market folly

Noted short seller and Kynikos Associates hedge fund manager Jim Chanos recently sat down and had an interesting conversation with Charlie Rose regarding China and their impending property bubble (as he deems it). Previously, we'd covered Chanos' intriguing presentation on China overheating and this time around in his discussion with Rose, he focuses on China's currency, the Renminbi, as well as China's property market.

Turning specifically to the RMB, Chanos begins by saying that everyone expects this currency to be revalued upward. But he brings up an interesting point, wondering what will occur if the RMB actually *gasp* devalues? It's certainly food for thought as often times in markets when everyone is 'certain' something will go one way, it can have the tendency to head the opposite direction. If this devaluation were to happen, Chanos notes that the Chinese would actually then have an asset in all their US dollars. The hedge fund manager goes on to say, "well, they're going to need those dollars to in effect sterilize the banking system. And that was what we needed our currency reserves, by the way, in 1929, our pounds and gold reserves and what Japan needed in 1989."

So, it's definitely an intriguing notion to think about. But of course for this scenario to ultimately play out, you'll need some catalysts to pop the inherent bubble (i.e. RMB devaluation, etc). China is quite the hot topic these days in terms of global coupling/decoupling, property bubbles, and RMB revaluation among other talking points. We've also recently covered interesting research focused on the Asian powerhouse from Vitaliy Katsenelson in his presentation, China: The Mother of All Black Swans. But for thoughts on China's housing market, we defer to Chanos' recent conversation with Charlie Rose which you can watch below (click on the picture to be taken to the video clip):



And for those of you who may not be able to listen to audio at work, here is a transcript of the interview:



You can download the .pdf here.

A good conversation certainly. Be sure to also check out the original Jim Chanos China presentation that we posted up as well as Chanos' presentation on ten lessons from the financial crisis. All eyes are certainly on China now more than ever.