Best of the Week
Most Popular
1. The Trump Stock Market Trap May Be Triggered - Barry_M_Ferguson
2.Why are Central Banks Buying Gold and Dumping Dollars? - Richard_Mills
3.US China War - Thucydides Trap and gold - Richard_Mills
4.Gold Price Trend Forcast to End September 2019 - Nadeem_Walayat
5.Money Saving Kids Gardening Growing Giant Sunflowers Summer Fun - Anika_Walayat
6.US Dollar Breakdown Begins, Gold Price to Bolt Higher - Jim_Willie_CB
7.INTEL (INTC) Stock Investing to Profit From AI Machine Learning Boom - Nadeem_Walayat
8.Will Google AI Kill Us? Man vs Machine Intelligence - N_Walayat
9.US Prepares for Currency War with China - Richard_Mills
10.Gold Price Epochal Breakout Will Not Be Negated by a Correction - Clive Maund
Last 7 days
Gold When Global Insanity Prevails - 16th Sep 19
Stock Market Looking Toppy - 16th Sep 19
Is the Stocks Bull Market Nearing an End? - 16th Sep 19
US Stock Market Indexes Continue to Rally Within A Defined Range - 16th Sep 19
What If Gold Is NOT In A New Bull Market? - 16th Sep 19
A History Lesson For Pundits Who Don’t Believe Stocks Are Overvalued - 16th Sep 19
The Disconnect Between Millennials and Real Estate - 16th Sep 19
Tech Giants Will Crash in the Next Stock Market Downturn - 15th Sep 19
Will Draghi’s Swan Song Revive the Eurozone? And Gold? - 15th Sep 19
The Race to Depreciate Fiat Currencies Is Accelerating - 15th Sep 19
Can Crypto casino beat Hybrid casino - 15th Sep 19
British Pound GBP vs Brexit Chaos Timeline - 14th Sep 19
Recession 2020 Forecast : The New Risks & New Profits Of A Grand Experiment - 14th Sep 19
War Gaming the US-China Trade War - 14th Sep 19
Buying a Budgie, Parakeet for the First Time from a Pet Shop - Jollyes UK - 14th Sep 19
Crude Oil Price Setting Up For A Downside Price Rotation - 13th Sep 19
A “Looming” Recession Is a Gold Golden Opportunity - 13th Sep 19
Is 2019 Similar to 2007? What Does It Mean For Gold? - 13th Sep 19
How Did the Philippines Establish Itself as a World Leader in Call Centre Outsourcing? - 13th Sep 19
UK General Election Forecast 2019 - Betting Market Odds - 13th Sep 19
Energy Sector Reaches Key Low Point – Start Looking For The Next Move - 13th Sep 19
Weakening Shale Productivity "VERY Bullish" For Oil Prices - 13th Sep 19
Stock Market Dow to 38,000 by 2022 - 13th Sep 19 - readtheticker
Gold under NIRP? | Negative Interest Rates vs Bullion - 12th Sep 19
Land Rover Discovery Sport Brake Pads and Discs's Replace, Dealer Check and Cost - 12th Sep 19
Stock Market Crash Black Swan Event Set Up Sept 12th? - 12th Sep 19
Increased Pension Liabilities During the Coming Stock Market Crash - 12th Sep 19
Gold at Support: the Upcoming Move - 12th Sep 19
Precious Metals, US Dollar, Stocks – How It All Relates – Part II - 12th Sep 19
Boris Johnson's "Do or Die, Dead in a Ditch" Brexit Strategy - 11th Sep 19
Precious Metals, US Dollar: How It All Relates – Part I - 11th Sep 19
Bank of England’s Carney Delivers Dollar Shocker at Jackson Hole meeting - 11th Sep 19
Gold and Silver Wounded Animals, Indeed - 11th Sep 19
Boris Johnson a Crippled Prime Minister - 11th Sep 19
Gold Significant Correction Has Started - 11th Sep 19
Reasons To Follow Experienced Traders In Automated Trading - 11th Sep 19
Silver's Sharp Reaction Back - 11th Sep 19
2020 Will Be the Most Volatile Market Year in History - 11th Sep 19
Westminister BrExit Extreme Chaos Puts Britain into a Pre-Civil War State - 10th Sep 19
Gold to Correct as Stocks Rally - 10th Sep 19
Market Decline Will Lead To Pension Collapse, USD Devaluation, And NWO - 10th Sep 19
Stock Market Sector Rotation Giving Mixed Signals About The Future - 10th Sep 19
The Online Gaming Industry is Going Up - 10th Sep 19
The Unknown Tech Stock Transforming The Internet - 10th Sep 19
More Wall Street Propaganda - 10th Sep 19
Stock Market Price Structure Still Suggests We Are Within Volatile Rotation - 9th Sep 19
Stock Market Still Treading Water - 9th Sep 19
Buying Pullbacks in Silver & Gold - 9th Sep 19
Government Spending - The High Price of a "Free Lunch" - 9th Sep 19
Don't Worry About a Recession - 9th Sep 19
Large Drop in Stocks, Big Rally in Gold and Silver - 9th Sep 19

