MiB: Betting Against Fraud and China

What do you do when you are a Wall Street cynic with a long history of identifying fraud?

If you are Jim Chanos, you launch a short-focused hedge fund. Today, Chanos is a famed short seller who helped to expose a number of financial frauds, most famously Enron, as well as Baldwin-United, and Drexel Burnham. His firm, Kynikos Associates, just celebrated its 35th anniversary.

Chanos explains why his portfolios are long/short — markets tend to go higher over time. Kynikos is long the S&P500 and the MSCI indices, then selects individual companies to be short against those indices. The firm uses the S&P500 index as its benchmark.

He explains that relations with China have changed: The hardening of US-China relations that existed due to the trade war has now spread — Europe and even the Democrats in the U.S. view China more warily because of Covid-19. The credit story in China continues to be an issue, as their debt growth is a multiple of their growth rate. The ticking debt time bomb is their mortgage, personal and corporate debt within their economy. Chanos states: “Chinese apartment are still the most important asset class in the world in my view.”

We also discuss the investing aspects of the political reaction this election year: The American public won’t be happy with more corporate bailouts, especially now that the corporate tax burden have been slashed to 21%. Chanos points out that the Capital/Labor super-cycle has gone through 40-year cycles (1935-75; 1980-2020) He thinks the pendulum has begun to reverse its direction again.

His favorite books are here; A transcript of our conversation is available here.

You can stream and download our full conversation, including the podcast extras, on Apple iTunesSpotifyOvercastGoogleBloomberg, and Stitcher. All of our earlier podcasts on your favorite pod hosts can be found here.

Next week, we speak with Jim Bianco, President and Macro Strategist at Bianco Research.


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