Best of the Week
Most Popular
1. Dollargeddon - Gold Price to Soar Above $6,000 - P_Radomski_CFA
2.Is Gold Price On Verge Of A Bottom, See For Yourself - Chris_Vermeulen
3.Dow Stock Market Trend Forecast 2018 - Nadeem_Walayat
4.Gold Price to Plunge Below $1000 - Key Factors for Gold & Silver Investors - P_Radomski_CFA
5.Why The Uranium Price Must Go Up - Richard_Mills
6.Dow Stock Market Trend Forecast 2018 - Video - Nadeem_Walayat
7.Jim Rogers on Gold, Silver, Bitcoin and Blockchain’s “Spectacular Future” - GoldCore
8.More Signs That the Stock Market Will Rally Until 2019 - Troy_Bombardia
9.It's Time for A New Economic Strategy in Turkey - Steve_H_Hanke
10.Fiat Currency Inflation, And Collapse Insurance - Raymond_Matison
Last 7 days
Gold Exodus to Reverse - 22nd Sep 18
Bitcoin Trader SCAM WARNING - Peter Jones, Dragons Den Fake Facebook Ads - 22nd Sep 18
China Is Building the World’s Largest Innovation Economy - 21st Sep 18
How Can New Companies Succeed in the Overcrowded Online Gambling Market? - 21st Sep 18
Golden Sunsets in the Land of U.S. Dollar Hegemony - 20th Sep 18
5 Things to Keep in Mind When Buying a Luxury Car in Dubai - 20th Sep 18
Gold Price Seasonal Trend Analysis - Video - 20th Sep 18
The Stealth Reason Why the Stock Market Keeps On Rising - 20th Sep 18
Sheffield School Applications Crisis Eased by New Secondary Schools Places - 20th Sep 18
Precious Metals Sector: It’s 2013 All Over Again - 19th Sep 18
US Dollar Head & Shoulders Triggered. What's Next? - 19th Sep 18
Prepare for the Stock Market’s Volatility to Increase - 19th Sep 18
The Beginning of the End of the Dollar - 19th Sep 18
Land Rover Discovery Sport 'Approved Used' Bad Paint Job - Inchcape Chester - 19th Sep 18
Are Technology and FANG Stocks Bottoming? - 18th Sep 18
Predictive Trading Model Suggests Falling Stock Prices During US Elections - 18th Sep 18
Lehman Brothers Financial Collapse - Ten Years Later - 18th Sep 18
Financial Crisis Markets Reality Check Now in Progress - 18th Sep 18
Gold’s Ultimate Confirmation - 18th Sep 18
Omanization: a 20-year Process to Fight Volatile Oil Prices  - 18th Sep 18
Sheffield Best Secondary Schools Rankings and Trend Trajectory for Applications 2018 - 18th Sep 18
Gold / US Dollar Inverse Correlation - 17th Sep 18
The Apple Story - Trump Tariffs Penalize US Multinationals - 17th Sep 18
Wall Street Created Financial Crash Catastrophe Ten Years Later - 17th Sep 18
Trade Wars Are Going To Crash This Stock Market - 17th Sep 18
Why Is Apple Giving This Tiny Stock A $900 Million Opportunity? - 17th Sep 18
Financial Markets Macro/Micro View: Waves and Cycles - 17th Sep 18
Stock Market Bulls Prevail – for Now! - 17th Sep 18
GBPUSD Set to Explode Higher - 17th Sep 18
The China Threat - Global Crisis Hot Spots & Pressure Points - 17th Sep 18 - Jim_Willie_CB
Silver's Relationship with Gold Reaching Historical Extremes - 16th Sep 18
Emerging Markets to Follow and Those to Avoid - 16th Sep 18
Investing - Look at the Facts to Find the Truth - 16th Sep 18
Gold Stocks Forced Capitulation - 15th Sep 18
Hindenburg Omen & Consumer Confidence: More Signs of Stock Market Trouble in 2019 - 15th Sep 18
Trading The Global Future - Bad Consequences - 15th Sep 18
Central Banks Have Gone Rogue, Putting Us All at Risk - 15th Sep 18
Gold Price Seasonal Trend Analysis - 14th Sep 18
Growing Number of Small Businesses Opening – and Closing – In the UK - 14th Sep 18
Gold Price Trend Analysis - Video - 14th Sep 18
Esports Is Exploding—Here’s 3 Best Stocks to Profit From - 13th Sep 18
The Four Steel Men Behind Trump’s Trade War - 13th Sep 18
How Trump Tariffs Could Double America’s Trade Losses - 13th Sep 18
Next Financial Crisis Is Already Here! John Lewis 99% Profits CRASH - Retail Sector Collapse - 13th Sep 18
Trading Cryptocurrencies: To Win, You Must Know Where You're Wrong - 13th Sep 18
Gold, Silver, and USD Index - Three Important “Nothings” - 13th Sep 18
Precious Metals Sector On a Long-term SELL Signal - 13th Sep 18
Does Gambling Regulation Work - A Case Study - 13th Sep 18
The Ritual Burial of the US Constitution - 12th Sep 18
Stock Market Final Probe Higher ... Then the PANIC! - 12th Sep 18
Gold Nuggets And Silver Bullets - 12th Sep 18
Bitcoin Trading - SEC Strikes Again - 12th Sep 18

Market Oracle FREE Newsletter

Trading Any Market

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.


© 2005-2018 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