Market Oracle FREE Newsletter

The No1 Tech Stock for 2019

Chaos Capitalists Short Countries - How Chanos Got China Wrong

Stock-Markets / Financial Markets 2018 Apr 24, 2018 - 08:56 AM GMT

By: Dan_Steinbock

Stock-Markets

Since the 1980s, a new generation of chaos capitalists have been undermining the progress of emerging economies. Under the pretext of “efficient markets,” they seek to exploit real or perceived weaknesses.

Recently, hedge funder Jim Chanos appeared on CNNMoney’s Markets Now program that was promoted heavily on the CNN: “Chanos got China right.”


Amid the global crisis, Chanos predicted that China would collapse.Nevertheless, CNN characterized his 2009 call as “brilliant.”

The question is, why?

Interplay of shorting and media

Like CNN, most international media portrays Chanos as a “financial wizard” who has made made fortunes from shorting companies ever since 2001 when he targeted the US energy company Enron that he predicted would fall before it filed for bankruptcy.

In fall 2009, Chanos predicted China would head the way of the "old Soviet Union". In January 2010, the New York Times reported Chanos’s prediction that China’s economic crash would resemble “Dubai times 1,000 — or worse.” Few months later, Chanos said on the PBC Charlie Rose Show China was on a "treadmill to hell.”

Chanos likes to cultivate financial ploys with dominant media. In the early 1980s, when his target was the insurance firm Baldwin-United, he “guided” Forbes writer Dick Stern through his analysis. In the mid-80s, Wall Street Journal accused short-sellers like him of spreading rumors and impersonating a Journal reported to access to insider information. With Enron in 2001, Chanos fed Fortune’s Bethany McLean, who prospered from a book deal, as did Joe Nocera, another high-profile business reporter (who also has been dogged by claims of “conflict of interest”). In the process, Chanos, along with other hedgefunders like Steve Cohen and Daniel Loeb, were sued for paying negative stock-research reports that helped drive down stock prices.

After Chanos made his China prediction, David Barboza of New York Times, following in the footprints of CNBC and Politico.com, reported that “contrarian investor sees economic crash in China.” As these stories failed to create a backlash against China, Fortune, among others, released a story about “Chanos vs China,” in which the hedgefunder said that China was a huge real estate bubble.

As China’s progress prevailed, Chanos began a new round in 2015, when Joe Nocera of the New York Times, again, released a major report about “The Man Who Got China Right.” Now China’s fall was sold as a commodity bubble. “You dismiss [skeptics and contrarians] at your peril,” Nocera warned. While the story did not prove true, it contributed to the tripling of Chanos’s fund to $3 billion in half a decade.

