China Hustle Movie

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regularguy455
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China Hustle Movie

Post by regularguy455 » Sun Apr 01, 2018 8:25 pm

I read a few articles about it in Marketwatch (https://www.marketwatch.com/story/finan ... 2018-03-30) and in Forbes (https://www.forbes.com/sites/markhughes ... na-hustle/). I haven’t seen it yet, but the jist is this could be a massive fraud that could disrupt the financial system.

Anyone see it yet?

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JoMoney
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Re: China Hustle Movie

Post by JoMoney » Sun Apr 01, 2018 8:54 pm

I'd wager there is some truth to it, I'm also sure there is corruption in the U.S. markets, one of the big questions though is "how prevalent is the corruption" ? Is the market full of bad actors and suckers, or are there enough people doing due-diligence and understanding what it is they're buying that the market prices are relatively 'efficient' ?
I don't own, and have a bit of a bias against buying 'emerging markets', especially as a broad market index. Stuff like this just feeds my prior concerns.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

rjbraun
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Re: China Hustle Movie

Post by rjbraun » Sun Apr 01, 2018 9:50 pm

regularguy455 wrote:
Sun Apr 01, 2018 8:25 pm
I read a few articles about it in Marketwatch (https://www.marketwatch.com/story/finan ... 2018-03-30) and in Forbes (https://www.forbes.com/sites/markhughes ... na-hustle/). I haven’t seen it yet, but the jist is this could be a massive fraud that could disrupt the financial system.

Anyone see it yet?
Yes, I've seen it and found it worthwhile. The director and main character (Dan David) spoke at a Q&A, after the screening I attended

Valuethinker
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Re: China Hustle Movie

Post by Valuethinker » Mon Apr 02, 2018 7:17 am

regularguy455 wrote:
Sun Apr 01, 2018 8:25 pm
I read a few articles about it in Marketwatch (https://www.marketwatch.com/story/finan ... 2018-03-30) and in Forbes (https://www.forbes.com/sites/markhughes ... na-hustle/). I haven’t seen it yet, but the jist is this could be a massive fraud that could disrupt the financial system.

Anyone see it yet?
The team that did Smartest Guys in the Room which is an excellent documentary (about Enron).

If we look at the torrid history of Sino Forest which was a multibillion dollar market cap Canadian listed stock, and collapsed after the research firm Muddy Waters did some deep digging, there's definitely a risk there.

skepticalobserver
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Re: China Hustle Movie

Post by skepticalobserver » Mon Apr 02, 2018 8:07 am

"China Hustle" is available for rental on Comcast on Demand.

KlangFool
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Re: China Hustle Movie

Post by KlangFool » Mon Apr 02, 2018 8:20 am

OP,

Come on. This is not news. Anyone that knows anything would have known this.

KlangFool

Nate79
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Re: China Hustle Movie

Post by Nate79 » Mon Apr 02, 2018 10:16 am

Jed Rothstein was interviewed on the Mar 27th Stacking Benjamin podcast. Fascinating story.

cordanmom
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Re: China Hustle Movie

Post by cordanmom » Mon Apr 02, 2018 11:41 am

I saw the documentary over the weekend and enjoyed it.
My intuition tells me that this scam would have little impact on Vanguard index funds. I am not a player in EM.
international small cap (VFSVX) - 3% China
total international (VGSTX) - 6% China
emerging market (VEIEX) - 33% China
The best time to plant a tree was 20 years ago. The next best time is now. ~Chinese Proverb

randomguy
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Re: China Hustle Movie

Post by randomguy » Mon Apr 02, 2018 12:07 pm

JoMoney wrote:
Sun Apr 01, 2018 8:54 pm
I'd wager there is some truth to it, I'm also sure there is corruption in the U.S. markets, one of the big questions though is "how prevalent is the corruption" ? Is the market full of bad actors and suckers, or are there enough people doing due-diligence and understanding what it is they're buying that the market prices are relatively 'efficient' ?
I don't own, and have a bit of a bias against buying 'emerging markets', especially as a broad market index. Stuff like this just feeds my prior concerns.
Did "smartest guys in the room" feed your concerns about the rampent Corruption in US markets? The question is always how much. Documentaries are not know for being balanced sources of info

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JoMoney
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Re: China Hustle Movie

