(Collapse.news) A Wall Street pro says that Friday’s stock market sell-off, in which the Dow Jones Industrial Average experienced its single-largest one-day loss since 2011, was due in large part to China’s tanking economic prospects – a situation he says is being grossly underestimated.
“It’s worse than you think. Whatever you might think, it’s worse,” short seller Jim Chanos told CNBC.
In discussing the day’s market reactions, Chanos, of Kynikos Associates, in an appearance on the network’s Fast Money: Halftime Report, amid the fourth straight day of losses for major U.S. averages, noted that both the Dow and NASDAQ were both set to finish the day in their worst shape in four years.
As reported by Collapse.news, the Dow finished down 531 points, or 3 percent of its value, by the closing bell Friday afternoon; the NASDAQ was off 3.5 percent for the week (see that report here).
Chanos, during his interview, would not classify Friday’s sell-off as a correction or a point where a bear market was emerging. However, he did say that the years-long run-up in U.S. stocks indicates that “we’ve gotten a little complacent.”
It’s about a decline in growth and demand
The downturn in the world’s second-largest economy, in addition to other macroeconomic concerns, has spooked global investors. Investors are “scared of the global demand situation [which is down], they’re scared of China, they’re scared that maybe there’s no place to make money,” said Stephen J. Guilfoyle, the managing director of NYSE floor operations for Deep Value Inc., in a separate CNBC interview Friday.
Chanos said Beijing’s handling of its own stock market – and currency devaluation – has invoked “panic responses” from investors, and has given them “pause.”
“People are beginning to realize the Chinese government is not omnipotent and omniscient,” he said. “In fact, like many of us, sometimes they don’t have a clue.”
In addition, Chanos said that investors ought to shrug off the performance of the Shanghai Composite (China’s version of the Dow Jones) and instead focus on how declining gross domestic product (GDP) growth and the Chinese consumer might be able to affect U.S. companies that have exposure to China.
As CNBC further reported:
Concerns about demand in China, one of the world’s largest energy consumers, has added pressure to already sagging commodities. Crude oil fell again on Friday, with West Texas Intermediate breaking below $40 per barrel for the first time since 2009.
A slowdown in consumption has fueled additional concern about what many observers have already called an oversupplied market.
For a time, as reported by Natural News, oil fell below $40 a barrel, to $39.86, before ending the day back above that level.
Other U.S. sectors taking a hit
“Now that demand is flagging a little bit, the oversupply situation has just swamped the real demand,” Chanos noted, adding that he’s “betting against a number of the big guys” in the energy sector.
Not everyone wants to talk about the danger ahead though. In a separate CNBC interview Friday, Hewlett Packard CEO Meg Whitman downplayed concerns over slowed growth, citing her company’s progress in enterprise computing and strong position in the PC market.
Chanos countered that HP faces a number of major hurdles ahead of a stock split later this fall.
“We think it’s challenged business. Despite Meg’s best efforts, I think they’re in businesses that are in secular decline,” he said.
Other U.S. sectors are also in decline. As reported by Collapse.news, manufacturing is also taking a hit, as even adjusting economic figures seasonally, often used as an accounting trick by Uncle Sam to put lipstick on a pig, cannot hide the obvious.
As reported by Zero Hedge, a few weeks after the July ISM (Institute for Supply Management) manufacturing report measured its lowest since March, the Markit manufacturing PMI (Purchasing Managers Index) was also released, coming in at just 52.9, below the expected index of 53.8 and down from last month’s 53.8
Sources:
