Stephen Clapham and Kyle Bass: Accounting Schemes at Chinese Tech Giants

Published on
November 24th, 2020
Duration
44 minutes

Stephen Clapham and Kyle Bass: Accounting Schemes at Chinese Tech Giants

The Kyle Bass Interviews ·
Featuring Stephen Clapham

Published on: November 24th, 2020 • Duration: 44 minutes

Hayman Capital's founder and CIO Kyle Bass welcomes forensic accountant and Behind the Balance Sheet's founder Stephen Clapham to break down the accounting irregularities peppered throughout the regulatory filings of China’s biggest tech companies. Sharing insights from his proprietary research report on Alibaba, Baidu, JD.com, Meituan Dianping, and Tencent, Clapham shines a light on the ways these companies are using loopholes in order to inflate profits, hide liabilities, and mask the capitalization of questionable assets. Bass frames Clapham's findings through the lens of notable balance sheet disasters and downright frauds, and they explore the jurisdictional risk of investing in Chinese companies in general. Lastly, Bass asks Clapham about his latest book, "The Smart Money Method: How to Pick Stocks Like A Hedge Fund Pro". Filmed on November 18, 2020. Key Learnings: Hidden risks lurk within corporate balance sheets, even those of the world’s largest tech companies. Stephen Clapham and Kyle Bass show viewers how to spot those risks before they can inflict major damage to your portfolio.

Comments

Transcript

  • DJ
    D J.
    7 December 2020 @ 18:55
    Why are people so surprised, GAAP securities “held for trading” are also recorded in p&l and recorded in the income statement when realized and subsequent revaluations of “held for sale securities “are also revalued in other comprehensive income and when sold realized in p&l.
  • BM
    Brent M.
    1 December 2020 @ 22:11
    Does anyone know where we can get a copy of his report on the 4 companies to read for ourselves?
    • PB
      Patrick B.
      4 December 2020 @ 23:39
      Google it mate. Very easy to find
  • ND
    Nicole D.
    27 November 2020 @ 20:48
    More China bashing. Are we expected to believe that China with the largest population (1.5 billion) and the second strongest economy in the world will not have successful and profitable online shopping and pay companies? That makes no sense at all. Of course Alibaba and Tencent will be successful and profitable. I think RV wants to point us away from China and perhaps toward......India? Hmm, wonder why?
    • BT
      B T.
      28 November 2020 @ 06:36
      Wrong take. China will of course do as you stated. You may have not listened to the show as that wasn't in question. What is a problem is the egregious treatment of shareholders and absolute obtuse accounting. As well as many questionable practices.
    • JC
      Jason C.
      29 November 2020 @ 00:57
      Are we expected to believe that the Almighty Chinese are so morally superior that they are unable to commit the kind of fraud that Enron and other American companies committed?
    • MS
      Michael S.
      29 November 2020 @ 04:20
      Nice straw man, Jason. But it's not an argument. As RV gets more viewers, the quality of comments has gone down?
    • DD
      Daniel D.
      4 December 2020 @ 22:53
      The U. S. was no better in it's early days of capitalism. Jay Gould, John D. Rockefeller and similar types, no regulation, literally the wild west. Why does this seem so unusual to the most hypocritical nation in history (the only one to actually use a nuclear bomb). I don't love China but, is this all Bass has to talk about? This is getting old.
  • DM
    David M.
    3 December 2020 @ 15:18
    I would like to see more analysis of Alibaba's investments since many of their investments are actually in public markets. Stephen was right that about the hit rate, as many of these investments are actually losing money. However, I think these losses are already taken into account. It will be a big surprise to me that Alibaba can hide losses from investing in public companies. In terms of the audit fees, I have some different opinions. The majority of Alibaba's business is in China, while Morgan Stanley operates globally. Thus. the level of audit complexity is different and may incur high costs for Morgan Stanley. In addition, my guess is the auditing staff for Alibaba would be based in China, which is cheaper than the U.S. This is not an apple to apple comparison. Thus, simply implying Alibaba's accounting quality is poor due to low auditing fees is not a strong argument.
  • SH
    Stephen H.
    2 December 2020 @ 05:27
    Great interview and superb content.
  • LB
    Lorenzo B.
    1 December 2020 @ 11:13
    a $100bn hole in balance Sheet becomes a rounding error when BS is leveraged up by the Trillions In 5 Years we'll be here discussing how to dilute a $50Tr BS hole in whatever Gazilions needed we're entering a fractal-like form of financialized capitalism Insane
  • AC
    Andrew C.
    1 December 2020 @ 02:55
    Would be useful to have a fact pack to walk through for such a contentious issue. Many of the greatest hedge funds and mutual funds in the US hold these large Chinese Tech Giants and seemingly don’t have an issue with them. Obviously the Luckin Coffee fiasco has brought this to a head again
  • MC
    Mark C.
    29 November 2020 @ 22:41
    Thank you.
  • EF
    Edward F.
    29 November 2020 @ 18:41
    Kyle Bass is always a charismatic guest and a pleasure to listen to. One of the few who takes pride in swimming against the prevailing narratives - having done the research
  • JC
    Jason C.
    29 November 2020 @ 00:20
    Et tu, Account Standards?
    • JC
      Jason C.
      29 November 2020 @ 00:21
      Et tu, Accounting* Standards?
  • MB
    Matthias B.
    27 November 2020 @ 11:43
    great conversation indeed although a bit too much China bashing. The perceived role model, ie US, is not doing any better at all although it loves to point fingers. Why? It is not just an auditors fault but rather a system failure because financial interests have become so vast. Look no further than the latest JPM settlement in precious metals. It did not even take forensic knowledge to realize that something very odd was going on for years and it was obvious for insiders to see but be it CFTC, CME, DoJ they all turned a blind eye on it even when provided with impeccable information about it and happily settled for the cheap. JPM was involved in so many "issues" it was happy to settle but has any of the higher management people made responsible for it? It is like a disease spreading through the system and benefits a certain group of actors with very deep pockets hence change is fought so vigorously or lobbied against.
    • CD
      Christopher D.
      28 November 2020 @ 23:56
      What does 'China bashing' mean? That a rational, argumented critique can't be levelled at a country of such global relevance? That, to me, looks most dangerous. I thank people who do the work no one else does and share their analysis. Then I look at the details and see if i agree with them or if they were wrong. Anything else is encouraging ignorance
  • dm
    dude m.
    28 November 2020 @ 20:09
    Great interview and perhaps the first time I've seen an interviewer look into the camera while posing questions and listening. It definitely draws in the audience as a participant. I've seen many interviews by Mr. Bass and this is the first I've seen him do that. And hopefully not the last! Thank you RV for allowing this topic to be discussed, by two awesome dudes.
  • WG
    William G.
    27 November 2020 @ 04:34
    Kyle is great. I like that he refuses to turn a blind eye. Says a lot about his character
    • DW
      Daniel W.
      27 November 2020 @ 06:23
      What exactly do you mean? My impression is that he has become blind with his China bashing. He has been consistently wrong for years with his China "analysis". Have a look at his former videos here at RV.
    • ar
      andrew r.
      27 November 2020 @ 18:04
      Daniel, that's a fair critique of Kyle's Yuan and HK$ calls (so far), but I think William's point stands. That is, so many investors are just turning a blind eye to fraud because, for the moment, Chinese stocks have momentum and everyone's making money. Devil take the hindmost, as it were.
    • WC
      Wilson C.
      28 November 2020 @ 12:34
      Kyle's been wrong for awhile, we have short memories (prior to China, he bet against Japan/Yen, bug in search of a windshield). He tends to talk up his book.
  • JT
    John T.
    27 November 2020 @ 18:01
    Kind of scary what's going on. The firm's that pay the most attention to these documents are usually short funds - which have been killed by the fed put - and distressed debt investors - which dont look until the distress hits. You can't pay attention to 10k's and remain competitive for capital in the market environment of the last 10 years - passive investment funds in particular will eat your lunch.
  • PB
    Patrick B.
    24 November 2020 @ 07:24
    Phenomenal interview and content. Nearly every EM and AxJ fund I know holds at least one of the big 4-5 Chinese internet companies. Some have more recently finally caved in like Aberdeen, Colonial First State, and Walter Scott (shameful for Scottish fund managers). I'm sure some in the industry aware of the risks, but probably not enough. I'd challenge those PMs and analysts to ask the questions Kyle asks about reconciling these holdings with being true fiduciaries...
    • SB
      Shaan B.
      24 November 2020 @ 19:01
      Didn't know that! Scottish Mortgage Investment Trust owns Ant Financial also - not sure if it is via ADR though
    • PB
      Patrick B.
      24 November 2020 @ 19:19
      Shaan B - Ant Financial isn't listed - do you mean they own Alibaba?
    • SC
      Stephen C. | Contributor
      27 November 2020 @ 15:28
      thanks Patrick - the Scots are indeed fine fund managers :)
    • SC
      Stephen C. | Contributor
      27 November 2020 @ 15:29
      Scottish Mortgage holds some unlisted stocks - as an investment trust it's a closed end fund so is not in danger of redemptions
  • AK
    Ado K.
    24 November 2020 @ 08:07
    I work as an authorized public auditor. The criticism that Stephen brings forward against the accounting standard is spot on. The idea that value appreciations (that in many situations can be subjective) are ran right through the income statement creates the ability for what I call FF (financial fuckery). This is used so heavily today that we are approaching levels where the financial statements themselves are starting to loose some credibility. I have always been floored by the fact that many hedge funds and investments funds do not have an in house auditor present to help them break down the numbers. A true honor to watch this interview, with these two brilliant gentlemen, and a big thanks to Stephen for adding some much needed credibility to our profession.
    • SC
      Stephen C. | Contributor
      27 November 2020 @ 15:26
      hey Ado, thanks for these kind words. Tell all your accountant friends to push for simpler standards - the accounts are becoming super complex and I think it will reflect badly on our profession
  • PB
    Pieter B.
    24 November 2020 @ 08:39
    This was very interesting! Thanks a lot!
    • SC
      Stephen C. | Contributor
      27 November 2020 @ 15:25
      hey Pieter, great you enjoyed it
  • JN
    Jack N.
    24 November 2020 @ 15:06
    numbers matters still...in fact more than ever...and the one number that is changing constantly (expanding) is the measuring stick, or numeraire. All the numbers makes sense when money printing has gone insane.
    • SC
      Stephen C. | Contributor
      27 November 2020 @ 15:24
      good point Jack
  • gj
    gail j.
    24 November 2020 @ 15:10
    Excellent interview with buckets of useful information. I have long refused to invest in companies located in countries where I do not clearly understand/ have confidence in the legal system both in construction and implementation. Now I get just how much I've missed by not focusing more on the accounting 'behind the curtain.'
    • SC
      Stephen C. | Contributor
      27 November 2020 @ 15:24
      it's never too late to start - loads of free trai8nig materials if you sign up on my website behindthebalancesheet.com
  • BG
    Bryce G.
    24 November 2020 @ 15:57
    Loved every minute of this one. It does seem ridiculous, doesn't it? All these things happening in China right in front of everyone's eyes, investing and otherwise.
    • SC
      Stephen C. | Contributor
      27 November 2020 @ 15:23
      thanks Bryce, so glad you enjoyed it
  • VP
    Veselin P.
    24 November 2020 @ 16:24
    Wish the guess had shared more findings or insights from his work on these Chineae giants, so that we can decide whether Mr. Bass' topline conclusions are substantiated. Still, it's an important topic and am glad it was brought to our attention. P.S. That book title ... :D
    • SC
      Stephen C. | Contributor
      27 November 2020 @ 15:22
      I hope we shed a little light on it without giving away all the secrets of the report (I would like to sell some more!) and without getting into the inevitable technicalities, of which there are a few
    • SC
      Stephen C. | Contributor
      27 November 2020 @ 15:23
      the British hate the book title, especially my institutional clients. But I am too embarrassed to tell you the working title. NOBODY would have bought the book
  • SM
    Shawn M.
    24 November 2020 @ 16:25
    Please fix the Casting For your videos.
    • SC
      Stephen C. | Contributor
      27 November 2020 @ 15:20
      Casting? You want a better looking interviewer or interviewee?
  • TP
    Timothy P.
    24 November 2020 @ 18:24
    Kyle's pragmatic and data-driven view of China is spot-on. He's quite right when he says the incentives to view Chinese businesses critically are misaligned -- most supporters here on RV of course, are busy enriching themselves instead of focusing on the bigger picture. When ANT Financial claims transaction volumes multiples of China's GDP, its probably a good "tell" that they are cheating scumbags. I have my own personal experience with Chinese business, and frankly it isn't good. There's a saying in Chinese society -- "If you can cheat, then cheat." This reflects itself in myriad of ways, from the stories of counterfeit baby formula killing children to fake medicines causing illness to even bootleg beer being bottled in recovered Heineken packaging. For instance, I've had Q&A's with one CEO of a former crypto exchange in China, and he point-blank informed me that every competitor (including himself) used wash trades to inflate their volumes. Bots, usually, were instructed to bounce amounts between each other so they could report high volumes to potential investors. That is just the tiny tip of the cheating iceberg. From China's economic numbers to individual businesses actively trying to stab each other in the back with inflated figures, its very hard to trust a single thing that comes out of that totalitarian monolith. But naturally, Kyle is correct when he says that people won't care until the tide goes out -- and I actively look forward to all the willing fools learning their lesson all at once. Great interview - wish the bar was as high for the others on this service.
    • SC
      Stephen C. | Contributor
      27 November 2020 @ 15:19
      thanks for those kind words
  • JD
    Jonathan D.
    24 November 2020 @ 18:33
    The central thesis misses the big picture. China has fully embraced the Japanese/Korean/Taiwanese state-sponsored export model. China has a lot more people and these other countries, combined with the basic cultural ingredients that made these countries successful. The sooner the west gets that the better. Western science and engineering graduate schools are full of Chinese students. You may not like the government, but they are competent and have a long term vision. The idea these companies are a house of cards propped up by accounting tricks is flat out wrong. 100% they will be some of the largest companies in the world based on market cap and will be leading innovators on the technologies that matter well into the 21st century. Anyone who wants to take the opposite side of that bet be my guest. With that said, I would never invest in these companies because the danger of delisting is so great due to geopolitical issues and I agree there is zero recourse for a western investor on those assets, but this has nothing to do with "accounting schemes." It is unbelievable to me that someone can follow the shenanigans in the US markets right now and call out China for running a confidence game.
    • JD
      Jimmy D.
      25 November 2020 @ 01:28
      Come on. There's a reason so many Chinese banks are offered OTC in US. Many Chinese companies can never fully open their books to a real, objective Western auditor. The bet you take investing in Chinese SOEs, banks, and many companies is, will the West ever actually make the CCP open their books? I'm betting the west will never shine light on China's accounting standards to be honest. There is too much money to be made
    • SC
      Stephen C. | Contributor
      27 November 2020 @ 15:19
      we haven't started on the US shenanigans - watch this sapce
  • SB
    Sunil B. | Contributor
    27 November 2020 @ 06:00
    This is a great conversation and learnt a lot. Three takeaways for me The section on how little fundamental analysts have time or inclination to download annual reports says volumes. A lot has to do with how most invest (indexation) and following what others are doing. The VIE or similar structures are like European option with a knockout. The knockout being decided by the regulator or issuer of underlying. Most previous frauds or exaggeration on incomes had good products (Worldcom, Global crossing). Just because we can use them does not mean they are priced correctly.
  • DY
    Damian Y.
    26 November 2020 @ 01:55
    I always like to listen to Kyle, he's down to earth, a straight shooter and he tells you like it is. Thanks for the interview.
    • TW
      Tom W.
      26 November 2020 @ 20:22
      Oh boy yeh especially when he, around minute 32, was the straight shooter. ....and there Stephen ... well, he would fail his own audit. Good on you Kyle. Kyle, for the sake of the interview, moved on.
  • DR
    David R.
    25 November 2020 @ 13:11
    Always remember that in March 2009, in the most egregious violation of auditing independence ever, the US Congress systematically ordered FASB - with a metaphorical gun to its head - to break globally & generally accepted accounting procedures, that had been in place in all the investable world since the 1800s, specifically mark-to-market accounting, one of the most fundamental tenets of accounting principles worldwide. Otherwise, Congrress threatened to break and de-certify FASB. This business travesty has remained in-place in US forever, rendering US financial reports useless at best or outright misleading, similar to how QE has become a permanent US feature and now so apparently is massive Weimar-style US debt monetization that's gathering pace... A banana republic on steroids, getting away with it somewhat by virtue of being reserve currency (tho probably not for much longer!). Accordingly, US processes and standards are arguably amongst the worst in the world today. Better to fix your own glass house first rather than throw bricks at others, whether on-point or not (some others argue "not", such as Gavekal Resarch who last year took issue with KB's calls about HK and China, correctly with the benefit now of hindsight).
    • FL
      Fabrizio L.
      26 November 2020 @ 18:10
      David completely agree with you, the video of Mike Green and Jim Chanos thoughtfully titled "the golden age of fraud" is a testimony to what you are saying! While the topics discussed in this STEPHEN CLAPHAM interview are great they are falsely depicting the US and western market as a safer option... wire card anyone? wework anyone...! corporate governance, auditing, regulators etc all a big joke!
    • DR
      David R.
      26 November 2020 @ 20:14
      @Fabrizio. Thanks for your thoughtful feedback. As I haven't watched the Chanos-Green video because I cannot watch/read everything of interest here plus elsewhere. But it sounds intriguing and on-point and ofc with a pair of superb speakers. Thanks again for the tip.
  • SP
    Sat P.
    26 November 2020 @ 10:35
    Kyle has been right on point with the problems caused by China. The reason why most people don’t care is because the masses continue to get their cheap electronics and other comforts through cheap Chinese labour. Politicians don’t want to mess with that formula because the public will want their heads on a stick once the ‘good times’ stop. Keep fighting Kyle!
  • WC
    Wilson C.
    25 November 2020 @ 01:16
    If you take away Kyle's anti-China bias away, the interview is a great tell on how wall street/money hungry CEO's have made accounting standards moot. IMHO Stephen Clapham was careful to say it's not so much chinese companies are committing fraud as they are playing within the accounting rules (same as US/European "smart" companies). You'll always get bad apples but saying it's fraud on a grand scale is a bit much (fraud is everywhere, re: wirecard, enron, nikola motor?, luckin, sinoforest). The bigger picture: the erosion of accounting/financial standards is happening on a global scale, just in different forms. Kyle/Stephen laments the chinese accounting shenanigans, US does non-GAAP (why is this even allowed is beyond me). Jack Ma takes controlling interest/51% of ANT, Zuckerberg et al owns the company via dual ownership structures. Same same. I feel confident in investing in chinese companies because if they really cross the line, they get kneecapped hard ie ANT, thrown in jail or shot... with all the US company shenanigans during any crisis, no one has been jailed... no punishment, no fear thus rampant uncontrolled money grab.
    • SC
      Stephen C. | Contributor
      25 November 2020 @ 09:13
      interesting take Wilson, thanks. Kyle's final message, not to ignore the accounting, is a really important one, in my view
    • NE
      Nathan E.
      25 November 2020 @ 10:11
      Good points of Zuckerberg and non-GAAP. I agree the real takeaway is the erosion of financial / accounting standards. And Kyle was probably spot on in asserting that most everyone will play along until the music stops...
    • DR
      David R.
      25 November 2020 @ 12:33
      Never forget that in March 2009, the US Congress systematically ordered FASB - with a metaphorical gun to its head - to break generally & globallly accepted accounting procedures, that had been in place in all the investable world since the 1800s, Or else FASB would be decertified and broken. This travesty has remained in-plade forever, just as QE is a permanent US feature and now so is massive Weimar-style US debt monetization that's gathering pace... A banana republic on steroids, somewhat getting away for it by virtue of being reserve currency (tho probably not much longer!). Accordingly, US processes and standards are arguably amongst the worst in the world today. Fix your own glass house first rather than just throwing bricks at others, whether on-point or not
    • TP
      Timothy P.
      25 November 2020 @ 16:01
      I'd love to understand why any opposition to the totalitarian govt of China is "anti china bias". Why are RV commenters so adamant about giving China a "pass" for their reprehensible fiduciary and human rights violations? Is it because you're talking your book and don't want to see those govt propped stocks get popped?
    • MS
      Michael S.
      26 November 2020 @ 04:31
      I used to really love Kyle, but now it seems Kyle's a racist polemic. He's been railing again the profligate "slant eyed" people for the last 10-15 years (all bad trades) and now he's just talking about how they are not economically bad but how they are intrinsically evil. His BS Texas Steve Bannon argument that it's the CCP is just because it didn't work with those "Japs" is pathetic.
  • DR
    David R.
    25 November 2020 @ 12:51
    KB in part IMO smacks again of engaging in yet more propaganda in this piece at times. Some ppl say he's a CIA agent and thus, for example, had advance knowledge of the US failed attempt at a colour revolution in HK China last year, which began mere weeks after he went loudly public with "the trade" (long USD/HKD based on the expectation that the "peg" would soon break). Twenty months later, maybe he's salty that his legendary "trade" failed spectacularly, and on the contrary, HK has in FACT been forced to intervene against persistent HKD/USD strength by buying tens-of-billions of USD to keep the USD propped up from a collapse and break of the peg in the opposite direction that KB and his followers bet on. They can thank HK and China for mitigating their trade losses. LOL.
    • AI
      Andras I.
      25 November 2020 @ 14:15
      I really despise what he's doing on Twitter and had his share of apalling interviews (Guo Wengui comes to mind) - but I have to defend Kyle on this: as an interviewer, he recently remains within professional boundaries and he can conduct an interesting conversation (Michael Pettis, this one...etc). Maybe even more so than some highly regarded contributors. I don't know if he's a CIA agent - HK was boiling for years and there were so many shorting the HKD peg. He just happened to be one of the louder ones.
    • TP
      Timothy P.
      25 November 2020 @ 16:08
      @Andras -- Miles Guo has been correct about many things in the Kyle Bass interview. Reprehensible? How? Calling out a totalitarian govt for money laundering, killing and disappearing people, etc? Look at what happened to Doctor Li in Wuhan -- they ignored his warnings, then took him into interrogation and he later died of the disease. The problem isn't China itself, its the CCP and the gangsters that run the place. As far as the HDK peg -- willing fools like yourself that give the government there your dollars in investment are one of the forces enabling their continuation of the charade. How proud you must be.
    • DR
      David R.
      26 November 2020 @ 02:45
      @Andras - Your points are well taken and I agree with your entire, thoughtful comment. Yes, the KB-Pettis interview was surprisingly very interesting, and ofc IDK if Mr Bass associates with NED or CIA as some speculated based partly on the timing of events and his trade. For the issue of the USD, there are by necessity two sides to every trade, and the quieter short-USD side won. In this case, transferring some wealth from some long-USD Americans hoodwinked by propaganda to some enlightened Asians who were on the other side of the dollar trade.
  • CM
    Cory M.
    26 November 2020 @ 00:39
    I do love being on the viewing side of anything with Mr. Kyle Bass in it! I don't always agree with his views, but I always learn something from his genius. Thanks for the time as always!
  • TS
    Theodoros S.
    25 November 2020 @ 21:57
    So is it better if instead of buying Alibaba as an ADR or from Honk Kong stock exchange insted!?
  • JM
    Justin M.
    25 November 2020 @ 04:44
    This interview would have been a lot better if Kyle let his interviewee explain the accounting schemes without overly injecting his bias.
    • TP
      Timothy P.
      25 November 2020 @ 16:05
      Translation "I don't want any truth about China to pop my portfolio heavy with chinese scam stocks."
    • JM
      Justin M.
      25 November 2020 @ 19:45
      Opposite. I wanted to hear more about the schemes. We didn't hear anything about BIDU, JD, MEIT, or Tencent.
  • JJ
    John J.
    25 November 2020 @ 17:05
    Outstanding interview! I want to read the book!
    • JF
      Jack F. | Real Vision
      25 November 2020 @ 17:36
      You should, I read it and it’s very good
  • MR
    Michael R.
    25 November 2020 @ 11:11
    Love KB, in a world without “Rule of Law” or “Fiduciary Integrity” he always brings it back to the basics. What we do with our money says a lot about who we are as a society.
  • JB
    Jack B.
    25 November 2020 @ 10:21
    The stat about 5 Vision Funds being invested by the 5 big tech companies over 5 years was amazing
  • NE
    Nathan E.
    25 November 2020 @ 10:08
    This video had some great insights but was often difficult to listen to. While I've no doubt about Kyle's investing bonafides, at times he came across as condescending to Stephen and towards individual / retail investors (btw Kyle some of us little guys do read earnings reports and listen to the quarterly calls). His opinion was sometimes forced on Stephen, not really in a spirit of discussion but more of 'you're a fool if you don't see this the way I do.' This short circuited some opportunities to delve more into what Stephen was seeing - after all he is the one who just spent God knows how many hours dissecting the reports of these Chinese companies, maybe let him describe a bit more what HE saw in the process? Lastly I share many of Kyle's concerns and any investments I've made in Chinese companies have been with eyes wide open but his anti-China bias was glaring. For instance his segueway from the Enron, Worldcom etc. scandals here in the states that wiped out $550B of market cap (and countless shareholders) to fingering China as a hotbed of fraudsters was interesting...and he didn't even mention other shady US fraud debacles (the subprime mortgage crisis that triggered a global financial meltdown, the S&L crisis...I could go on but you probably get the point). The reality is greed is a human characteristic, one our American culture struggles with and the Chinese will no doubt struggle with as they become more prosperous. Kyle if anything we should feel flattered in their imitation as we basically invented the game over here.
  • AS
    Alex S.
    24 November 2020 @ 18:59
    love a bit of Kyle Bass
    • SC
      Stephen C. | Contributor
      25 November 2020 @ 09:23
      who doesn't? He is really an amazing presenter too and has an encyclopedia-like knowledge
  • AR
    Alexander R.
    24 November 2020 @ 19:10
    One of the problems is the fact that EEM and VWO both have 40% China exposure There is no anther way to invest in emergent markets through 401k So most Americans have really no choice You can ether buy VWO with all the above problems, or buy overvalued American market. We have much bigger fish to fry if we want to fix this problem
    • JD
      Jimmy D.
      25 November 2020 @ 01:15
      I notice compared to Chinese stocks, there are very few Vietnamese and Indian stocks offered by both my brokerages. Are all brokerages like this? It is a shame that there are so many unreputable Chinese companies listed while there are hardly any Vietnamese and Indian stocks for US customers. Why is it so easy to invest in China but not Vietnam, the most pro US country probably in the world?
    • SC
      Stephen C. | Contributor
      25 November 2020 @ 09:22
      there are a lot of global funds and a lot of individual country funds eg India which can be an alternative way of playing Asian growth. TO Jimmy's point, you need to be registered to own Indian stocks unless they have an ADR like ICICI etc
  • WM
    William M.
    24 November 2020 @ 21:17
    I've got to admit that over the past year, Kyle has gradually erased any enthusiasm I've ever had for investing in China. While I don't welcome a cold war with China, Kyle has made a strong case for being very wary...
    • RM
      Robert M.
      24 November 2020 @ 21:33
      He makes a good case, but he is talking his "book" somewhat. I use to enjoy Kyle's comments, but now I do filter them understanding his strong bias against China. He may be right in the end. But China has found a way to keep their enterprises afloat and growing due to the unique involvement of their government in the economy. The same can almost be said of the US economy and the government's increased involvement in keeping zombie companies afloat via the Fed and Treasury. Good points made today, but hard for investors to not look East for future growth.
    • SC
      Stephen C. | Contributor
      25 November 2020 @ 09:20
      You should definitely be wary, but that is my default mode for all investments!
  • RM
    Robert M.
