Enron Prophet of Doom, Jim Chanos, Down on Macquarie Bank…Uh Oh

Jim Chanos has Macqurie Bank (ASX: MBL) in his sights. Uh oh.

You may not know Chanos. But he’s sort of infamous on Wall Street. And when he talks about stocks he hates, people listen.

Chanos went from reputable short-seller to stock market legend with his call to go short on the Houston-based energy trader Enron in late 2000. It turned out to be the call of the decade. Enron blew up in spectacular fashion. Cameras flashed. Congressmen bellowed. Investors howled. The stock plummeted.

With Enron, Chanos spotted the special purpose entities (SPEs) that were at the heart of the company’s balance sheet chicanery. The SPEs were used to borrow money that didn’t show up on the parent company’s balance sheet.

Privately, the company’s insiders said SPE stood for “s*** piled everywhere.”  What it meant is that investors never had a clear picture of just what the internal finances of the company were until it was way too late.

We aren’t suggesting that Mac Bank is the next Enron. But at an event in New York last week, Chanos is said to have highlighted the fact that the bank, “relies heavily on off-balance sheet financing and related party transactions,” says Alistair Barr at Marketwatch.com.

Frankly, we are baffled by the financial engineering that takes place today. We wonder if anyone understands it. The buying and selling of assets is a tricky business. Macquarie did well enough at it the first half of the year, with AUD$733 million in net income. But with AUD$30 billion in buyouts, short-sellers are beginning to wonder if the bank has paid too much for acquisitions and whether it will be able to flog off assets for a profit.

There’s no doubt MacBank is the poster child for modern financial engineering in Australia. It’s got a growing portfolio of global assets and a much higher public profile abroad. Such a high profile, in fact, that one of the world’s best short-sellers has taken notice.

This prompts an open-ended question for you, dear reader: Is it now time to look at short-selling Aussie stocks? If Chanos is down on MacBank, what about resource stocks? Base metals prices are high. But rising energy costs must certainly be set to cut into profit margins for Rio, BHP, and others. Hmm.

Could revenues continue to grow for Aussie blue chips, while net income declines? The answer to that story will be found in the monthly cash-flow reports for Aussie companies.

Dan Denning
Markets and Money

Dan Denning

Dan Denning examines the geopolitical and economic events that can affect your investments domestically. He raises the questions you need to answer, in order to survive financially in these turbulent times.

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