The Essence of Success

James S. Chanos built one of the largest fortunes on Wall Street by foreseeing the collapse of Enron and other highflying companies whose stories were too good to be true.

Now Mr. Chanos, a wealthy hedge fund investor, is working to bust the myth of the biggest conglomerate of all: China Inc.

As most of the world bets on China to help lift the global economy out of recession, Mr. Chanos is warning that China’s hyperstimulated economy is headed for a crash, rather than the sustained boom that most economists predict. Its surging real estate sector, buoyed by a flood of speculative capital, looks like “Dubai times 1,000 — or worse,” he frets. He even suspects that Beijing is cooking its books, faking, among other things, its eye-popping growth rates of more than 8 percent.

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“Bubbles are best identified by credit excesses, not valuation excesses,” he said in a recent appearance on CNBC. “And there’s no bigger credit excess than in China.” He is planning a speech later this month at the University of Oxford to drive home his point.

As America’s pre-eminent short-seller — he bets big money that companies’ strategies will fail — Mr. Chanos’s narrative runs counter to the prevailing wisdom on China. Most economists and governments expect Chinese growth momentum to continue this year, buoyed by what remains of a $586 billion government stimulus program that began last year, meant to lift exports and consumption among Chinese consumers.

Still, betting against China will not be easy. Because foreigners are restricted from investing in stocks listed inside China, Mr. Chanos has said he is searching for other ways to make his bets, including focusing on construction- and infrastructure-related companies that sell cement, coal, steel and iron ore.

Mr. Chanos, 51, whose hedge fund, Kynikos Associates, based in New York, has $6 billion under management, is hardly the only skeptic on China. But he is certainly the most prominent and vocal.

For all his record of prescience — in addition to predicting Enron’s demise, he also spotted the looming problems of Tyco International, the Boston Market restaurant chain and, more recently, home builders and some of the world’s biggest banks — his detractors say that he knows little or nothing about China or its economy and that his bearish calls should be ignored.

“I find it interesting that people who couldn’t spell China 10 years ago are now experts on China,” said Jim Rogers, who co-founded the Quantum Fund with George Soros and now lives in Singapore. “China is not in a bubble.”

Colleagues acknowledge that Mr. Chanos began studying China’s economy in earnest only last summer and sent out e-mail messages seeking expert opinion.

But he is tagging along with the bears, who see mounting evidence that China’s stimulus package and aggressive bank lending are creating artificial demand, raising the risk of a wave of nonperforming loans.

“In China, he seems to see the excesses, to the third and fourth power, that he’s been tilting against all these decades,” said Jim Grant, a longtime friend and the editor of Grant’s Interest Rate Observer, who is also bearish on China. “He homes in on the excesses of the markets and profits from them. That’s been his stock and trade.”

Mr. Chanos declined to be interviewed, citing his continuing research on China. But he has already been spreading the view that the China miracle is blinding investors to the risk that the country is producing far too much.

“The Chinese,” he warned in an interview in November with Politico.com, “are in danger of producing huge quantities of goods and products that they will be unable to sell.”

In December, he appeared on CNBC to discuss how he had already begun taking short positions, hoping to profit from a China collapse.

In recent months, a growing number of analysts, and some Chinese officials, have also warned that asset bubbles might emerge in China.

The nation’s huge stimulus program and record bank lending, estimated to have doubled last year from 2008, pumped billions of dollars into the economy, reigniting growth.

But many analysts now say that money, along with huge foreign inflows of “speculative capital,” has been funneled into the stock and real estate markets.

A result, they say, has been soaring prices and a resumption of the building boom that was under way in early 2008 — one that Mr. Chanos and others have called wasteful and overdone.

“It’s going to be a bust,” said Gordon G. Chang, whose book, “The Coming Collapse of China” (Random House), warned in 2001 of such a crash.

Friends and colleagues say Mr. Chanos is comfortable betting against the crowd — even if that crowd includes the likes of Warren E. Buffett and Wilbur L. Ross Jr., two other towering figures of the investment world.

A contrarian by nature, Mr. Chanos researches companies, pores over public filings to sift out clues to fraud and deceptive accounting, and then decides whether a stock is overvalued and ready for a fall. He has a staff of 26 in the firm’s offices in New York and London, searching for other China-related information.

“His record is impressive,” said Byron R. Wien, vice chairman of Blackstone Advisory Services. “He’s no fly-by-night charlatan. And I’m bullish on China.”

Mr. Chanos grew up in Milwaukee, one of three sons born to the owners of a chain of dry cleaners. At Yale, he was a pre-med student before switching to economics because of what he described as a passionate interest in the way markets operate.

His guiding philosophy was discovered in a book called “The Contrarian Investor,” according to an account of his life in “The Smartest Guys in the Room,” a book that chronicled Enron’s rise and downfall.

After college, he went to Wall Street, where he worked at a series of brokerage houses before starting his own firm in 1985, out of what he later said was frustration with the way Wall Street brokers promoted stocks.

At Kynikos Associates, he created a firm focused on betting on falling stock prices. His theories are summed up in testimony he gave to the House Committee on Energy and Commerce in 2002, after the Enron debacle. His firm, he said, looks for companies that appear to have overstated earnings, like Enron; were victims of a flawed business plan, like many Internet firms; or have been engaged in “outright fraud.”

That short-sellers are held in low regard by some on Wall Street, as well as Main Street, has long troubled him.

Short-sellers were blamed for intensifying market sell-offs in the fall 2008, before the practice was temporarily banned. Regulators are now trying to decide whether to restrict the practice.

Mr. Chanos often responds to critics of short-selling by pointing to the critical role they played in identifying problems at Enron, Boston Market and other “financial disasters” over the years.

“They are often the ones wearing the white hats when it comes to looking for and identifying the bad guys,” he has said.

article by David Barboza; thanks for an indept article.
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BEIJING (Reuters) – China on Saturday again denounced U.S. arms sales to Taiwan, saying they were an intrusion in Chinese internal affairs that risked undermining its relations with the United States.

The latest condemnation by the Chinese Foreign Ministry was directed at a $1.1 billion order received by Raytheon Co for ground-system hardware to support Taiwan’s Patriot air defense capability.

China on Thursday denounced the U.S. decision to clear the sale of Patriot missiles by Lockheed Martin to Taiwan, which Beijing sees as a renegade province.

The Chinese Defense Ministry also expressed its anger, saying late on Friday on its website (www.mod.gov.cn) that it reserved “the right to take further actions”. This warning followed comments earlier this week by a Chinese military official who proposed sanctioning U.S. firms that sell arms to Taiwan.

The Patriot hardware, some of the best in its class, could shoot down Chinese short-range and mid-range missiles, defense analysts say. The sale rounds out a $6.5 billion arms package approved under then U.S. President George W. Bush in late 2008.

China has claimed sovereignty over self-ruled Taiwan since 1949, when Mao Zedong’s Communists won the Chinese civil war and Chiang Kai-shek’s Nationalists fled to the island. Beijing has vowed to bring Taiwan under its rule, by force if necessary.

The United States switched diplomatic recognition from Taipei to Beijing in 1979, recognizing “one China”. But it remains Taiwan’s biggest ally and is obligated by the 1979 Taiwan Relations Act to help in the island’s defense.

WEST PALM BEACH, Florida (Reuters) – U.S. Attorney General Eric Holder said on Friday a newly created interagency task force was focusing on financial fraud and targeting for possible prosecution bankers whose actions contributed to the financial crisis.

Speaking at a civic group meeting in West Palm Beach, Florida, Holder said the task force, which was created by President Barack Obama in November and met for the first time last month, would focus on fraud in mortgages, securities, economic stimulus programs and government bailouts.

He said the Justice Department and the task force also were investigating banks and other financial institutions whose failure to follow laws and regulations were in part to blame for the most serious financial crisis the United States has faced since the Great Depression.

“There are a number of investigations under way that I can’t really comment on, that I think will ultimately hold accountable a fair number of people at some of these institutions who didn’t make bad choices necessarily, but who really did wrong,” Holder said.

“We expect that we can identify those people and make provable cases (and) we will bring them,” he added.

He did not identify any specifically targeted institutions, but the comment came in response to a question about what the Justice Department was doing to address financial institutions considered too big to fail.

Holder said earlier in a speech the task force was making tackling financial fraud a priority, especially where this involved discrimination against minorities and the elderly.

“To those who see victimization of others as an avenue to wealth, take notice: If you fabricate a financial statement, if you propagate an investment scheme, if you are complicit in an act of financial fraud, you are writing your ticket to jail,” he said.

Holder said financial crime had become all too common and Palm Beach “is, in many respects, ground zero for the $65 billion Ponzi scheme perpetrated by Bernard Madoff — the largest investor fraud case in our nation’s history.”

Madoff owned an 8,700-square foot home nearby. The mansion’s value will be known when federal marshals auction it, Holder said.

“Last year, Allen Stanford, Tom Petters and, most recently, Fort Lauderdale attorney Scott Rothstein, who is alleged to have run a $1 billion investment scam, joined Bernie Madoff in becoming headline news and household names,” Holder said.

“I’m proud that these men, along with more than 450 others convicted of corporate and securities fraud in 2009, have been taken out of the game.”

Holder said the Justice Department was moving forward on more than 5,000 pending financial institution fraud cases and the FBI was investigating more than 2,800 mortgage fraud cases — up nearly 400 percent from five years ago.

Financial fraud has become an increasingly fraught political issue after a spike in mortgage scams and big Wall Street trading scandals.

The purpose of the task force, led by the Justice Department, is to investigate and prosecute financial crimes and to try to deter future fraud.

The task force replaced a similar one established by the Bush administration in 2002 after corporate scandals such as the collapse of Enron Corp, the giant energy trader

The time of the Harlem Renaissance appears to be vanishing. A report just came out showing that Harlem is no longer a predominantly black haven for our arts and culture, but a melting pot or new Greenwich Village.

But the invasion of the body snatchers hasn’t just come to Harlem, it is happening throughout the country in every major center and is referred to as gentrification.

Which only means that the area surrounding their home became more expensive than they could afford, so it’s a forced move. Once Starbucks comes to your neighborhood expect that to be a sign that your neighborhood is getting ready to see higher property taxes. The people of Harlem have become a melting pot of immigrants and whites