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 video segments and transcript below
i believe that the commodities super cycle which has been builton 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 arebeginning 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 youconsider that basically one-third of global mining cap x is equipment, well, that lands you in peoria, illinois, at thedoorstep 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 todecline 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.