Jim Chanos Continues To Warn Of Chinese Real Estate Bubble

Jim Chanos, noted short seller and founder of hedge fund Kynikos Associates, continues to pound the table about the coming collapse of the Chinese real estate market. In an interview with Charlie Rose, Chanos said that he believes the bubble will burst in late 2010 or early 2011. He said, "Supply will equal demand at some point. It always does, and then there is this precarious tipping point when suddenly you can't sell a project and then it's just as if everyone from the port side of the cruise ship goes to the starboard side of the cruise ship all at once. You get a tipping point, you get this light-bulb moment - "I've got to get out while I can." And the buyers dry out. It's as old as market itself."

Chanos is shorting Chinese developers and construction suppliers. He did not mention specific stocks. Chanos was one of the first investors to foresee the collapse of Enron Corp. in 2001. He had a substantial short position in the shares and made a fortune when the stock cratered, falling from over $90 per share to less than $1 by late 2001. Chanos' track record suggests that he is not an investor to bet against, but going short of China right now could be quite hazardous to one's financial health. I also do not understand why Chanos is so determined to make sure every market observer on the planet is aware of his short positions in China. He must be extremely confident that he will be proven right, despite the fact that many respected economists disagree. In addition, if Chanos can convert others to his view, it will benefit his Chinese positions. With that being said, I think that investors would be better suited to wait for the cracks in the real estate market that Chanos foresees, as opposed to jumping in on the short side right now.