the dips (especially on Chinese solar stocks) and spare me with Chanos on China.

Tommy's picture

"This market is rigged - BIG TIME. Tomorrow we fly up after the jobs report. "

If you were right, they would be pushing the market down today so it will have room to pop on tomorrows numbers...oh right...Dow down about 200 as of now.

But seriously, I agree that it's rigged but I'll make a counter argument quoting Jeff Goldbum from Jurassic Park; "Nature finds a way".  Even if China and the US were working together they can't control the market or their citizens forever.  Add in the reality that China and the US are acting at cross purposes and surely both their attempts to fool their markets and their populaces are doomed.

Ben Graham Redux's picture

I've been closely following the Chinese economy since 2003 and I largely put his thesis together myself by 2006 - even got some of it published in the msm.  It's a slow moving train wreck and it may not have any impact on 2010 but his entire thesis is right on the numbers. 

As a roaring bull, why would you have a problem with the Chanos stuff?  If you're right, and I'm wrong as your confidence would suggest, you should see this as an opportunity to bitch-slap my portfolio.

Getting back to Chanos, agree or disagree, his work is complex, thought-provoking and fun to contemplate.  I'd love to see a lot more from him.

Anonymous's picture

You put this thesis together in 2006? You mean, when the Chinese economy was roughly half the size it is today?

Quite a brilliant short that must've been.

SmalleyD's picture

Is it me or does Leo every show his math?

Leo Kolivakis's picture

For some time, I've been telling you that I buy Chinese solar shares every time they get whacked hard, accumulating more and sitting on them. Is Chanos telling you about how he got whacked in 2009 or where he is placing his short bets?

Ben Graham Redux's picture

You have given some terrific trading advice over the past year - no doubt about it but please don't mistake great trading with macroeconomic calls.  You could have made the same calls trading AOL in 1999 and have looked like a genius the whole time but if you were buying the dips in 2000 you got clobbered.  You'll discover the Chinese solar companies will go the same way.

I read your stuff because you provide a thought process that adds to the total investment equation.  Are you so insecure in your own expectations that you can't handle reading someone who disagrees with you? 

Leo Kolivakis's picture

BGR,

Not at all, in fact, I read bulls, bears, and everyone in between. I am the first to admit that Chanos is a brilliant man when it comes to analyzing company balance sheets. I would take his advice over any other analyst. Having said this, on macro themes, I think he has no track record. He is not Soros, Dalio, Moore, or Kovner. I think people on ZH get too carried away with this fluff. Step back a little, and see that the glass is now half full.

Gestalt's picture

Half full? Leo, as a pension expert, I have a question:

What is the delta between the net present value of current levels of aggregate pre-retirement income among the 75% of Canadians without defined benefit pensions, and current aggregate non-pension retirement savings?

This may not be a formal pension crisis, but this is a liability all the same, made all the more pressing by projected increases in the proportion of retired relative to employed persons as far as the eye can see. The same calculation among most developed nations would yield similar results.

We are facing a world where the marginal person is older, poorer, requires more medical care, and supported by fewer working-age taxpayers.

At least the Japanese were savers...

Anonymous's picture

My CPP payment from the govt increased by .4% this year. At least the govt is putting the brakes on payments because they know we are in a deflationary period.

Ben Graham Redux's picture

Leo,

I take people by the quality of their analyses.  Like you, I've never considered Chanos as a macro guy but I am a macro guy, at least since 1997, and his work on China is better than mine, despite the fact that I started sooner.  I'd also go so far as to say that Chanos's work on China is better than any other analysis that I've seen on the Middle Kingdom, precisely because he's combined his understanding of balance sheets and microeconomics with the macroeconomic theories.  We are in an environment that nobody alive has ever experienced, mental filters that worked in 2004 won't work today.

carbonmutant's picture

Leo,

We work with a group of Asian bankers in China and solar has been the subject of some discussion on our part. What they are telling us is that most of the major solar manufacturers in China are bankrupt and are being subsidized by the Central government.

They can't reach grid parity with silicon based technology. On the other hand the thin film guys say they can by 2012

Assetman's picture

Hmmm...

Should I believe Kolivakis?

Or Chanos?

Markets all over the world are rigged, most likely.  To varying degrees.

While I agree with being cautious around people with agendas, my experience tells me that rigged markets eventually meet their makers.  Emphasis on "eventually".

Chanos makes a compelling case on the Chinese theme.  I don't have a lot of confidence that anyone will have the timing right on the eventual unwind, though.