But as China’s growth stil prevailed, Chanos began his most recent media round, this time with CNN where he declared: “Nobody ever makes any money in China,” although droves of US subsidiaries have thrived in China, from Apple and Boeing to GM. Chanos also warned countries in Africa and South America as well as Australia that relied on Chinese commodity demand and dismissed the success of Chinese firms, such as Tencent and Alibaba, as “accounting” and “corporate” frauds.

Assessing the economic realities

That’s the Chanos game - well-timed interviews, shorting of companies and nations, and collusion with dominant international media. But what about its truth value?

During the Great Depression, US living standards declined by almost 30 percent in four years. But that was not Chanos’s yardstick. Instead, he made an explicit comparison with the collapse of the Soviet Union, which caused the Russian GDP to decline by 45 percent in the ‘90s. In reality, between 2008 and 2018, the Chinese economy will triple to $13.1 trillion. Meanwhile, foreign multinationals operating in China have reaped great profits, along with investors.

Chanos’s prediction, based on the collapse of the Soviet economy, would have meant the plunge of Chinese GDP from $4.6 trillion in 2008 to $2.1 trillion today. In other words, Chanos’s projection of the Chinese economy proved to be almost 700 percent smaller than the actual reality (Figure).

Figure          How Chanos Got China Wrong: China’s GDP, 2008-18

CNN prides itself as the “world’s most trusted name in news.” So to claim that “Chanos got China right” would seem to be grossly disproportionate and as if the global news hubswould allow itself to be played by private financial interests.

Exploiting private capital to destabilize emerging economies

Historically, these financial plays may have intensified since the 1980s, when  George Soros made early fortunes starting with the destabilization of Chile and commodity markets, shorting the British pound in 1992, and currency plays amid the Asian financial crisis in late ‘90s. What’s less known are the economic consequences of his “philanthropy” in world regions where destabilization has caused massive dislocations in geopolitics but fortunes to his fund.

More recent examples include hedge funds, such as NML Capital, a subsidiary of Elliott Management, a hedge fund co-led by Paul Singer, as well as Aurelius Capital and Dart Management. In late 2001, Argentina defaulted on $132 billion in loans during a disastrous depression. While 93 percent of creditors accepted discounted bonds, a small minority - US hedge funds - didn’t, even though they had bought many of their bonds at a huge discount after Argentina had defaulted. Thanks to a 2012 ruling by a New York court, Argentina was pressed to a $2.3 billion settlement, which meant a return of 1,180 percent to Singer’s NML.

While the chaos capitalists’ methods differ - Chanos likes to short his victims, Soros prefers arbitrage to paralyze his targets, Singer likes to buy up sovereign bonds on the cheap and go after countries for unpaid debts - they use private capital to enrich themselves at the expense of sovereign nations, while lobbying in Washington and political donations to make and break US administrations, mayors and governors.

In addition to liable companies, chaos capitalists target increasingly vulnerable economies. Soros’s Open Society initiatives are in Eastern Europe and emerging Asia in which “color revolutions” promote financial ploys. Starting with Peruvian debt in 1996, Singer has gone after Argentina, the Republic of Congo, and gives sizable donations to anti-Iran groups. All see great opportunities in a destabilized Russia.

Since 2015, Chanos has focused on “frontier markets,” particularly Nigeria and South Africa in sub-Saharan Africa. He manufactures perceived liabilities with media. In such “short-and-distort” campaigns, the manipulator shorts the stock or the country and then spreads misleading of false negative information to drive the price down, leading to a huge profit when the investor eventually closes the short position.

When dominant international media collude with chaos capitalists, emerging economies face real threats as the financial few are allowed to enrich themselves by impoverishing entire poor nations.

Dr Steinbock is the founder of the Difference Group and has served as the research director at the India, China, and America Institute (USA) and a visiting fellow at the Shanghai Institutes for International Studies (China) and the EU Center (Singapore). For more information, see http://www.differencegroup.net/

© 2018 Copyright Dan Steinbock - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules