Jim Chanos: China Big Crash Still Coming [VIDEO]

In an presentation at Delivering Alpha, a conference presented by CNBC and Institutional Investor, investor Jim Chanos reveals his ‘best idea’ right now: betting against the stock price of a major American manufacturer.

Jim Chanos’ Best Idea: Why I’m Short Caterpillar

Transcript:

i believe that the commodities super cycle which has been built on the back of the chinese construction boom is coming to an end. now, keep in mind that the chinese construction boom shows no sign of ebbing despite the credit problems that are beginning to appear. but if you consider that one company in the dow jones has 30% of its revenues tied to global mining cap x and 50% of its operating profit tied to global mining cap x, and global mining cap x, which grew 8% per year from 1990 to 2001, the first sort of upleg in the global commodities super cycle and then grew in the last ten years or 11 years at a 24% annual clip from $14 billion to about $145 billion annually, when you consider that basically one-third of global mining cap x is equipment, well, that lands you in peoria, illinois, at the doorstep of caterpillar. we are short caterpillar. iconic american company, leader in its class, but tied to the wrong products at the wrong time in the cycle. caterpillar is a cheap stock. trades at 12, 13 times earnings. earnings are not expected to grow reasonably at all in the next few years. the bulls expect cap x to decline in mining, but here is the problem. they expect it to decline gradually, 10% to 15% per year. but if you realize that cap x in the mining area was $30 billion in 2006-2007 and got to $145 billion a couple years ago, the declines they’re talking about are still meaningfully above what were historical levels. 20 years ago it was a couple billion dollars a year. so these are really staggering numbers that the globe has taken on basically to build out the chinese real estate and infrastructure bubble.

Jim Chano’s best short idea: CAT & HPQ

CNBC’s Josh Lipton breaks down the biggest movers from the “Best Ideas Panel.” Chris Hohn’s top picks include EADS, Porsche, and Aurizon Holdings, and Mark Kingdon likes Japanese stocks. Jim Chanos also joins the panel revealing his best ideas starting with Hewlett-Packard and Caterpiller. Bond yields have dropped 2.5 percent for the first time in 2 weeks, top fund manager, Steve Kuhn, Pine River Capital, provides insight to where bonds will go and shares his favorite ideas.

Cooperman’s best ideas

On a special “Halftime” show CNBC’s Scott Wapner and the FMHR traders are live from the biggest investor event of the year, “Delivering Alpha.” Hedge fund titans Lee Cooperman, Mark Kingdon, Chris Hohn, and Jim Chanos present their top investment picks the the “Best Ideas Panel.” CNBC’s Josh Lipton has all of Coopermans’s picks, including Express Scripts, Qualcomm, and Sadridge Enerdy. CNBC’s Steve Liesman has the latest on Bernanke’s testimony.

Transcript:

welcome to a special halftime show live today from the pierre hotel in new york city at the biggest investor event of the year, delivering alpha. we will continue to monitor the fed chairman’s testimony and, of course, the q & a session which can always bring interesting headlines. we’ll bring them to you if there’s anything we think you need to know about. we have an all-star line up with ready to go with one goal in line. to help you deliver more alpha in your own portfolios. within the next hour we’ll be joined by steve cune, head of fixed income for pine river. we’ll also have live and exclusive coverage of 2013’s new best ideas panel where famed short seller jim chanos and leon cooperman will share their top most active traders. our traders will be along in a moment. we want to go to steve liesman. it seems like the goal today is to make sure from bernanke’s perspective that the market starts to understand there’s a difference between tapering and tightening and he’s going to try to hit that home. scott, were you addressing that to me? i’m sorry. i was listening to the testimony. could you repeat it? i think steve part of the point that the fed chairman is trying to make today at least speaking directly to the markets is that there is a difference between tapering and tightening and he’s going to try to hammer that home until the market understands it or not. i think he’s definitely doing that, scott. i think it was interesting earlier on today he was asked a question about the dangers of reducing qe. and he answered that by saying, you know what? we have a lot of tools we can use to affect a policy and the outcome. i think they’re sort of on a track of tapering, scott, with the one asterisk i put next to that is if the july data continues the weakness in june, i think that that may take them you a of that track. but what he wants to say is as you said, we can taper, move up and down qe, but we’re still accommodative in that context, and, b, it does not mean we are raising interest rates. maybe by the market reaction, steve, he’s being successful today in a way that he frankly has been unable to be in the most recent past. he says i think the m are beginning to understand our message and the volatility has obviously moderated. i think that he would not be successful today if not for the — what do you want to call it — communications that we’ve had beginning on may 22nd and culminating with the mber q & a last week. i think his objective was to not make any changes to the market’s understanding of tapering, tightening, or overin all fed policy. i believe he succeeded. thanks so much. i know you will be watching the testimony, the q & a session and you will bring us anything that jumps out from any of those questions and certainly mr. bernanke’s answers. the best ideas panel is under way where hedge fund titaare presenting their top investment picks. let’s get to josh lipton. you heard leon cooperman of omega advisers giving you his ten picks. let’s go through them. he basically broke them down into three different baskets. one he called his quality growth basket. he had express scripts. he liked qualcomm where he said there’s too much pessimism. they got $31 billion of cash on the balance sheet. no they can throw 11% or 12%. and then also thermo fisher. next basket he called his phoenix from the ashes basket. these are basically turnarounds. he would quality corp, a brazilian health care company, baferl he said you get 20% growth for less than ten times earnings. he also talked about sandridge energy. he said that one has the potential to double. and finally his third basket he called growth with high income situations. thes are really financials with high yields he thinks can go chaier. arbor realty trust, atlas resources, chimera investment, kkr financial, and thl credits. scott, back to you. josh, thanks so much. as lee cooperman gives his best new ideas at delivering alpha. steve weiss, lee cooperman was ten for ten over the last year. most of them were up double digits. what do you make of these picks? well, lee doesn’t turn the portfolio over all that much. we spoke about qualcomm. he stated high quality company, a lot of concern about margin pressure as they go to lower end phones and the high phone — high end phone market is saturated. it is phenomenal in terms of their fortress balance sheet. in terms of his market view that’s also interesting. he’s still positive on equities but he thinks they’re fairly valued right here. last year, if you recall, he was a lot more bullish. so to still be this bullish, he’s not seeing the downside, although he doesn’t expect to see — he wouldn’t be surprised to see major correction. but to have these kind of names here where he’s looking at interest rate plays, that’s a surprising thing to me. joe, what name jumps out to you, maybe one of the new, new plays. andridge energy has been talked about. lee can wait it out. but express scripts are clearly stealing market share in the form si benefits base. that’s a name trading to a 52-week high. i think there’s more upside to that. anthony, you look at the performance of some of these stocks and as we said over the last year when these guys of that quality unveil these types of ideas, lee was ten for ten over the last year. well, there’s three things lee is doing. number one, buy a low multiple stock he perceived growing faster than the people in the market do. number two, he’s not afraid to get concentrated on a few big names and one of the things he is highlighting, this is for viewers, is financials. focus on metlife, aig is not on here. that’s another big lee name. with the yield curve steepening, with the tapering, i do believe that’s stocks have a lot of room to run and lee is not afried to be chunky in a portfolio like this which is why he has had such great performance. and sandridge he’s playing as a turnaround because tom ward has met the same fate. he’s out. he really used the company as his piggyback. 300,000 in oakland thunder tickets. he expects to see leverage at the bottom line. that’s called delivering alpha. that’s an understatement. look at the performance of cooperman’s picks. the returns are quite stunning. let’s react to the fed chairman and the comments he’s making today, what the market is doing. anthony, you have been probably the most critical of what could happen to the market once the liquidity is pulled. not critical of the fed. i think the fed has done an unbelievable job and i think the children is doing a great job today. but you have made the prediction stocks are going to fall and fall hard once the liquidity is pulled away. okay. so the fed is tapering. i’m going to taper my remarks a little. i’m looking at him today. he looks like sigmund freud burr nan can i. he’s sitting there and trying to psycho their pies a group of people who don’t understand what he’s doing. my prediction is he will be more successful than i originally thought. so when you’re wrong in the business, you have to openly admit it. i think these guys are doing an unbelievable job of jaw boning themselves and create a glide path to the taper. what he’s had now is the benefit, so to speak, maybe that’s not the right word, but the benefit of a 6% correction. the message hasn’t always been delivered all tha succinctly or clearly but the market has already had its pullback, had its taper tantrum, if you will, and it will get conditioned at some point to the fact tapering — i think it is conditioned. i think the market gets the message now. i think the tapering process begins in september. i think alts nine-month process. i think the expectation is $85 billion to $65 billion in september. but i think when you look cross assets today, the indicator tells you things will be favorable to the tapering is the u.s. dollar. i take the other side of goldman’s call. u.s. dollar is going to continue to move higher and it’s on the expectation that growth will accelerate. on delivering alpha, ben bernanke, largest hedge fund manager in the world, making money on t.a.r.p., making money on the aig trade, and likely right now making money on the quantitative easing in terms of where bonds are and where he’s going to take them off the table. let me give you one more data point. bonds the ten-year has recovered. the yield is back down. had a nice move back down. 2.47% or something like that. can you imagine what the market would do if they don’t start tapering in september which has besensus now. i’m not sure they will. let’s before we move on take it one step further. is it okay, are you guys comfortable in buying stocks? yes. the market is conditioned to the fact that tapering is okay — look, i probably did not pull the trigger fast enough. kudos to stephanie link who was buying in the trough of that 6% sell-off. you want to look cross assets and again it goes back to the u.s. dollar. if you believe that you are going to own an asset that’s hi affected by global sales, then you don’t want to own them. what you want to look at is the small caps which have 80% exposure to a strengthening domestic u.s. dollar and that’s where their sales are. the revenues6% like the s&p is. you bring up small caps in generals. the russells hit an all-time high seven out of the last eight days. more validation of the moves. absolutely. small cap leads you up and small cap leads you down. it happens virtually every cycle. small cap is the place to be. lee has some small cap names and he’s managing i think $7 billion, $8 billion, so those are big bets in terms of betting on small cap when you’re running that big front because you have to own more of them. i agree with joe. there’s no reason not to buy more bac, not to buy more citi. bac up today. absolutely. guess what? look at citi. it split at 50 bucks. you’re just above that. things are so much better now. why not buy more? one thing. the banks have switched from cost cutting to revenue growth. a very big positive fundamental. every major ceo is talking about where are we going to get the revenues from. two years ago it was about cost cutting. you can grow now. real quick, you and i talked about this before. a lot of people are waiting for the tech recovery in the second half of the year. i think the markets can go higher without technology but i don’t think the tech recovery is coming because i think you will see a strong u.s. dollar. that’s going to impact — and demands what you were talking about. i could come at you and say sam — amazon is at — that’s a consumer discretionary.

Bernanke’s testimony hits the wires

CNBC’s Hampton Pearson provides a preview of Fed Chairman Ben Bernanke’s prepared Congressional testimony. And James Chanos, Kynikos, and CNBC’s Jim Cramer & Rick Santelli weigh in with their reaction.

Transcript:

you. ben bernanke’s prepared congressional testimony is hitting the wires right now. hampton pearson has the details. let’s get right to the highlights. the fed chairman preparing to tell lawmakers economic recoveries continue at a moderate pace despite strong headwinds created by federal fiscal policy, housing has contributed to recent gain, housing prices and activity seem likely to continue to recover notwithstanding the increase in mortgage rates. labor market is improving. unemployment rate remains well above longer term normal levels. the job situation is far from satisfactory says the fed chairman. consumer price inflation running well below the fed’s 2% longer run target. looking again at the overall economy, the pickup for economic growth is tied to less of a drag from the spending sequester and tax increases in the future. the risks remain, however, says the fed chairman that the federal fiscal policy will restrain economic growth over the next three quarters by more than we currently expect. on monetary policy specifically, the fed chairman saying we intend to continue our asset purchases until a substantial improvement in the labor market outlook has been realized. the asset purchase program and resulting expansion in the balance sheet is primarily tied to increases in the near term momentum of the economy. on the future of the asset program, our asset purchases depend on economic and financial developments. they are by no means on a preset course. expectations for the exceptionally low target for the feds fund rate will be appropriate at least as long as unemployment rate remains well above 6.5% and inflation remains well balanced. the fed chairman emphasizing the phrase at least as long the fed chairman says is the key component of policy rate guidance. specific unemployment and inflation numbers in the guidance are thresholds, not trigger actions according to the fed chairman. and he closes by saying increases in the target for the fed funds rate once they begin are likely to be gradual. we’ll hear from the fed chairman at around 10:00 eastern time. becky, back you. hampton, thank you very much. again that is hampton pearson joining us right now with reaction to those comments from bernanke, james chanos. and our very owcramer. sounds like it’s very much the theme that bernanke had been kind of giving us all along. a couple things that stood out, housing prices have improved, labor market is improving but far from satisfactory. inflation running well below the fed’s own target of 2% over the long term. i guess the question happens at this point, those thresholds that he was talking about, not trigger points. did you hear anything different either one of you? i think that’s a great summary of it. remember we had two bernankes. we have a hawk bernanke and then a dove bernanke. maybe we finally got dove-awk? it does not want to move the markets at this point. i think that was his goal for today. i think this sounds to be pretty accommodative still. i don’t think — i would agree with what dan arbess said. i don’t think a whe lot has changed. he says bond buying could be reduced as aster place, slower face or even increased. fantastic. exactly the gobbledegook we expected from greenspan. he’s finally figured out how to talk like green span. i think the key was try to be as open as possible, but now that you’re trying to back ut, maybe you want to be more ue. you don’t see anything to the notion that this is looming, it’s always there, until it’s gone, we can’t just do what we used to do? i haven’t forgotten what happened after may 22. when you look at what some of these emerging markets did, it took your breath away. more importantly, david faber has come out every morning on squawk in the street saying has anyone looked at their bond funds? weren’t these supposed to be — you make a little money every single year? wouldn’t you like to fast forward to where they’re out and we’re back in a normal — the temper world? yeah. because we still think there is risk in unwinding everything. we don’t know how it will play out and we can’t get businesses normal. it would be great to view stocks as stocks. but until they’re gone, it will be looming. and what he says today, he doesn’t do anything to remove the uncertainty. put still in place. i think so. this is what i said to you off camera. it’s at 2% we have this incredible put. what if there is — remember i said we got a five year recovery here. recessions come that when you’re not expecting them. who knows what kind of thing could cause it. but what do we do at minus 2%, 300 billion a month? i don’t think it will get there. but if we did have — let say we were blindsided by a global recession for whatever reason. but isn’t that what asset purchase programming is, the fact that we got to a zero bound fed funds so that was the next policy iteration? but if we take stocks out at 2% growth, what dodo at minus 2%? europe we need to see a turn there. we go back and forth with whether china has bottomed. but he’s going against congress and the president. he’s going against the world. i mea’s not like he’s the worst guy. the chinese communists, what the heck are they really doing? do they know? in my view, it is a centrally planned shall we say — planning what? i don’t want to say practice to being crass city, but it’s a pretty different economy from what lennon and marx would have from what lennon and marx would have envisioned. somebody else called it the people’s republic of madoff. they do have a concentration of mind thing when you do steal, but then they hit the drug companies with fraud charges and i think that that’s just something to distract the people. if you see tapering let’s say in september, do you think the market already knows it? no, i think we go to 3% on the ten year. so we have not seen the greatest dislocation yet. kelly evans had some great points yesterday. she goes everybody thinks rates will go hire. what happens if they don’t because the economy is so — everybody thinks that we slowly trend down from 7.7 or 7.8. within a year we should be 6.5% and then after that, we should slowly get to 6%. that is consensus. isn’t it? i get nervous about consensus. and you think 8%. i have no idea. i don’t know. i probably agree i’m part of the consensus, i probably agree that we still heal, but i’m saying if we didn’t, then we’re they ever getting out. how about what becky said about what he said about mortgages. they’re saying real estate remains strong, but when you look at bank of america saying the pipeline will be down 5%, john stumpf, why is he saying that market is still good? maybe he’s looking at the house prices he pointed out specifically, he said and activity on top of it. i don’t know if that means some of the building is coming back. he wasn’t a great predict tore in ’07 and ’08 about housing. no, he wasn’t. taking a look at what the market did, i think it was up — well, dow futures up about 22, 24 points at the height. not massive moves in any of these directions. but if you think the put is still in place, we’ve been trying to figure out, does the market want to hear good news or bad news? a great point. maybe it’s been discounted. maybe the put being there is the given. here is another assumption. proceed corrected pick up in growth predicts that policy will ease. where do they get that? i don’t know. that doesn’t make any sense. well, if yesterday’s filibuster deal indicates the next debt ceiling debate, republicans will give the democrats everything they want. did you see that — how about the clinton impeachment brought up again. there is some good stuff happening on the fiscal side, too. fannie and freddie might not pass again. citi is coming down dramatically. medical costs for the first time — they’re going back up. i don’t know. line by line it’s been better. i’m not so sure. it’s been trending down now for a couple of years. a couple days ago, there was a piece that it started reversing. who knows. buts he 00 not 6% to 9% a year growth anymore. which a lot of these long term doom scenarios have — when i saw the health care bills would go up, but in any case, there is good news on that front. we have seen the ten year treasury touching 2.496% after bernanke’s comments and that’s the lowest level since july 3. again looking at a vacuum. that’s the fulcrum group. when would you buy housing? i’d buy houses like at — get me in trouble with faber, but i can get those loans that joe was talking about and then i can go buy an apartment and then rent it out and in it overheated market and make a ton of money every month. when would you buy housing stocks? their time came and went. i would like to see people recognize that perhaps people will still buy a house at 4.25%, 4.5% mortgage. we’re not sure yet. would you touch reits? i think they should be case by indicate case, but that’s a group that got very oversold. i think it could go back. any last thoughts, jim? you’ve been with us for the morning. i can’t believe in a i’ve been agreeing with kernen as much as i have. why do you keep saying that? just because i like the married life and the stability of a family, is that what you — no, i’m talking about fed policy and fiscal policy. last thoughts, jim. i’m worried. the conferencwill be coming back up in a moment, but your big pick last year was hp. you can’t give it away this year. and you were going to give us some names on the shorts. how about the drive companies? we’re short one of the drive companies. painful. just for the last few weeks it’s been painful. what else? i think that on seagate and drive companies, people think that the cloud is going to offset pc. but in fact moore’s law applies there, too. and shipments are going down. just need to see more fabs. typically they take advantage and build factory after factory. you have a lot of technological change happening, too, with solid state that is looming. and i think that that’s a dislocating — do you hedge it with flash? we are. what else? variety of different things in the commodity area. i think coal. we’re pretty big bearers on the coal industry. we are long natural gas. but we are short some of the levered natural gas producers. like who? a couple big ones you can probably think about. so you’re short chesapeake, but didn’t you hear michael ward say coal is not as bad? i think it’s the ultimate lead. it’s on a long term decline because of natural gas prices, number one. and these really, really onerous epa regs which are the real deal. how much of your portfolio is long versus short right now? in our global short only, it’s short only. people use that as a hedge. in our long/short fund which is more traditional fund, we’re 5% hedge short. t’s misleading because we’re always 10 plus or 10 minus. so we run it pretty market neutral. and you’ll be here this morning the morning. in whatever you need. people say fee income is the reason bank of america is not — when you go line by line. quick question for you. my panel just to plug it for a second later today, nelson peltz, yesterday on your show you said that they shouldn’t try to merge those two companies, that actually koch should by mondelez. they need to get away from the weather and the economic issues of buying a can of coke. i just think that pelts should do what he did with bob johnson at heinz and say i like this long and i think a lot of good things are happening here rather than say it’s a challenged company. that company at an all-time high. i didn’t see that with coca-cola

