Extract from oday's 'Money Morning'. Jim Chanos is horting VALE.
'Like your editor, Chanos has been bearish on China for some time. He told Bloomberg News:
"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."
And you can be sure that when China hits the ropes, suppliers to China will cop it too. Remember, it's not just Chinese stocks Chanos is short-selling. As Bloomberg also notes:
"[Chanos is] also betting against Brazil's Vale SA (VALE), the world's largest iron-ore producer, on expectations demand from China will slow."
Chanos told the GAIN/GMA conference in New York that Vale is building "a fleet that is larger than the U.S. Navy" to ship iron ore to China!
If that doesn't shout "commodity bubble" we don't know what does. But that's what happens in a price bubble. Businesses spend big on capital equipment. Why? They do it for one of two reasons...
Two Reasons to be Cautious
One reason is they think the boom will continue for a long time. That to profit from the boom they need to increase production and that means adding to or replacing capital equipment.
The other reason is they think the boom won't last forever, but unless they increase production, their competitors will... and that means they'll miss out on the boom.
