Grandmaster Capital's Patrick Wolff Says China Is Debt-Fueled Investment Bubble ~ market folly

Thursday, June 23, 2011

Grandmaster Capital's Patrick Wolff Says China Is Debt-Fueled Investment Bubble

Patrick Wolff launched Grandmaster Capital this January and was recently named one of Institutional Investor's 'Hedge Fund Rising Stars.' Seeded with $50 million by Clarium Capital's Peter Thiel, Grandmaster pursues a long/short equity strategy with macro overlays.

Wolff previously worked at Clarium Capital and named his fund Grandmaster because that's exactly what he is (a US International Grandmaster and two-time US national champion in chess). He graduated from Harvard and recently sat down with CNBC where he revealed his take on the markets.

Wolff Wary of China

Wolff says that the US has its fair share of problems, some of which are priced in while others are not. On the other side of the world, he cautions that trouble awaits, arguing that China will hit the wall hard sometime in this decade.

Wolff says that, it's a "debt-fueled investment bubble and when it breaks, it's going to be the major macro event of the decade."

Other prominent hedge fund managers have voiced warnings about China. At the recent Ira Sohn Conference, Corriente Advisors' Mark Hart said to short China, arguing that inflation will end the country's credit growth.

Conversely, hedge fund Maverick Capital is focused on China's importance and Warren Buffett has said China will be a big driver of growth for the next 10-20 years.

Arguments aside, it's clear that China will be a main talking point for investors in the coming years.

A Stockpicker's Market

In terms of specific sectors he sees as attractive, the Grandmaster Capital founder points to the consumer staples and defensive names as places to be.

Additionally, Wolff sees opportunity in the property and casualty insurance names. He says they're trading at all-time lows in terms of valuation and have solid balance sheets.

Wolff thinks we could see a hard pricing market after all the natural disasters in the past year and he's not alone in his stance there. At the recent Ira Sohn Conference, famous fund manager Steve Eisman said to buy P&C insurers even if there's another big disaster.

Embedded below is the video of Patrick Wolff's interview with CNBC:

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