    24 November 2020 @ 21:28
    Book is $1.99 on Kindle. No brainer. As far as BABA accounting, for years I have thought that all the misallocated capital into empty cities was going to bring down the Chinese economy and impact the global economy. Still hasn't happened. Same can be said of companies like Alibaba. Yet this is a market one wants to be invested in for future growth. Not sure the right answer, but investors long term will need an allocation to Asia over the next couple of decades.
    • SC
      Stephen C. | Contributor
      25 November 2020 @ 09:19
      Robert, hope you got the book as it was 1.99 for one day only! I agree that you should have an exposure to China and Asia more broadly, but it's not without risk.
  • DT
    David T.
    24 November 2020 @ 22:01
    If you've ever been on Alibaba's site, you would know that it's the worst platform you can build for its purpose. It's all hype and scam.
    • AI
      Andras I.
      24 November 2020 @ 22:51
      Alibaba.COM is the website for AliExpress, a tiny spec in the overall structure of Alibaba and indeed a crappy looking experience. I would recommend instead to look at the Taobao or Tmall apps if you want to see how e-commerce is done properly. Runs circles around Amazon in terms of balanced access for smaller retailers and availability of products. Also, I had to deal with banks all over the world (including banks in China) - Alipay is absolutely brilliant. Anything from one-off payments, bill payments at national providers, micro loans, investments....etc..all in a single app. I honestly would replace DBS (claimed one of the best banks in the world) with Alipay.
    • SC
      Stephen C. | Contributor
      25 November 2020 @ 09:17
      Really David? That's interesting, as I am told that the Chinese site is amazing - I dont know obviously
    • SC
      Stephen C. | Contributor
      25 November 2020 @ 09:18
      just saw Andras' response which is more in line with what my clients who own the stock tell me
  • AI
    Andras I.
    24 November 2020 @ 23:03
    A word of caution for those contemplating shorting any of this: while I made more than 2x on my China e-commerce longs since March (based on anecdotally looking out my window and see their real impact during lockdown), I failed to make real money on ANY of the 6 shorts I had. A lot of the (somewhat activist) short sellers (GMT, Muddy Waters, Grizzley, Wolfpack, Lemon) were super bearish on a few stocks, including GSX TechEdu (a component of KWEB) that I shorted 3 times during the year on their full conviction reports calling out similar accounting and reporting scams and got stopped out 3 times. It's hard when it goes from 10 to zero through 100 - real quick too. "Don't p*ss against the wind" - so they say. Example collection of reports - many others on the mentioned company's websites: https://www.gmtresearch.com/en/about-us/hall-of-shame/?offset=0&limit=20
    • SC
      Stephen C. | Contributor
      25 November 2020 @ 09:16
      totally agree Andras - shorting frauds is really difficult. John Hempton is the master, and even he lost money on Wirecard. One part of my old job I don't miss too much
  • JY
    John Y.
    25 November 2020 @ 00:11
    Kyle: "a long term trade is a short term trade gone wrong." the converse is: "a bubble is a bull market in which one has not participated." Very nice interview. much appreciated.
    • SC
      Stephen C. | Contributor
      25 November 2020 @ 09:14
      Glad you enjoyed it John. I like your definition of a bubble. Going to use that one!
  • ds
    durgesh s.
    25 November 2020 @ 06:29
    Fantastic stuff , really appreciate getting such diverse yet useful Guest and Having Practitioners as host , cant ask for more
    • SC
      Stephen C. | Contributor
      25 November 2020 @ 09:11
      glad you enjoyed it - it was such fun to do and such a privilege to have a discussion with the great Kyle Bass
  • RM
    Russell M.
    24 November 2020 @ 21:57
    Kyle Bass is right, the Chinese Emperor stocks have no clothes.
  • PB
    Patrick B.
    24 November 2020 @ 15:16
    Will there be a transcript? Thanks
  • PB
    Patrick B.
    24 November 2020 @ 08:26
    Quite funny that some of the numbers Kyle quotes didn't lead to more heads being scratched at the Ant IPO. I.e. Ant claims to have total payment value of ~$16.9tr in 2019... China's GDP in 2019 was $14.3tr. Total payment value of the Chinese payments market is supposedly c. $30tr (54% Alipay, 39% WeChat Pay)... How is this possible?