Cramer & Chanos preview Lew

CNBC’s Jim Cramer and short-seller, James Chanos, Kynikos founder & president, share their views on what they hope to hear from Treasury Secretary Jack Lew when he speaks at CNBC’s “Delivering Alpha” conference.

Transcript:

every day of the week. centurylink® your link to what’s next. welcome back. we’re talking with jim cramer and jim chanos. dodd-frank will play a part in what jack lew is talking about. what do you expect and where do you think we are? in when i look at the bank earnings so far, i keep coming back to what jamie dimon told me which is that it turned out to all come out in the wash. he used to talk about it constantly. really go to the government, really take on the senator warrens even when she was just a thorn on his side. and he says, look, we’re dealing with it. and it’s not so bad. i wish goldman had addressed the capital ratios better. good article today saying why did goldman play coy when no one else did. i know brian moynihan is not going to play coy. jim. take federal deposit insurance. you should expect to be regulated. if you want to do the stuff outside it, holding company, in subsidiaries, i would define clearly what the taxpayer stands behind and make that the bedrock of banking system which is necessary for growth in our economy. everything else, let the free market decide it. it happen at the holding company, whether you call it a break up or not, you can just separate it. but anything else like cross border derivatives, it should be subject to market funding. let the market decide. because an awful lot of capitalists in our banking systems when you scratch deeply, are not capitalists. they’re capitalists when things are going well. they’re socialists when things are not going well. are you an elizabeth warren fan? i’m a big elizabeth warren fan absolutely. how about the idea that we got some transparency in the derivatives, we could make a judgment. i still can’t find out what the book is. fine. or how much is netted. and particularly in some of the european banks. to me you can’t have it both ways. but you were even talking about is doing some of the stuff in subsidiaries, that doesn’t avoid the problem. it’s still there. no, above. at the holding companies. let that all occur at the holding companies. let the banks, let citibank, let the bank of america that take deposit insurance that we back right here at this table, that needs to be regulated in my view. do you see risk in the system? because right now i don’t think the banking system will come crumbling down because there is no leverage. we’re long u.s. banks in our hedge fund. there are risks elsewhere. is that in part because we also far go has 30% of market, something that the united states never allowed before? we’re long the u.s. banks global presence. again, in o global fund just because i think that there is a atic european banks still and disasters in asia.

Cramer’s Take on BofA

CNBC’s Jim Cramer shares his views on the big bank’s “pretty good” quarter, with James Chanos, Kynikos founder & president.

Transcript

bernanke’s congressional testimony that will hit right at 8:30. joining us now, jim cramer. you haven’t released this to anyone else kret. we’re getting it now. i’ve just been working on bank of america and i know this one has been hobbled. it was kept back by countrywide. i think this was the first quarter where i don’t see countrywide. what i see is much better growth, commercial loans than i expected from other banks that have reported. and i think net interest margin. theirs was up. a lot of what’s being done here is that they are finally getting it together to expand. so this is a story you could argue not as bad as it used to be. you could argue very expensive stock, but it’s a positive. the analysts we spoke to earlier, jeff harte, said he thought the numbers looked good. but he still has a hold on the stock because he’s worried about revenue growth. if there’s one that you shouldn’t worry about revenue growth, it is this one. they have citicorp like in terms of the distribution, the overseas revenue growth for commercial, that’s 60% of their business. no one thinks that this company as an international bank, but what they have done is taken advantage of the fact that a lot of international banks have pulled back. this is the first bank that i’ve seen that has actually said we’re taking advantage of the weakness in europe. wouldn’t merrill lynch some day be worth something? yes. valued at $14? no. everybody is in — you need the legal fees to go down dramatically. you need to be able to say, en, this was the last quarter where we’ll have to ask to risk legal fees. that’s not necessarily clear. obviously you’d love a dividend that is more than just a pen any. but it doesn’t allow you to focus on — at the peak was 50 billion. how about the fact that the reputation was the best there was at the peak. and i think it was the place for middle america to do their business. it was the aspirational bank and aspirational brokerage house and it’s just disappeared. everyone is so excited about morgan stanley getting smith barney. i’m sorry, maybe i’m old school like you, but merrill was much better a broker. in all of them i can tell you they’re all getting their act together. because of ge’s arrangement with ubs — somehow we ended up at u ubs. but they lend money. you don’t need mortgages. you don’t need credit lines. they make money just by having the assets there, they get 1% but it’s net of — they really have their act together. people get credit lines to go buy homes at merrill lynch. that was a pretty good business. i think it is still a good business. but again, i mean, bank of america was really a story about we’ve made a lot of bad decisions between — merrill was not a bad decision. countrywide was terrible. if you get countrywide to be an unimportant part of the business, then i think you have e story where people say maybe the book value should get a little bit more of a premium. this was a terrible situation. and this quarter was a pretty good quarter. and this is the first time you’ve seen this. when warren buffett as you know, when he got involved, that was the bottom. but what you really didn’t see was growth. and that’s why i felt that the criticism of saying no gro when i look at the oth banks, this really had good growth and the commercial loans are making it, so you’re getting more margin. this was a clean quarter from what i can tell. we’ll take it. do you like my idea that — if you have an engine and it’s an internal combustion engine and you want to run, you need to have gas, right? can we view qe as gas for our engine and can we just set a floor of 60 billion a month forever and then if the engine is running a little light, go to 85, if — what if it’s a tesla. now people look at me and they’re like maybe. no one thinks that a $10 trillion balance sheet will ever be a problem. and then other smart people write in saying we don’t know where the dislocation is and this is not free what we’re doing right now. nothing’s free. we did have a tremendous shock so to speak in interest rates and it turned out to be a great buying opportunity for amazon and netflix. i’d like to ask jim chanos a question. yesterday rick santelli said, listen, i don’t care if the individual investor is making a lot of money. it’s a rigged car game in favor of the bulls. is that something we should be worried about?d game in favor of the bulls. is that something we should be worried about? when the central banks start tar gets asset prices as opposed to interest rates or direct to their mandate to employment or inflation, you begin to go down a road that they really haven’t gone down before. and i think that’s the issue. and what are the unintended consequences. what are the unforeseen costs to that. if the market isn’t clearing because there a fed put there, and we saw that in the late ’90s, when that put suddenly is not there, you raise real issues. and i think that that’s what you have to be careful of. if we don’t just go higher, 2%, what if we went 2% down, unemployment goes back up, the fed’s not going anywhere. if you want to take to the logical extreme and say you have a government trying to pull every level, it doesn’t work

Chanos: Best shorts for your portfolio

Short-seller James Chanos of Kynikos Associates, shares some of his favorite short-selling strategies, including his position on Hewlett-Packard and what he thinks of the Dell deal.

Transcript:

the present. welcome bag. we’re here at the delivering alpha conference. our guest host today is jim chanos, and, jim, thanks so much for being here with us on a big day. my pleasure. last year your pick was hewlett-packard. why don’t we talk about hewlett-packard now. what’s happened to the company and what you think about it. we’re still short. the stock has had a huge run. a lot of value stocks has had this year on the perception that it’s a turnaround. stock similar to best buy and others. and we’re just not convinced that’s the case. no company goes straight down the line. on the other hand, they have some real issues. their revenues are declining at about 10% annually. and it’s across the board. it’s not just pcs and printers. it’s services, too, which everybody is sort of holding that out as their salvation. an argument can be made that one xt problems in technology is theces business. why? well, because more and more stuff is going to more efficient platforms, the cloud and elsewhere. it’s changing the picture. and services, as well. a lot of value added stuff. a lot of fat the to cut there. so you doubled down on hp? we covered when it got down in the low double digits.he to cut there. so you doubled down on hp? we covered when it got down in the low double digits.e to cut there. so you doubled down on hp? we covered when it got down in the low double digits. to cut there. so you doubled down on hp? we covered when it got down in the low double digits.to cut there. so you doubled down on hp? we covered when it got down in the low double digits. one of our arguments was and still is accounting issues. and — where was it when you first put on the short? . it was in the high 20s and then last year i think it was about 19. got down as far as 11. and now it’s 26, i think. and then we covered our dell since the last time i was on squawk. and we’re watching this i think as much as you are. if you were an investor in dell right now still, would you vote for the transaction, at that time money and run at $13.65 or do you say shareholders are being ripped off and you take carl icahn’s deal and let him lever up the company? i don’t think shareholders are being ripped off. you can infer that from my views on the industry. on the other hand, i just hope this goes on and on and on. ts’s hysterical. he said/she said aspects are great. i don’t get it. i don’t care what the bankers are thinking about here. what are the shareholders thinking? i think the shareholders at this point, i would note southeast asset, which had been with carl, has been selling a lot of their stock. i think that i guess they see a hugh let pack lard before the turnaround, that the stock could the turnaround, that the stock could uble’ if the right stars align. the pc industry all, you’ve laid out your arguments against that, the newspapers are pretty clear with what’s been happening. you think that’s it, gam over? it’s a tough business because increasingly brands mean nothing in that business. it used to be dell is better than xyz or abc. and that’s just not the case anymore. companies that buy lots of servers are now building them themselves. and then you have the chinese for example. lenovo and acer are taking market share. it seems to be a horrible business and as more and more business goes mobile, i think it will be tough to justify that architecture at a premium. you point out a couple of big problems like we said for services. does that mean that you’ve also taken a look at ibm to short? we’ve looked at a lot of different services companies. i’ll leave it that. i’m not disclosing anything about that today. we’ll have to jump from that. jim will be with us.

Chanos: China ‘great place to be short’

The world’s largest short-sell, James Chanos of Kynikos Associates, weighs in on why he believes investors are “misled by Chinese GDP numbers,” and how he is making money there. And Chanos provides his perspective on the Fed’s asset-buying program.

Transcript:

i watched all this — our guest host, the world’s — like you’re jumbo shrimp. ‘s largest short seller. broken bat dodger jim chanos. my history goes all the way back to you — there you are. what happened? your son hadust left? this was last night at the all-star game. draw, two of my three sons i was with got up to go to shake shack and as soon as they did, cabrera let go of the bat. intact. someone tweeted to ask if the bat made in china. and it’s nice to be — you’re so smart. and i’m not trying to suck up to you or anything. but you ca be too frickin’ early sometimes almost. a lot. and you have been coming on here, i’m trying to figure out when we started with china, and every day there is another headline. now. the first time we talked about china on cnbc was very late ’09. i thought it was three years. so it’s going to be four years. four years at the end of this year. when you describe what you have seen — you saw signs of trouble way back then. would you describe it as a really slow motion train wreck or something that’s happened? is that the best way to make money or have you had to stay with your positions, add new ones? good it’s been a great place to be short, first of all. the markets have done nothing but go up globally in four years with one exception basically, china. and the credit stik kell that we saw which we thought would happen first in real estate has not happened. real estate actually has held up which is the interesting thing about china. i think it’s actually the next shoe to drop. but the credit cycle just got worse and worse and i think that has worked its way through commodities globally. i think we’re seeing arguably the end of the commodity super cycle. so all those things have played out in the last three years, but interestingly the chinese are still buying condo apartments like crazy. your big bet was that real estate would fall, that the banks would fall apart. and so to the extend you’ve made money over the past three years in china, it’s been in what places? real estate, banks, steel. but the real estate and banks have not gone down nearly as much as other people had — you were saying the whole thing was rage from moment one. ll think the credit bubble issed world class. i think people are misled by chinese gdp numbers. it’s a very managed number as you know. meanwhile corporate profitability has gone through the floor. credit problems have begun to multiply. the shadow banking system which we talked about in 2010 has finally come to the fore. so again, if you had to be short anything in the last three years, the one place to be short was china. but you’re not pulling back. we’re about the same place. global portfolio about 20%. we’ve heard for years they’re trying to orchestrate the cons society there. and they raised wages, they have done some things. is that a bridge to filling some of the empty buildings, creating a middle class that will occupy some of the real estate you’re short? again, the problem is that the people that can afford the real estate are not the people moving to the cities. real estate is very, very expensive there to income levels. and they keep them empty. and in the last data we saw, investment increased as a percent of nd consumption dropped. so the rebalancing doesn’t happen. part of the problem is that investment also leads to employment. a lot of these people are employconstructing things. it will ultimately employ fewer and fewer people or pay them less. a china really trying to put the brakes on? i don’t know if they know what they’re doing. it’s a complex economy. it is not totally subject to pushing buttons and pulling levers as i think everybody thinks it is. it is an $8 trillion u.s. economy. it’s half our size. and then it is subject to all kinds of things like the shadow banking system that they really didn’t have their hands around until this year and a lot of balls in the air that any one of which could fall. someone tweeted a question asking about their own interbank offering. it didn’t get a whole lot of attention. a little bit. is it a big deal? here is the real problem. what it underscores is that both in the regular lending market, but particularly in the so-called shadow banking wealth management products, trust products, many of the maturities of those investment products that they sell literally over e phone to you are three and six month maturities. so they constantly have to be rolled. but they’re financing off an infrastructure, real estate or losses. so it’s a little bit like our subprime brokerage problem that we had in the investment bank when they were basically financing their balance sheet of derivatives and bad mortgages in the overnight repo market. don’t you think it’s as manipulated as any other and didn’t we ultimately learn that the government was the main manipulator? they provide lots of liquidity at the end of every quarter and they will have to do that more and more as the economy goes on and more of the paper rolls. and i think that they did want to send a message. and you saw a bunch of odd occurrences. three large banks went down claiming software upgrades at the same time, which seems a little suspect. and so it does seem to be there was dislocations at the end of june which came right back out in july. but a lot of that also was from the demand side. there is just an of demand to roll that paper. commodities cycle might be over. just right there, do you know how many investment themes you could key off of if you knew that for sure? so that’s one effect of what we’re — look what’s happened since like the miners. and countries that are more dependent on china than — could you go there and figure some things out. i think that there are countries certainly that have tied their near term prospects to the chinese. emerging markets, that whole subgroup of investing you’d have to at least consider this, wouldn’t you? again, the question is whether or not as a western investor you benefit from growth and emerging markets. and in some countries i think you do, but in some countries like china, you clearly don’t. the gdp growth goes predominantly to in that case party insiders and state owned — nobody watches anymore. there is crackdown supposedly. what about do we need to worry about the gray train from into china? the deficit is coming down first. china is not needed as much anymore. i don’t know if china has bought net that much of our debt net in the last three years. i would think you’d be angry at the fed. are you on board? the fed is what it is. you can’t get angry. do you like my idea, though, that 80 should be the average and when times are good, we maybe go down to 50. when times are bad, we go up to 120. and we just stay forever. 80 is the average. we should assume 80 from the fed and just — what’s the difference? it hasn’t hurt us. doesn’t matter. let’s just keep doing it. so the balance sheet goes to $120 trillion. is that really that bad? one of the few areas you and i probably agree is i don’t think they have the intended consequences. we don’t know when the fed is so engaged in setting market rates beyond the fed funds rate or talk to the market what implications that has. make no mistake about it, the fed is targeting asset prices. they said so. and that’s a whole new road for them that really they have gone down in the past few years. so we can talk about fed models. we can talk — if you’re embarked on a whole new set of policy implementation and tools that are really aimed at targeting asset prices — how does that change your calculus as a short seller? again, you pick your spots. we jusid a study on a series of companies to take a look at today versus spring of 2000. you remember the spring of 2000. a lot of silliness going on. and we wanted to see just how the high end of valuation, and we don’t short on value aches but we just wanted to see what it looked like, and there are as many companies today trading at three times the market multiples in terms of price to sales, market cap and price earnings looking out one year as there were in the spring of 2000. and — what? you can name name snsz. i have a whole list of them here. maybe we can talk about some of them on the list. but — and we’re short only a handful of them. but i hear people on this network and others say this is the most hated bull market ever and people just don’t believe in this. well, you can’t tell that from speculation. because there a lot of it going on. when you talk about the china play and trying to take it out from what joe was talking about with the commodities cycle, the super cycle, can you take that even beyond that to some major companies, dow components that i think about like a caterpillar or somebody who has benefited from that boom over this time? are they able to diversify enough or do you look that far down the chain? i think that companies that are dependent upon certain areas, a lot of them are first or second derivatives of china. for example, caterpillar you mentioned does not have a lot of direct sales in china. less than 5%. half of their profits for example come from the mining business. which is very tied to china. so when you begin to sort of make connections, even though companies may not have a direct market into china, they certainly may sell into businesses that do. and so that’s what you have to sort of look at. you haven’t visited there. if we did, there would be negotiations in trying to get you out of some work camp. but do you — the smithfield thing. do you like pork? where are you? should we sell smithfield? they sell us pieces of their companies all the time. they’re always selling stock but it’s never controlled. look, i’m a free trade and free markets guy. if they want to buy our pork products — they won’t give you any pork. i don’t think i’d eat it.but subject to national security considerations, i would think that free trade and investment — some plastic laden baby milk. they closed a bunch of museums because there were fake exhibits, fake artifacts. quite amazing. have billions of people. who is going to check? does it matter? really? i want to talk to you about