Jim Chanos Talks QEIII, Financials, China, Healthcare, & HFT

As followers of Jim Chanos and his investment style, we were excited to listen to all of his interviews. Today he sat down with CNBC to talk about a number of business sectors and regions. In the discussion, Chanos said that he is going to wait longer before he defines a long position on Europe. Despite the rally, the banking structure is still weak, and it will take some years for European banks to get back on track.

On China

Chanos comments that we have heard the mantra that monetary easing from central banks will lead to a better China, but that hasn’t materialized yet. Moreover, the country is compromised from the political side as well. Chanos admits that he is not a political scientist, but the risks are still evident. He again confirms that short positions on China make up 20 percent of Kynikos Associates’ global short fund. He also reiterates that China is on the verge of a housing debacle, ”  Have they overbuilt?” He also mentions that analysts observe that non-performing loans tripled in the first half of 2012.

Chanos thinks that China is inflating its numbers, and with the present regime, you will never see a negative GDP, and you will be shown growth no matter what. But, when you look at the Chinese stock market, corporate profits, and real accounting and real numbers, there is a big divide. ” GDP growth has been 9%, 10% for years and you’ve made no money in the Chinese stock market”, said Chanos.

He finds all Chinese companies untrustworthy, only those businesses are worth investing in, where you can look at the balance sheets. He doesn’t find Hong Kong to be any better, and adds, “[Hong Kong share market is] designed to suck western capital into the country and never let it go back out”.

On Financials

Chanos repeats his long position on JPMorgan Chase & Co. (NYSE:JPM) and Citigroup Inc. (NYSE:C). Responding to a question about why he is not long on Bank of America Corp (NYSE:BAC), Chanos replies that the hedge fund did not want a long portfolio that went above five banks. On Morgan Stanley (NYSE:MS) and Goldman Sachs Group, Inc. (NYSE:GS), Chanos does not see any problems in valuation, but these banks have lost their best people in the past years. Goldman Sachs’ director, Greg Smith, resigned earlier this year. Morgan Stanley lost its top bankers, and the CEO also resigned in 2011.

On Technology

Chanos is short on Hewlett Packard (NYSE: HPQ) and has been calling it a ‘value trap’ since last year. Interestingly, the hedge fund is not long on the eye candy of investors, Apple Inc. (NASDAQ:AAPL), rather it is long on Microsoft Corporation (NASDAQ:MSFT) and Oracle Corporation (NASDAQ:ORCL). Chanos is looking to hedge  Microsoft Corporation (NASDAQ:MSFT) and ORCL against shorts in Hewlett-Packard Company (NYSE:HPQ).

Chanos also thinks that any hedge fund’s long/short positions should not be shown to anybody, “Once you put all of your positions in the book, everybody can replicate your portfolio so there’s the whole issue,” he commented, ” they (long/short) should be shown to the authorities or SEC as needed, but not to the public.”

On Healthcare

Chanos talks about the rising healthcare costs, which increase by 4.5-5 percent every year, and are twice the amount of what is paid in the rest of the industrialized world. The hedge fund is not short on healthcare companies now, it covered its shorts back in 2o09. He also sees no significant value in Paul Ryan’s plan for health sector.

On High Frequency Trading

Chanos remarks that the present hedge fund world is alien to Kynikos Associates, because he doesn’t turn over his portfolio as much as others do, and is therefore not active in HFT. He agrees that its not possible to get rid of HFT, but he is wary of the unfairness that can stem from this kind of split second trading.

On QE III and The Fed

Chanos is a member of Investor Advisory Committee on Financial Markets, established by the Federal Reserve. The IACFM is an advisory group that holds discussions on economic issues with the Fed, but has no role in policy making. Commenting on QE III, he said, “The Fed is taking away market signals, by keeping rates artificially low for long periods of time we’re distorting the marketplace, and one of the things the marketplace is good for is sending us signals.”