Jim Chanos Is Wrong on China

By Eric Jackson, Senior Contributor

03/31/10 - 06:02 AM EDT

Stock quotes in this article: BACHY.PK , CICHY.PK

BEIJING (TheStreet) -- Short-seller Jim Chanos correctly saw Enron'sproblems before they engulfed the company. He's now making media appearances identifying China as his next short idea, specifically the Chinese commercial and residential property markets.

Chanos famously referred to these markets as "Dubai times 1,000," foreseeing a cascading effect of property developers defaults, non-performing bank loans, bank losses and reduced lending, a pullback in further development and jobs, and a sharp drop in demand for commodities.

Jim Chanos, founder and managing partner of Kynikos Associates.

In short, according to Chanos, China's property market -- supporting the Chinese economy, which is the last engine powering the global economy -- is about to melt down.

He's put his money where his investment thesis is by shorting internationally traded commodity and infrastructure companies and Hong Kong property developers with exposure to China.

According to a New York Times article from January, Chanos only started studying the China market last summer. He has apparently never visited the country and has joked on TV appearances that he will never be able to visit the country now that he's made such bearish pronouncements.

Instead, Chanos -- like a lot of other Western commentators -- bases his views on statistics and the opinions of other Western talking heads, many of whom also haven't been to China lately, if ever.

There's a Chinese saying: "If you visit my village in three months, you'll notice small changes; if you visit my village in six months, you'll notice big changes; if you visit my village in a year, you won't recognize my village." Chanos and other bears haven't even visited the village yet to kick the tires.

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[This post is an excerpt of the full article, which is available on TheStreet.com by clicking here. Free Site.]

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Goldman Needs Financially Savvy Directors

By Eric Jackson, Senior Contributor02/24/10 - 09:11 AM EST

Stock quotes in this article: GS , MT , CL , FNM , MDT , SLE

Goldman Sachs(GS Quote) had a great 2009.

The results were so good that Directorship Magazine named Lloyd Blankfein its CEO of the Year for 2009 and one of its 100 most influential voices in the board room at an awards dinner last fall. The award recognizes a CEO's achievements during the year but also a company's board for having done an exemplary job of company oversight.

Despite Goldman's many successes, its board shouldn't be held up as a role model for others, as the case of a departing Goldman director last week illustrates.

Goldman is one of the best managers of risk of any large company in the world. In a business, where the bulk of their earnings come from trading, they have successfully learned to manage risks daily.

Arguably, any company's last backstop for risk management is its board of directors. Ultimately, the buck is supposed to stop with the CEO and the executive management. The CEO gets hired and fired by the board, who agrees on key hires and sets compensation for the executive team and signs off on the company's financial statements and its internal risk management policy.

Since Enron's blowup, the concept of "board independence" has been required of all boards. If we have a majority of sufficiently independent directors in place, the thinking goes, they will be able to better monitor a CEO and a management team.

In practice, many CEOs have selected people who meet the independence standard but come from outside the industry of the company on whose board they serve. Even worse, some CEOs have chosen directors from the nonprofit world or academia, with no business experience at all.

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[This post is an excerpt of the full article, which is available on TheStreet.com by clicking here. Free Site.]

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Sarbanes-Oxley Battle Shapes Up

By Eric Jackson, Senior Contributor 12/16/09 - 08:40 AM EST

Stock quotes in this article: BAC , C , FNM , FRE , MS , GS

An interesting legal battle is shaping up in the Supreme Court that could invalidate most or all of the Sarbanes-Oxley law, which is intended to make all public companies better at overseeing their internal accounting.

The main issue has to do with the governance structure of the board of the Public Company Accounting Oversight Board (PCAOB), which was set up at the time the law was passed in 2002 to oversee its successful implementation.

The plaintiffs argue that the PCAOB's board is not accountable enough and must allow for the president to appoint members to the board. Because this is currently not allowed, they argue the whole Sarbanes-Oxley law must be struck down.

Ironically, many companies who support this effort to strike down Sarbanes-Oxley (due to the higher costs of internal accounting oversight), also support blocking their own shareholders from having more of a say on who gets appointed to their own board of directors. What's good for the goose is apparently not good for the gander.

Sarbanes-Oxley's legislation, especially section 404, has been a bugaboo of business -- especially small business -- since its inception. Recall that the law was passed in the wake of the major scandals like Enron, Tyco, Worldcom, Parmalat, and others during the dot-com bubble.

At the time, President Bush and other politicians expressed outrage that so many large and well-known companies could have so easily perpetuated accounting fraud for so long, with no consequences -- until they were forced into the light. Most of these companies went under and, with them, the pensions and 401Ks of many hard-working and innocent executives and employees.

[This excerpt is only the first quarter of the article. To read the entire article on TheStreet.com, click here.]

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