China's Bank Situation Deteriorates

Oct. 11 (Bloomberg) -- Jim Chanos, the hedge-fund manager who's been betting that Chinese bank stocks will tumble, said a rally spurred by government purchases of the shares hasn't changed his bearish outlook.

The MSCI China Financials Index surged 6 percent today after state-run Central Huijin Investment Ltd. started buying shares in the four biggest Chinese lenders. The gauge of banks, insurers and developers had tumbled as much as 43 percent in 2011 through Oct. 4, sending its price-to-earnings ratio to a record low of 5.6 on concern that slowing economic growth will spur bad debts after a three-year credit boom.

“The fact that people are even talking about the government stepping in to shore up the banks, when two months ago people thought there was nothing wrong with the Chinese banks, should tell you just how seriously this situation is deteriorating,” Chanos, founder of New York-based hedge fund Kynikos Associates, said in an interview with Bloomberg Television's Michael McKee today.
My View: While some will view the situation in China's banks as a "black swan" that no one could foresee, it seems to me that the rampant property speculation and misallocation of capital is emerging from the shadows.

What is this beast that comes shambling forth?

The Chinese command economy's fragility is about to manifest itself in a spectacular credit crunch.

Look for rapid drop in commodity prices, particularly copper, when the news hits the airwaves.


  1. I like the new look PW

  2. Thanks Bill.
    I though a darker theme might be appropriate for the darker times we face.


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