Post by JoMoney » Mon Apr 02, 2018 12:33 pm

randomguy wrote:
Mon Apr 02, 2018 12:07 pm
JoMoney wrote:
Sun Apr 01, 2018 8:54 pm
I'd wager there is some truth to it, I'm also sure there is corruption in the U.S. markets, one of the big questions though is "how prevalent is the corruption" ? Is the market full of bad actors and suckers, or are there enough people doing due-diligence and understanding what it is they're buying that the market prices are relatively 'efficient' ?
I don't own, and have a bit of a bias against buying 'emerging markets', especially as a broad market index. Stuff like this just feeds my prior concerns.
Did "smartest guys in the room" feed your concerns about the rampent Corruption in US markets? The question is always how much. Documentaries are not know for being balanced sources of info
Yes, and if you watch this film you'll see the corruption is heavy on the US investment banks and accounting firms that were complicit or even the 'engineers' behind the scheme of packaging these Chinese companies (that American's can't directly invest in) to be sold on the U.S. market.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

garlandwhizzer
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Re: China Hustle Movie

Post by garlandwhizzer » Mon Apr 02, 2018 4:32 pm

Jim Chanos, the hedge fund manager who correctly called Enron's collapse before it happened, has been calling for the collapse of China since 2009. He predicted the collapse would be worse than the US financial crisis in 2007-9 and shorted China vigorously. He has lost many millions shorting Alibaba in recent years. Thus far, 9 years later, his bets have been losers. It could change tomorrow but so far it has been Chicken Little warning that the sky is falling. Many other experts have expressed concerns for more than a decade now about an imminent financial/banking collapse in EM and China. Most of them of course totally missed the very real banking collapse that happened in the USA in 2007-9 where for the only time in the history of the world close to a half million dollars could be borrowed to buy a house with no verification of income or assets, a signature only. This practice did not arouse fear and suspicion among these experts but, along with massive leverage from default swaps, it did precipitate the greatest risk to the worldwide financial system since the Great Depression. It is human to try to predict the future, but it is also human to wear the wrong prescription glasses when looking into the future.

There is always something to worry about when it comes to investing anytime, anywhere. China and EM bears can always find data ammunition to make the case that the end is near and a collapse is coming. On the other hand China and EM bulls can always find data ammunition to make the case that their future is bright and promising. Most of us simply choose the narrative we already believe in, confirmation bias.

I don't know what's going to happen to EM and China assets in the future. Nor do I know what's going to happen to the US or DM assets in the future. I also don't believe anyone knows this with actionable certainty. IMO it's probably wise to be skeptical about future predictions in general. Jim Chanos is highly intelligent and knowledgeable, but he would be much richer now if he had been more skeptical about his own ability to foresee the future. I believe the same goes for most of us. Wide diversification in equity and an adequate supply of high quality bonds, rather than buying/selling assets based on a prediction of the future, seems to me a reasonable. IMO the future is inherently uncertain.

Garland Whizzer

3funder
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Re: China Hustle Movie

Post by 3funder » Mon Apr 02, 2018 4:40 pm

garlandwhizzer wrote:
Mon Apr 02, 2018 4:32 pm
Jim Chanos, the hedge fund manager who correctly called Enron's collapse before it happened, has been calling for the collapse of China since 2009. He predicted the collapse would be worse than the US financial crisis in 2007-9 and shorted China vigorously. He has lost many millions shorting Alibaba in recent years. Thus far, 9 years later, his bets have been losers. It could change tomorrow but so far it has been Chicken Little warning that the sky is falling. Many other experts have expressed concerns for more than a decade now about an imminent financial/banking collapse in EM and China. Most of them of course totally missed the very real banking collapse that happened in the USA in 2007-9 where for the only time in the history of the world close to a half million dollars could be borrowed to buy a house with no verification of income or assets, a signature only. This practice did not arouse fear and suspicion among these experts but, along with massive leverage from default swaps, it did precipitate the greatest risk to the worldwide financial system since the Great Depression. It is human to try to predict the future, but it is also human to wear the wrong prescription glasses when looking into the future.

There is always something to worry about when it comes to investing anytime, anywhere. China and EM bears can always find data ammunition to make the case that the end is near and a collapse is coming. On the other hand China and EM bulls can always find data ammunition to make the case that their future is bright and promising. Most of us simply choose the narrative we already believe in, confirmation bias.

I don't know what's going to happen to EM and China assets in the future. Nor do I know what's going to happen to the US or DM assets in the future. I also don't believe anyone knows this with actionable certainty. IMO it's probably wise to be skeptical about future predictions in general. Jim Chanos is highly intelligent and knowledgeable, but he would be much richer now if he had been more skeptical about his own ability to foresee the future. I believe the same goes for most of us. Wide diversification in equity and an adequate supply of high quality bonds, rather than buying/selling assets based on a prediction of the future, seems to me a reasonable. IMO the future is inherently uncertain.

Garland Whizzer
+1

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unclescrooge
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Re: China Hustle Movie

Post by unclescrooge » Mon Apr 02, 2018 6:30 pm

rjbraun wrote:
Sun Apr 01, 2018 9:50 pm
regularguy455 wrote:
Sun Apr 01, 2018 8:25 pm
I read a few articles about it in Marketwatch (https://www.marketwatch.com/story/finan ... 2018-03-30) and in Forbes (https://www.forbes.com/sites/markhughes ... na-hustle/). I haven’t seen it yet, but the jist is this could be a massive fraud that could disrupt the financial system.

Anyone see it yet?
Yes, I've seen it and found it worthwhile. The director and main character (Dan David) spoke at a Q&A, after the screening I attended
Is the frauds limited to Chinese companies that are listed in the u.s., or those that are listed in mainland China?

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arcticpineapplecorp.
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Re: China Hustle Movie

Post by arcticpineapplecorp. » Mon Apr 02, 2018 6:50 pm

Just heard an interview on motley fool money from last week here with the director of the movie I believe:

https://www.fool.com/podcasts/motley-fo ... na-hustle/

The takeaway seemed to be that the "shorts" straightened everything out in the end, which is what short-sellers do, isn't it? So if there's a fraud, we can assume it will eventually be found out and the market will correct itself. It's a self correcting system over time isn't it?
"Invest we must." -- Jack Bogle | “The purpose of investing is not to simply optimise returns and make yourself rich. The purpose is not to die poor.” -- William Bernstein

JBTX
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Re: China Hustle Movie

Post by JBTX » Mon Apr 02, 2018 6:58 pm

arcticpineapplecorp. wrote:
Mon Apr 02, 2018 6:50 pm
Just heard an interview on motley fool money from last week here with the director of the movie I believe:

https://www.fool.com/podcasts/motley-fo ... na-hustle/

The takeaway seemed to be that the "shorts" straightened everything out in the end, which is what short-sellers do, isn't it? So if there's a fraud, we can assume it will eventually be found out and the market will correct itself. It's a self correcting system over time isn't it?
Ultimately yes these things are self correcting but it can take a while and the impact can be devastating and long term (decades) in some cases.

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whodidntante
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Re: China Hustle Movie

Post by whodidntante » Mon Apr 02, 2018 7:15 pm

China is the world's largest economy on a purchasing power parity basis and can realistically become the world's largest economy on a pick-your-basis. China isn't a scam, but it probably contains some fantastic scams.

Engineer250
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Re: China Hustle Movie

Post by Engineer250 » Tue Apr 03, 2018 10:20 am

cordanmom wrote:
Mon Apr 02, 2018 11:41 am
I saw the documentary over the weekend and enjoyed it.
My intuition tells me that this scam would have little impact on Vanguard index funds. I am not a player in EM.
international small cap (VFSVX) - 3% China
total international (VGSTX) - 6% China
emerging market (VEIEX) - 33% China
The director did an interview on Marketplace yesterday (4/2).

My understanding is that Chinese companies performed reverse mergers with US companies and got themselves listed on US stock exchanges despite being Chinese owned and without much of the regulatory oversight of traditional US companies.

So this would affect people owning US companies as well.

All I could think of when I heard that was the folks who own only US because they believe the US market is so global it gives them enough international exposure. More right than they know with these Chinese companies apparently.
Where the tides of fortune take us, no man can know.

(gekko)
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Re: China Hustle Movie

Post by (gekko) » Tue Apr 03, 2018 10:37 am

whodidntante wrote:
Mon Apr 02, 2018 7:15 pm
China is the world's largest economy on a purchasing power parity basis and can realistically become the world's largest economy on a pick-your-basis. China isn't a scam, but it probably contains some fantastic scams.
You can't trust their data. How can you be sure that you get what they said?
http://www.bbc.com/news/business-35341869

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JoMoney
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Re: China Hustle Movie

Post by JoMoney » Tue Apr 03, 2018 11:20 am

Engineer250 wrote:
Tue Apr 03, 2018 10:20 am
cordanmom wrote:
Mon Apr 02, 2018 11:41 am
I saw the documentary over the weekend and enjoyed it.
My intuition tells me that this scam would have little impact on Vanguard index funds. I am not a player in EM.
international small cap (VFSVX) - 3% China
total international (VGSTX) - 6% China
emerging market (VEIEX) - 33% China
The director did an interview on Marketplace yesterday (4/2).

My understanding is that Chinese companies performed reverse mergers with US companies and got themselves listed on US stock exchanges despite being Chinese owned and without much of the regulatory oversight of traditional US companies.

So this would affect people owning US companies as well.

All I could think of when I heard that was the folks who own only US because they believe the US market is so global it gives them enough international exposure. More right than they know with these Chinese companies apparently.
With regard to this specific situation, despite being listed on US exchanges, none of these companies would qualify to be in a US market index fund. Among the advantages of getting foreign exposure through a domestic companies investment in a foreign area is there is at least some possibility of legal recourse if domestic companies are caught cooking their books and corporate officers signing their names to it.
US people can't legally even own Chinese companies and have no recourse to go back to. The situation presented here had the investment banks, accountants/auditors, claiming all the paperwork they saw was up to snuff with the required standards and had no reason to believe they were being lied to by the Chinese companies.. pay a fine... move on.
In the film, it's suggested that this scheme was to savvy to be cooked up by the Chinese businesses and reeks of US Investment Banks with knowledge of how the system works.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

rjbraun
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Re: China Hustle Movie

Post by rjbraun » Tue Apr 03, 2018 3:53 pm

unclescrooge wrote:
Mon Apr 02, 2018 6:30 pm
rjbraun wrote:
Sun Apr 01, 2018 9:50 pm
regularguy455 wrote:
Sun Apr 01, 2018 8:25 pm
I read a few articles about it in Marketwatch (https://www.marketwatch.com/story/finan ... 2018-03-30) and in Forbes (https://www.forbes.com/sites/markhughes ... na-hustle/). I haven’t seen it yet, but the jist is this could be a massive fraud that could disrupt the financial system.

Anyone see it yet?
Yes, I've seen it and found it worthwhile. The director and main character (Dan David) spoke at a Q&A, after the screening I attended
Is the frauds limited to Chinese companies that are listed in the u.s., or those that are listed in mainland China?
My recollection from the film was that the focus was on fraudulent Chinese companies that are listed in the US. I don't recall the film endeavoring to focus on the prospect of frauds listed on Chinese exchanges. Of course, that obviously does not mean that there are not listed Chinese companies trading on Chinese exchanges that are frauds.

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arcticpineapplecorp.
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Re: China Hustle Movie

Post by arcticpineapplecorp. » Tue Apr 03, 2018 5:43 pm

JBTX wrote:
Mon Apr 02, 2018 6:58 pm
arcticpineapplecorp. wrote:
Mon Apr 02, 2018 6:50 pm
Just heard an interview on motley fool money from last week here with the director of the movie I believe:

https://www.fool.com/podcasts/motley-fo ... na-hustle/

The takeaway seemed to be that the "shorts" straightened everything out in the end, which is what short-sellers do, isn't it? So if there's a fraud, we can assume it will eventually be found out and the market will correct itself. It's a self correcting system over time isn't it?
Ultimately yes these things are self correcting but it can take a while and the impact can be devastating and long term (decades) in some cases.
decades? Are we talking about individual stocks or entire global markets?

The distinction is important because while individual stocks can be impacted for decades, I'm not sure this is true with respect to the entire global market. And even if you want to point to a long time period which involved two deep/long recessions that encompassed the Great Depression and the recession that followed...that had nothing to do with the type of fraud this movie is referencing.

So, I don't really think it's as gloom and doom as you make it seem. Even if this is affecting some economy somewhere (say a Chinese company is committing a fraud) is it really going to affect your global stock portfolio (of which China may only be a very small part)???

I'm not saying fraud isn't a problem. It most certainly is. But the people who are mostly affected by these frauds are the ones who invest INDIVIDUALLY in these companies that are committing the fraud.

And if you say that some American companies are participating, fine. That may be true. Enron went out of business. That was a fraud. It didn't take decades to recover from the losses caused by Enron if you were invested in all stocks all over the world. And that was one of the biggest (maybe the biggest so far?) frauds on record. Enron declared bankruptcy 12/2/2001 and ceased operations by 2007 (source: https://www.google.com/search?q=when+di ... fox-b-1-ab).

How'd the U.S. market do over this time period? Up 54.2% (from 12/1/01-12/31/07).
Total international over same time period? 146.76%.

Fraud indeed, but when you hold the world market you sleep better.

(source: http://quotes.morningstar.com/chart/fun ... A%5B%5D%7D
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whodidntante
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Re: China Hustle Movie

Post by whodidntante » Mon Apr 16, 2018 12:10 am

I watched it tonight and can provide a summary. The film focuses on hedge fund managers Jim Chanos, Carson Block, and Dan David who had uncovered fraud in American stock exchange listed Chinese companies. There are dramatic scenes where an someone covertly captured footage of supposedly booming Chinese companies that are found to be doing maybe 1/10th of the volume they claim to their American investors. There are statements that profits are faked and the books are cooked. The hedge fund managers were using their insight of fraudulent Chinese companies to take a short position and then parrot what they knew about the company in the hopes of driving the share price down. The film also draws parallels to Chinese securities fraud and Flint, Michigan which I thought was a bit of a stretch.

The film alleges that hundreds of companies have been rubber stamped through a reverse merger process with defunct American companies by American investment banks and multinational accounting firms like PricewaterhouseCoopers and Deloitte. This is done, according to the film, because there is less regulatory scrutiny in the event of a reverse merger than with an IPO. The film further alleges that US government regulators and US legislators are uninterested or ineffective at solving the issue. Different figures are given for the amount of fraud perpetrated, but it is at least tens of billions, possibly hundreds of billions of USD. It is also alleged that the government of China is unwilling to help with any investigations or with criminal prosecutions because defrauding foreign investors is not a crime in China.

Three small American investors who "lost their savings" trading American listed Chinese companies tell their story. The film also shows Jack Ma in a gloomy light, and points out that the SEC launched an investigation into Alibaba in 2016. However, they don't come out and say that Alibaba is a fraud.

Overall, watch it you are bored, preferably for free. Small factoid, the film was funded in part by Mark Cuban.

joeblow
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Re: China Hustle Movie

Post by joeblow » Mon Apr 16, 2018 12:18 am

Went to watch it on Amazon Video. $6.99 to rent. I passed on the hustle. Anywhere I can watch for free?

golfCaddy
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Re: China Hustle Movie

Post by golfCaddy » Mon Apr 16, 2018 12:20 am

arcticpineapplecorp. wrote:
Mon Apr 02, 2018 6:50 pm
Just heard an interview on motley fool money from last week here with the director of the movie I believe:

https://www.fool.com/podcasts/motley-fo ... na-hustle/

The takeaway seemed to be that the "shorts" straightened everything out in the end, which is what short-sellers do, isn't it? So if there's a fraud, we can assume it will eventually be found out and the market will correct itself. It's a self correcting system over time isn't it?
There are stringent restrictions on short selling in China's mainland stock markets.

noraz123
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Re: China Hustle Movie

Post by noraz123 » Mon Apr 16, 2018 2:34 am

Thanks for posting, I will be watching this later this week!

This hits home for me. In 2010, I helped a friend from business school who ran an Emerging Markets fund at a mid-size money manager launch his own emerging markets hedge fund. It was a quant-oriented fund, and the fraud in these reverse merger companies led to his closing shop within less than two years.

Since it was difficult to invest in Chinese companies directly (A-shares), he was heavily invested in stocks listed in Hong Kong as well as these US-listed, reverse merger stocks. For the latter, my friend only invested in firms that their audits conducted by Big 4 firms. Unfortunately, even Big 4 audited companies were corrupt. The two I remember were China Media Express and Longtop Financial, which were audited by Deloitte Touche (https://www.forbes.com/sites/richardpea ... 42bf4e13c9)

Because these firms were cooking the books, they looked very attractive to my friend's quant models. Because they were audited by a Big 4 (Deloitte), he mostly trusted the numbers. And because he wanted to be overweight China, and was limited to where he could invest, he was heavily invested in these reverse merger, US-listed companies.

Once the scandals hit, some of these companies went belly up and the rest tanked, even if they were possibly legitimate. At that point, his fund was down over 30%. As a new fund starting out, he was never going to attract institutional investors, no matter how well rebounded. And that was the end of the firm.

I had invested quite a bit of money in his fund. He was super smart, and had a very successful track record of quant investing in Emerging Markets. :oops: It wasn't too long after that I became a Boglehead. :sharebeer
Last edited by noraz123 on Mon Apr 16, 2018 2:13 pm, edited 1 time in total.

Valuethinker
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Re: China Hustle Movie

Post by Valuethinker » Mon Apr 16, 2018 2:48 am

golfCaddy wrote:
Mon Apr 16, 2018 12:20 am
arcticpineapplecorp. wrote:
Mon Apr 02, 2018 6:50 pm
Just heard an interview on motley fool money from last week here with the director of the movie I believe:

https://www.fool.com/podcasts/motley-fo ... na-hustle/

The takeaway seemed to be that the "shorts" straightened everything out in the end, which is what short-sellers do, isn't it? So if there's a fraud, we can assume it will eventually be found out and the market will correct itself. It's a self correcting system over time isn't it?
There are stringent restrictions on short selling in China's mainland stock markets.
That is indeed a key point.

(I should stress I am not a specialist in this area-- this is my "big picture" summary of what I have read).

Jim Chanos et al have found it difficult to short China. Done so via, for example, raw materials producers in western markets.

There is a lot about China that looks like every asset bubble we have ever seen-- albeit at maybe 5x the scale. There was no easy way to take a position against that.

In previous banking "crises" the Chinese have traded out of it. If you have a massive Non Performing Loan problem, but your economy is growing at 10% pa then the problem becomes a lot smaller in 3-4 years.

This time, the scale of the problem is so huge that it's hard to see them just trading out of it. And their economy is likely to grow at 5% a year not 10%. In response to the 2008-9 Crisis in developed countries and the entire global economy tipping into recession, China unleashed the largest investment boom in world history- -rivalling that of the USA in 1939-45. Kind of like building a European scale High Speed Railway network in 10 years, plus an Interstate Highway System in 10 years, plus throw in the Apollo Space Program.

With that background, a private sector construction boom also took place. This is the source of all the problem loans. Apartment complexes built that are not tenanted. China has slow population growth and the movement from rural to urban is probably just about done, at least for the moment. So who is going to live in these apartments?

What China now looks like in some places is what the Midwest "rust belt" looked like in the 1980s. You have all this capital intensive heavy industry in steel, aluminium, coal etc, and many of these companies (often State Owned Enterprises or partly SOE) are just economically not viable.

The internal adjustments will be wrenching.

One has to be optimistic that the Chinese will get through this. They always have in the past-- the speed of change in China is blinding. But they appear to have a Japan-like problem with overbuilding.

But in the meantime, risk all over the place. And the flood of private Chinese savings has buoyed property markets all over the world-- London and NYC for sure but also Vancouver, Toronto, Melbourne, Sydney, Auckland, (Hong Kong). All of those markets look hugely overvalued and the effect as they fall on the national economies could be very unpleasant. And it could be big enough to affect the world economy.

There seems to be a big risk point for the world economy. The interlinkage between property markets, Chinese investors and international financial institutions.

wolf359
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Re: China Hustle Movie

Post by wolf359 » Tue Apr 17, 2018 9:59 am

I heard the podcast on Stacking Benjamins, and began checking it out to find out more. I found this discussion on Bogleheads. I have not yet seen the movie, but I did find the PDF released by the producers that backed up the movie. It is located here: http://stopthechinahustle.org/PDFs/Chin ... ebsite.pdf

There are some fundamental misunderstandings in this Bogleheads discussion if I am interpreting the data correctly.

1) This isn't a Chinese problem in the China capital markets, that hopefully the Chinese will sort out. The Chinese are conducting reverse buy-outs of US companies that are already listed on the US exchanges, then getting funding there. Remember when Burger King did a reverse buy-out of a Canadian company, then claimed to be under Canadian ownership to avoid taxes? It's a similar maneuver, except the Chinese are doing this to us, to access US capital markets without meeting the listing standards. This is a US problem that Chinese fraudsters are causing. The Chinese government is not cooperating to solve it.

