Tags: chanos | china | greece | spain

Chanos: China Worse Than Greece and Spain

Wednesday, 11 July 2012 06:54 AM EDT

Kynikos Associates CEO Jim Chanos says China's credit is in worse shape than that of Greece and Spain.

"The interesting thing about the China story … and as dire as I think the macro story is, due to bad credit and credit extension that makes Greece and Spain and the us look like child's play … when you get to the micro of individual companies, they look even worse,” Chanos tells Odalesque TV.

“The accounting is horrible, they all seem to have negative cash-flow, noncollectable receivables, they all seem to not earn their cost of capital. So as you dive deeper and deeper into the individual ideas, they appear to be even better and better (for short selling).”

Editor's Note: Economist Warns: 50% Unemployment, 100% Inflation Possible

One of the new risks Chanos, who is a renowned short-seller, has had to contend with is the short-selling bans.

"We said (to Europe), you are going to make financing markets more difficult the minute you put the ban on, and sure enough that's what happened,” says Chanos.

The largest institutions that short the shares of banks and financial companies and purchase CDS contracts are other banks and financial companies because of the interrelated nature of their credit risk, Chanos explains.

“And when you go into that market and try to say we are going to stop the short selling because they think it's going to help pricing, the opposite happens,” he says. “That's exactly what happened in Europe and they didn't learn the lesson. The regulators in the U.K. and the U.S. did."

Bank of England policymaker Robert Jenkins, a member of the Bank’s Financial Policy Committee, says short-selling bans in Europe and bond purchase penalties in Brazil are a foretaste of the future.

“I recommend that you send your best and your brightest to the library to research state intervention in the post war period, It could come in handy,” Jenkins told the Global Alternative Investment Management conference in Monaco.

“For like clean air and water, market liquidity is no longer limitless and no longer free.”

Editor's Note: Economist Warns: 50% Unemployment, 100% Inflation Possible

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Wednesday, 11 July 2012 06:54 AM
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