In the midst of the 2007-2009 bear market there was a naive phase where bulls were optimistically chattering about Chinese Wealth Funds riding to the rescue to scoop up over-valued assets and prevent prices from declining further. We know how that panned out. Lately we have heard many of the same misguided comments about how China will backstop the Euro zone and stop the forces of gravity from knocking bubbly prices back down to earth. As I have said throughout, there is not enough money on planet earth to stop the natural correcting forces of a recession and cyclical bear market once it gets underway.
Jim Chanos, founder of Kynikos Associates Ltd. hedge fund, at the Clinton Global Initiative in New York yesterday, debunks many of the China miracle myths, discussing China’s economy, debt and real estate market, “their property market is hitting the wall now.”
“If we assume that China will grow total credit this year between 30% to 40% of GDP, and half of that debt will go bad, that is 15% to 20%. Say the recoveries on that are 50%. That means that China, on an after write off basis, may not be growing at all. It may be having to simply write off some of this stuff in the future so its 9% growth may be zero.”
All important food for thought for stock and commodity bulls today. He also makes some important points on the belief in further bailout hopes for Europe.
Watch his video interview here.