Anonymous's picture

Can we talk more about the rigging? My belief is that when whatever artificial support is out there propping up these markets is yanked, it will be 800 point drops, not 200. Somebody on here the other day said by March (which I've heard a number of times), so it improves enough in time for the 2010 elections, but I almost think fundamental support remains through 2010. I see no benefit from massive volatility before as holy shit, this guy has enough problems, and it would certainly be the Feds refunding to get it back up.... begging the question, what would be the point of dropping it now? If we are extending and pretending everywhere else, why drop the markets?

-novice

ElvisDog's picture

And how is that different from your ever present agenda of talking your book on solar stocks. Any surge in employment tomorrow will be due to part-time, temporary census workers. I think the market will figure out the difference between those jobs and permanent, full-time jobs.

Moe Gamble's picture

Someone flagged you again, Leo.

 

Meanwhile, the civilians struggle feebly against their inevitable fleecing.

Gestalt's picture

Sorry Leo, are you a tin-hat wearing conspiracist now? Or are you simply referring to the current game of chicken between the Fed and global credit markets? If so, then you are talking about winners and losers, and who is likely to come out on top. Given that the Fed has implemented every conceivable tool in its arsenal to rejuvenate dollar denominated credit growth, and has failed by any measure you might use, what makes you so sure they can continue to goose global markets? 

Chanos' analysis is not the first with these types of numbers. The most fundamental requirement for deflation is oversupply, something which the Chinese have in unprecedented abundance. Judging by total vacant housing units in the U.S. at the moment, and current industrial production numbers, oversupply is not a uniquely Chinese affliction. The dollar rally is deflationary, credit is shrinking, and oversupply is the 'new black'. What exactly are you looking at to goose stocks?

Does the Fed have the political capital to set forth on a new round of QE? Maybe...but that will delay the deflationary outcome, not avoid it.

 

Of course, after deflation we will have inflation. After.

Master Bates's picture

I didn't flag your post as junk, because I don't believe in that kind of thing whenever a post has more merit than "GOLD BITCHEZ!"

With that said, I think that the solar play has large fundamental discrepancies.

For one, WHO IS BUYING SOLAR?  Not that many people.  I interviewed with a solar company to be an accountant, and they didn't even have an A/R department.
Their growth strategy going forward was to sell to large building materials producers.  (And really, who is building right now with such inventory overhangs in RE?)

The problem with solar is that there are 15 million people starting companies and hardly any buyers.  Picking the best of breed is a big issue, especially when none are really making that much money to begin with.

Plus, the dynamic of photovoltaics has changed so rapidly over the past 5 years or so that the old dogs may well get beat down.

I'd say picking stocks in the solar market right now is akin to throwing darts, especially with no buying going on by the private sector.

Leo Kolivakis's picture

"Who is buying solar?"

Only the top funds:

http://pensionpulse.blogspot.com/2010/01/hot-hedge-fund-trades-of-2010.html

But you can wait for the end of the world.

 

Anonymous's picture

Same folk who were buying tech stocks in 99. Got it....
Chanos is someone to listen to because he's a contrarian. Buying chinese solar stocks is another fad that will end in tears.

Ripped Chunk's picture

JDS Uniphase

All current day demand theories can and will be changed through continuous tecnological innovation.

Solar

etc.

 

Anonymous's picture

You are so blinded by your solar theme. Get out of the sun for a moment.

BobPaulson's picture

It will take a while for this house of cards to fall because they have command and control over-ride until riots come. 

At least Chinese people riot.

Anonymous's picture

I second this. I want iShares Global Teargas and Rubber Bullets fund!

Master Bates's picture

Exactly, I mean, look at the USSR.  It took them 50 years of the same BS before they collapsed.

Tommy's picture

Some might posit that 1963 is when the US "Collapse Clock" was started.

carbonmutant's picture

It may not require riots... just the awareness that if they want to get re-elected in November thay will need to distance themselves from the White House policies.

Master Bates's picture

I saw about an hour long presentation that he gave the other day on this very subject.  It sure opened my eyes to China's problems and how similar they are to say, the Soviet Union.

The only problem is that China can go on for years and years before SHTF.  It took the Soviet Union 50 years of this kind of activity to collapse.  China is only about 20 years in.
I'd be extremely worried about China over the long term, but I just don't see them collapsing tomorrow.

Scarecrow's picture

Please provide a link to this presentation.

 

Thanks.