2) This DOES affect US market index funds, assuming you own Vanguard US Total Stock Market. It has targeted companies listed on all American Exchanges. The PDF lists over 21 companies affected so far, and over $5 billion in losses suffered by investors. If you own an index fund, that is probably YOU.

3) The shorts referred to in the film is the action of shorts in the US market. After a fraud is discovered, short sellers move in and expose it. The market mechanism is resolving the issue, but since nothing prevents it in the first place, the losses are continuing and piling up. The people behind the film are trying to raise awareness to get action taken. We can't change Chinese laws (Defrauding US investors is legal in China. Free speech is not. Doing due diligence on the Chinese companies has resulted in jail time for some of the researchers, according to the film.) However, the issue is ongoing and they want to change laws, enforcement actions, and stop the problem. (I'm not discussing the merits of the argument, just that they're making it.)

Quotes from the PDF:
ABC News has reported more than 100 China-based companies had been de-listed, left the NASDAQ or NYSE, been denied listing or withdrawn listing applications. In its report, Securities and Exchange Commission (SEC) Chairman Mary Schapiro told ABC News that the Chinese government was not cooperating with U.S. efforts to stop the instances of fraud and accounting irregularities.
We support the efforts of the SEC but we need action today. Investors large and small are being hurt financially by the actions of these companies.
One of the ways the fraud was detected was that some of the companies would report would lie to the US regulators (SEC) but not to Chinese regulators (SAIC). The Chinese government "solved" this problem by restricting foreign access to SAIC filings, so there is no longer a discrepancy.
China-based companies listed on U.S. exchanges must file financial reports with the Securities and Exchange Commission (SEC). These companies also file reports with the State Administration for Industry and Commerce (SAIC) in China. Our research has uncovered numerous instances where the SEC filing differed greatly from the SAIC filing. However, the government of China has restricted access to SAIC filings and they are no longer available for review. Access to SAIC reports was cut off in 2012. SAIC filings should be as accessible to investors as SEC filings. Only then, will transparency have a chance of being realized.

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shmidds
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Re: China Hustle Movie

Post by shmidds » Tue Apr 17, 2018 11:42 am

Kung Fu Hustle was funnier.

alex_686
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Re: China Hustle Movie

Post by alex_686 » Tue Apr 17, 2018 11:50 am

China reminds me of the railroad business in the US and UK during the 1880s.

Some were solid ventures. Sometimes their prices were manipulated by speculators, operators, insiders, and con-men. Others were speculative. Sometimes they were a daring speculative venture, sometimes with a solid plan, other time just a hope and prayer. Others were outright frauds.

China is a interesting market. I would not paint it with a broad brush.

inbox788
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Re: China Hustle Movie

Post by inbox788 » Tue Apr 17, 2018 12:51 pm

JoMoney wrote:
Tue Apr 03, 2018 11:20 am
With regard to this specific situation, despite being listed on US exchanges, none of these companies would qualify to be in a US market index fund. Among the advantages of getting foreign exposure through a domestic companies investment in a foreign area is there is at least some possibility of legal recourse if domestic companies are caught cooking their books and corporate officers signing their names to it.
US people can't legally even own Chinese companies and have no recourse to go back to. The situation presented here had the investment banks, accountants/auditors, claiming all the paperwork they saw was up to snuff with the required standards and had no reason to believe they were being lied to by the Chinese companies.. pay a fine... move on.
In the film, it's suggested that this scheme was to savvy to be cooked up by the Chinese businesses and reeks of US Investment Banks with knowledge of how the system works.
It's a hurdle to qualify to be in a US market index fund, but some active funds might participate and if they take too large a position in a fraudulent company. The scale of one of teaser ads is 20-50B, which is quite a bit, but that's less than if Alibaba went bankrupt. Besides MSCI, what other indices is Alibaba going to affect? https://www.reuters.com/article/us-msci ... RF20151112

Now a real coup for these fraudsters would be to start with a listed company already on an index, but even a small cap would probably be larger than necessary, and I don't see what they'd gain by the extra scrutiny.

