Saturday, September 24, 2011
Hedge-fund legend and famed short-seller Jim Chanos recently offered his latest bearish take on the coming chaos he sees ahead for China.
Chanos, the brilliant "forensic accountant" who nailed the Enron and WorldCom frauds, believes the country is headed for a huge real estate bust... one that will send the prices of Chinese banks, real estate developers, and commodity producers much lower. Chanos told Bloomberg...
In 2008, Americans learned the hard way what happens when a mania in rampant lending, real estate speculation, and shady banking practices hits a wall. When Chanos is proven right on China, it's going to be ugly.
We're starting to see market confirmation of Chanos' thesis. Mega base-metal miners Teck Cominco and Freeport McMoRan struck major 2011 lows this week. Chanos has also pegged Brazilian iron ore producer Vale as vulnerable to a China bust. More than one-third of the company's production goes to China.
Vale enjoyed a huge rally off its 2009 lows. Shares jumped from less than $10 to $36 early this year. As you can see from the chart below, if Chanos' expected China bust arrives, this stock could easily lose 25%-50% on the way back down.
Once again, we remind you that China isn't our biggest near-term worry. That mantle remains with the slow-motion financial train wreck taking place in Europe.
The latest news on this disaster comes in the form of the International Monetary Fund's estimate that European banks have more than $400 billion in credit risk. Again, from Bloomberg...
Whatever the politicians do or say, you only need to know that Europe is in a "no way out" situation. The only possible outcome is more money-printing to "paper over" the giant debts countries like Italy and Greece have piled up over the years.
Porter Stansberry has provided risk-averse investors with a simple way to protect themselves and prosper during this type of currency debasement. It's a strategy that has returned more than 30% in the past 18 months. Make sure to read this DailyWealth for more on the "50/50 portfolio."
Lastly, we leave you with one of the ugliest charts in all of finance... and a brief "we told you so" that will enflame thousands.
The chart below shows trading in solar giant First Solar over the past year. Regular readers know Porter's take on the solar industry – it's a hopeless money-loser thanks to the Second Law of Thermodynamics. Porter's commentary on the solar industry regularly generates the angriest feedback we receive.
While Porter has noted for years that almost all solar stocks are disasters waiting to happen, he singled out First Solar as his short-selling candidate. The chart below speaks a thousand words...
We've written about Porter's criteria for selling stocks short before. He looks for companies that can't afford to pay their debt (GM, Fannie, and Freddie), companies that are obsolete (like Borders), and companies that are involved in fraud (WorldCom and Enron).
In his September issue of Stansberry's Investment Advisory, out two weeks ago, his subscribers are already up 13% and 7% on his two new short sell recommendations. One of the companies can't possibly pay off its debt. The other qualifies as obsolete. His six open short sell recommendations are all showing a profit, and are up an average of 26%. Should the market continue to struggle, these trades will explode in value. To access Porter's favorite "victims," click here.
Date Range:9/15/2011 to 9/22/2011
Date Range:9/15/2011 to 9/22/2011