What Jim Chanos is currently bearish about?

We all know that Warren Buffett’s investment style is buying rock solid companies and staying invested in them for the long term. Now, what would be mirror image of this strategy? Shorting companies that look extremely weak fundamentally and holding the position for long periods. And the foremost practitioner of this art is a man called Jim Chanos. Called a short selling guru, Chanos is perhaps the most successful pure equities short seller in the world right now.

 Thus, when he is bearish on something, his words cannot be dismissed lightly. Ironically, he seems most bearish on a country that other investors feel is the most attractive growth story of the next decade or two. Indeed, we are referring to China.

Chanos believes that China is forging its GDP numbers on a massive scale by not providing adequate depreciation for a very, very shaky capital base and further adds that there is no bigger credit excess than China right now. In fact, he has called the China credit excess problem “Dubai times 1,000 or worse”.

There could well be a lot of merit in his argument. It is a well known fact that China’s export driven growth model has crumbled in the wake of the credit crisis and if it were to keep its economy on a higher growth path, the current model will have to be altered dramatically. We are not saying that it may not be able to do it. However, the transition may not be easy and there could be a lot of turbulence ahead. Perhaps, Chanos is pointing out to one such turbulence, which he believes could happen any time soon.

(Courtesy:Equitymaster)

This is how Buffett makes his Billions

We were all surprised a year ago, when Warren Buffett bought US$ 5 Billion of Goldman Sachs preferred stock. After all, Lehman Brothers had just collapsed and Wall Street was tottering. Moreover, Buffett’s past involvement with bankers like Salomon Brothers had turned out to be time consuming affair.

But then, he rarely passes a good deal, even if there is bad news all around. In fact, especially when there is bad news all round. The next day Buffett had said, “The price was right, the terms were right, and the people were right.” Buffett also secured a margin of safety from the terms of contract – a 10% dividend and also the right to buy US$ 5 Billion of common stock at a strike price of US$ 115 per share.

A year later, his decision has turned out be correct. Buffett’s investment in Goldman has made Berkshire Hathaway richer by US$ 3 billion in twelve months! Given the current share price of Goldman Sachs at US$ 183, the warrants alone are worth US$ 3 Billion ((US$ 183 – US$115)*45 m warrants). Of course, the warrants were not available to the ordinary investor in the US . But then, all he needed to do was buy the common stock to comfortably outperform the broader market. Easier said than done! Don’t you wish that Buffett could invest for you too?

(Courtesy: Equitymaster)

EPF Money coming into Stock Market

The government sure seems to be very serious about improving the flow of funds into capital markets from subscribers of retirement funds.

In a fresh directive, it wants the Employees Provident Fund Organisation (EPFO) to initiate the process of parking around 3-5 per cent of the retirement fund of the subscribers in stocks.

Through this, the government believes that the flow of funds into capital markets can shoot up to a whopping Rs. 13,000 crore, reports Mint.

The decision was taken during the Central Board of Trustees (CBT) meeting which is the apex decision making body of the EPFO.

The logic here, ministry officials said, was that the EPFO would have negligible risks and get healthy returns if investments in stock indices are done on a long term basis.

The ministry had come out with the new investment pattern last year in August. This came just after the move to allow managing of funds by private players like HSBC, Reliance Capital and ICICI Prudential.

The EPFO has also selected State Bank of India for this purpose.

The EPFO, manages provident fund accounts of about 4.5 crore subscribers and it has a corpus of Rs 2.57 lakh crore.

(Source:Valueresearch)