Anonymous's picture

He's probably talking about this one:
http://www.youtube.com/watch?v=99HNFCn5RP8
-UncleV

I need more cowbell's picture

Please TD,

Enough with Leo on any topic. Just like other raving bull lunatics ( looking for a greater fool, not looking at fundamentals), these Leo's all have an agenda. For Pete's sake, the guy is brilliant at repeating his tired old mantra, daily, but clueless on macro themes and certainly clueless on  China. This market is rigged - BIG TIME ( jumped up jesus christ, Leo and I agree on something- alert the media).

"Tomorrow we fly up after the jobs report. Continue buying the dips (especially on Chinese solar stocks) and spare me with chanos on China"

We shall see won't we, eh, Leo? By the way,  what jobs report, the ministy's propoganda or the real numbers?

Baron Robber's picture

I'm going with Chanos on this one.

Leo Kolivakis's picture

Yeah, I am clueless, which is why I've been right on the money with my calls on the stock market and the economy. A year from now, you'll be saying "damn, how come things were not as bad as I thought? Why didn't I buy the dips on Chinese solar stocks?". To quote one of my pension bosses after he fired me: "I should have listened to Leo". Too late.

mkkby's picture

Right on the money, Leo?  Folks, pull up charts on Leo's solar calls and see if you think he has trading skills.  All but 2 of them are either dead money, or down at least 30% from their highs.  Ever heard of stops, or money management, Leo?

"My focus remains on these solar stocks which suffered a huge haircut this past week:"

http://finance.yahoo.com/q/cq?d=v1&s=csiq,fslr,jaso,ldk,sol,solf,solr,spwra,stp,tsl,wfr,yge

percolator's picture

I can't believe I'm defending Leo, but its good to see opposing viewpoints no matter how warped they may be. 

To Leo's credit he has been banging on the pension problem drum for quite some time, but most are still not even aware of this coming catastrophe.

Renfield's picture

Cowbell, seconded. As a reader from Aus, a country that has bet the farm on China and is beginning to find out what that REALLY means, I reckon the Aus MSM could hire some 'reporters' right off this site complete with pompoms.

I'm a 'long-term' China bull - as in I think they'll recover sooner, when they do recover - but it sure as hell isn't because of their solar stocks, over-production, or stockpiling of useless foreign (US) debt. The big ride down is still only beginning.

percolator's picture

More hard hitting and probing questions by Carl!

Anonymous's picture

Leo, you keep talking about tomorrow's jobs report, Why not put a number on it so tomorrow when it is released we can either praise or pan you. While your at it, explain why the ADP report didn't meet your prediction and tell us how they, not you, got it so wrong.

One more request, should you get it wrong promise to STFU going forward. If your right I'll praise you myself.

TT

Leo Kolivakis's picture

I expect strong job growth in Q1 & Q2 2010 with big upward revisions to previous reports. I know about the ADP figures but they are not perfect at forecasting the official jobs reports.

Anonymous's picture

I will put a number range on it. -95K to -175K. unless the government "intervenes" you can book this range. just take a look at ADP versus BLS and take a look at the negative january factor of the birth/death model. I studied this for the entire last month in order to figure it out. Unfortunately, I am only 50% allocated to the downside, was going to allocate the rest at the close.

Leo, i challenge you to put a number on it.

I will also say that the market will be down another 200-300 pts tomorrow going into the weekend. In this weak state the market is very vulnerable and a headline number like -95K to -175K is going to cause even more panic selling.

We will see the 200 day MA (~1018) or 10% correction (1035) by next week barring any government intervention.

Leo Kolivakis's picture

Market expect 15K, so I wouldn't be surprised if it's substantially higher, like ten times this amount. But who knows? Exact figures are impossible to predict.

Anonymous's picture

so let me make sure this is straight. market expects 10-20K from what i have seen, and you are expecting that or potentially ten times better? so your range is 15K to 150 on the positive side right?

we couldn't be more polar opposites.

Jan 2008
ADP = -522
BLS = -598

Jan 2009
ADP = +130
BLS = -17

ADP in any other month but January during this recession, has usually had more job losses than BLS. Not so in January. That is why we should expect at least -95K jobs tomorrow, but we have range up to -175K. Unless the government "intervenes".

-EH

Thoreau's picture

+10 The census will by hiring the bulk of "door knockers" over the next three months; but the party will come crashing down come Sept/Oct.

Anonymous's picture

ADP's 8-bucks-an-hour programmers in India can't even write the proper code to pull data on jobs numbers from their databases. That company is technologically challenged. They'd be better of going back to paper and pencil.

mkkby's picture

Wow, Leo.  Way to go out on a limb!  It's not like census hiring 2 million temps isn't priced in already.  Or were you just the last to know?