The crypto bubble is a bigger worry for me. And companies unrelated to crypto, but adding crypto sounding names to their business are artificially blowing up their valuations. It's a bubble inside a bubble.
https://www.reuters.com/article/us-cryp ... SKBN1EG1UE

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LadyGeek
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Re: China Hustle Movie

Post by LadyGeek » Tue Apr 17, 2018 4:01 pm

Discussions of dishonest behavior or bypassing the law is totally unacceptable. I removed a post and reply which linked to a video streaming sharing site which violates the movie's terms of service.

Separately, please stay focused on the investing aspects.
Wiki To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.

boglerdude
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Re: China Hustle Movie

Post by boglerdude » Fri Apr 20, 2018 1:32 am

Is this movie an argument for not tilting small. Easier to commit fraud...
Last edited by boglerdude on Fri Apr 20, 2018 2:09 am, edited 1 time in total.

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JoMoney
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Re: China Hustle Movie

Post by JoMoney » Fri Apr 20, 2018 2:04 am

boglerdude wrote:
Fri Apr 20, 2018 1:32 am
Is this move an argument for not tilting small. Easier to commit fraud...
I think so, but the counter-argument is that the risks are known and a "premium" is priced in to the risks of small stocks.
The risks are very apparent, I don't find the "premium" to be.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

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Re: China Hustle Movie

Post by HongKonger » Fri Apr 20, 2018 2:14 am

I watched this and sniggered all the way through - sorry.
I was amazed that the behaviour of the Chinese firms was met with such shock and incredulity in such recent years when it has been this way for decades.
I moved to Hong Kong in 2000 and tales of Mainland firms with offices on the 7th floor of 6 storey buildings were the joke at dinner parties - I even once met a 'due diligence' guy who wore body armour, had a security detail and travelled around the Mainland in a bullet proof car checking companies out (his stories were a hoot!).

But seriously - if anyone is into their data and charts about *ahem* 'accounting discrepancies', then the 2017 Financial Stability Board's (FSB)"Global Shadow Banking Monitoring Report" (which I haven't seen mentioned on the forums) makes for interesting reading.
http://www.fsb.org/wp-content/uploads/P050318-1.pdf

Tanelorn
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Re: China Hustle Movie

Post by Tanelorn » Thu Jul 26, 2018 10:10 am

inbox788 wrote:
Tue Apr 17, 2018 12:51 pm
It's a hurdle to qualify to be in a US market index fund
Not really. Small cap indexes buy stocks starting as low as $150M in total valuation. That’s not too much, especially if the company gives lots of shares to the insiders and then lies about the float. These index providers aren’t doing any due diligence and are just trusting the SEC filings from the company, and the SEC basically trusts the company when they file stuff. Maybe years later they’ll get mad at them, but when the CEO is in China and so is most of the shareholders money, good luck with that.

garlandwhizzer
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Re: China Hustle Movie

Post by garlandwhizzer » Thu Jul 26, 2018 2:15 pm

I believe that it is entirely clear that there are greater risks to investing in China or EM in general than in DM and especially in the US which has for decades offered for the best equity risk/reward tradeoff in the world IMO. That fact is however reflected in the relative valuation differences between equity in those divergent markets, or at least the market's perception of that. Whether that favorable risk/reward position of the US will persist over the next decade or two is IMO unknown at present. In general taking more equity risk is associated with increased long term return for those with strong stomachs who hold these positions during the inevitable periodic collapses. China and EM investing is not for everybody, but it is appropriate IMO for non-risk averse investors seeking long term outperformance relative to a US-only based equity.

It is also important to recognize that black swans by definition appear from where you do not expect them. The financial collapse of 2007-9, which in its depths threatened to collapse the entire world financial system, arose not in China but in the good old USA. None of the numerous short-selling hedge fund geniuses except Michael Burry saw it coming. Nor did the numerous brilliant investment gurus who study the markets constantly. Black Swans can arise right in your backyard and go unnoticed by the wisest among us.

I don't know whether The China Hustle Movie portends a future collapse in China or not. Market perception of increased risk in China and EM is pervasive among investors now. The market prices it in at present as reflected by the stark difference in equity valuations relative to the US. Whether the market reflects it accurately is not something I know with certainty. I hold EM because I believe in the long run they will outperform, but I could be wrong. Time will tell whether The China Hustle is an timely oracle or another Chicken Little screaming that the sky is falling.

Garland Whizzer

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