The Atlantis Paradise Island Resort has quickly become one of the most successful real estate development projects in the world.
The Bahama-based complex’s huge pools, waterpark, and top-tier dining restaurants attracts athletes, celebrities, politicians, and the well-to-do from the Eastern seaboard.
It’s doing so well, it has now completed two major expansions taking its capacity to beyond 3,000 rooms.
Still though, travelers looking to get away for a long holiday weekend over the winter have to book months in advance.
No discounts either. Demand is so high during peak times prices will go up significantly and the resort is still nearly booked full.
The Atlantis is a massive success by almost any measure. However, just six miles down the road from the Atlantis, a similar project is underway and if you connect the dots it shows precisely how and why one hedge fund billionaire is playing the current rally in stocks.
The Real Lost City
Literally, across a small toll bridge and right down the road from the Atlantis you’ll find the Baha Mar resort.
It was initially started as an Atlantis-style resort...only better.
It’s a $3.5 billion project meant to offer all the amenities of the Atlantis, but with even more upscale offerings.
The lead designers, engineers, builders, and financiers of the project are all from various Chinese state-run and quasi-state-run agencies and companies.
For example, the construction firm tasked with carrying out the project was the U.S. subsidiary of China State Construction Engineering Corp, arranged all the financing. It even shipped in Chinese works to build it too.
Simply put, the Baha Mar was a Chinese project through and through.
There was a lot more riding on its success than just the Chinese government money though.
The unstated, but widely acknowledged goal of Baha Mar was to be a showpiece mega-construction project.
It was supposed to show the world that China could develop projects with quality and durability comparable with Western firms.
Baha Mar was the project to show the world China’s ready for prime time.
The initial opening date for Baha Mar was March 2015. The party was supposed to be a massive one the world would notice.
The project, however, has now been stopped in its tracks for months now.
No cranes. No bustling workers. No ostentatious fireworks displays. None of it. There’s just a half-finished structure with concrete and rebar edifices six miles away from a resort generating millions of dollars in revenues every day.
Here’s where it gets important.
The Baha Mar project is just one of China’s many development projects underway in and out of the country.
And if the Baha Mar is supposed to be the one that’s too important and public to fail and it has failed, you can bet the many more mostly domestic projects are in just as bad a shape or probably worse.
All that, for China, would be an absolute economic disaster. One the country can’t absorb right now.
The Chinese economy was built for 10% annual growth. The banking system made loans based on that assumptions. It all could come crumbling down in China. Everything is riding on it.
Now, as Baha Mar and many domestic projects just like it illustrate, there’s now a very real possibility the China won’t even be growing at 5% a year.
The potential result of that would be a sharp downward spiral not-unlike 2008 hitting China directly.
It should. But even that may be too positive a forecast according to one very successful and insightful investor.
China: “It’s Worse Than You Think”
Jim Chanos has made billions of dollars betting against Enron, China, and other overpriced stocks and markets over the years.
He continues to see big problems for China ahead.
Chanos has been eyeing China for years.
Earlier this year he warned investors, “[In China ]It's worse than you think. Whatever you might think, it's worse.”
That was before the Chinese market meltdown.
After it, in September, he warned of far greater pain to come. Chanos said, “[Chinese domestic] debt is still growing two to three 'X' the economy every year...it will lead to a credit event”
The event he’s talking about is a Chinese version of the 2008 credit crisis.
That may seem a bit extreme. But the Chinese government isn’t exactly acting with any confidence it won’t happen.
China has been more flailing and desperate in the last few months than even during the height of the credit crisis in 2008.
For example, China recently broke the pegged exchange rate of the yuan. This was an unthinkable move as little as a year ago.
The largest companies in the country are facing billions of overdue bonds without any other way to pay them off besides new loans.
Then, when all the fear finally caught up to Chinese stocks, the government took extreme and counterproductive measures to try and alleviate the drop in Chinese stocks.
It banned all short-selling of stocks. It put six month bans on selling of hundreds of its hardest hit stocks to stem the downswing in its markets. And it announced criminal investigations into asset managers who were selling into the downturn.
All of those may have had a short-term reprieve for the downturn. But, just like they’ve had elsewhere they’ve been tried, they will ultimately make potential investors think twice before buying back in anytime soon and further exacerbating the next downturn when it comes.
That’s why, the current stock market rally in China, we don’t think it will last more than a few weeks or months at most.
China’s in the eye of the storm and the reprieve will not last forever.
Investors should be taking the opportunity now, with the current global stock market rally underway, to find the ETFs and other ways to profit for the inevitable next downleg for China.
If China’s slide turns out to be long and slow, there will be some nice profits to be had.
When and if the big “credit event” Chanos expects to hit does, there will be even bigger profits.
It’s a win or win-big trade at this point. Just have to wait out the rally and jump on it when it turns.
Get ready. It’s coming. Keep reading the Profit Alert to know when.