Stocks

Jim Chanos On Petrobras, Tesla, Loeb, Buffett [TRANSCRIPT]

Jim Chanos, founder and president of Kynikos Associates spoke with Bloomberg Television‘s Erik Schatzker and Stephanie Ruhle at the SkyBridge Alternatives Conference in Las Vegas. Chanos discussed short selling, his investment ideas and hedge-fund manager Daniel Loeb’s comments on Warren Buffett.

On the corruption scandal at Petrobras, Chanos said: “Petrobras seems to be the gift that keeps on giving for the skeptics.  And, you know, it is a troubled company, clearly.  It’s far more troubled than we even thought it was a year, year and a half, ago. And the corruption has proven to be deeper than we thought. They’ve got some problematic issues.”

On Dan Loeb’s comments on Warren Buffett, Chanos said: “It’s all about personalities.  And people like to talk about so-and-so versus so-and-so as opposed to ideas. There are a lot of interesting ideas are out there. Warren’s said some, Dan’s had a lot, but when it gets down to personalities, I think the investor and the public is shortchanged because – we call it the smart guy syndrome in our shop.  And that is every great short we have ever had has had really, really smart people on the other side.”

Jim Chanos

Jim Chanos: Loeb vs. Buffett About Personalities Not Ideas

STEPHANIE RUHLE:  All right, well, famed short seller Jim Chanos, he’s got a lot to say and he  is part of our all-star guest lineup.  He’s president and founder of Kynikos Associates.

Jim I’ve got to start with Dan Loeb and Warren Buffett.  What do you make of Dan — I mean, Dan, who cannot —

ERIK SCHATZKER:  He’s not shy.

RUHLE:  He couldn’t avoid a fight with a nun.  What do you make of what he’s saying about Warren Buffett right now?

JIM CHANOS:  Well, look — good morning, first of all.

RUHLE:  Morning.

JIM CHANOS:  As a short-seller, I will defend almost any right of anybody to say things that they have opinions on.  I think that short-sellers, hedge fund managers, activists, and icons are all covered by the Constitution.

And I think the problem that — the reason the story has exploded this morning and last night is because — and I think we’re all to blame — is that it’s all about personalities.  And people like to talk about so-and-so versus so-and-so as opposed to ideas.  And we see this over and over and over again.  I think that it’s too bad because there are a lot of interesting ideas are out there.  Warren’s said some, Dan’s had a lot, but when it gets down to personalities, I think the investor and the public is shortchanged because — we call it the smart guy syndrome in our shop.  And that is every great short we have ever had has had really, really smart people on the other side.  Conversely, we are wrong an awful lot of the time.  And when we think we have a well-reasoned short idea, and it just doesn’t work out.  If you’re just shorting an idea because Jim Chanos is in it, you haven’t done your work.

SCHATZKER:  Is there no substance, though, to what Dan Loeb is saying?  Even if it is more about Loeb versus Buffett than it is about something else?  Because some of that’s true.  I’ve observed over years that sometimes you have to watch what Warren Buffett does and not what Warren Buffett says.

RUHLE:  Meaning we give him a free pass?

SCHATZKER:  Yes, he says I’m going to zig; in fact he zags.

RUHLE:  And we give him a standing ovation.

JIM CHANOS:  I hope when I’m 85 years old I’m getting a few free passes, too.

I mean, look, we’ve looked at companies that Buffett’s been involved with.  And again, they rise and fall on their own merits.  I remember Coca-Cola, we were short Coca-Cola in the late ’90s.  Coca-Cola was playing some of the most egregious accounting games I’ve ever seen back then, between itself and its bottler.  And then, you know —

SCHATZKER:  Before they took enterprises in house.

JIM CHANOS:  Exactly.  And a very well-known name that you’re talking about this morning was on the board.  And so — and ostensibly complaining about accounting at the same time.

So there is, I’m sure, some justification of this.  But, as I said, who isn’t guilty of hypocrisy?  I’m sure I’ve had my share as well.

SCHATZKER:  Could you ever see a rationale for shorting Berkshire?

JIM CHANOS:  Yes, sure.  We can see rationale for shorting any company if the numbers get bad and the valuation’s high enough and things are turning down.

RUHLE:  Have you even taken a look at Berkshire?

JIM CHANOS:  We’re not short Berkshire right now.  Have we ever taken a look at Berkshire?  Sure, we look a lot at companies, Stephanie.

RUHLE:  Well, Nu Skin — Nu Skin been in the news.  This is a name — people talk about Herbalife but Nu Skin is the name you have shorted.  We’ve seen it in a big way blowing up over the last two days.  Should we be paying more attention to it because it seems like all we talk about his Herbalife?

JIM CHANOS:  Well, that’s a great example.  In the multilevel marketing here, it is all about Herbalife and it’s all about the bulls versus the bears in Herbalife.  Well, to us, the most interesting —

(CROSSTALK)

SCHATZKER:  — about personality.

JIM CHANOS:  Yes, you talk about personalities.

RUHLE:  And the $50 million Bill has spent working on them.

JIM CHANOS:  And you know what?  Bill, if you want to do shorts, I can do them for a lot less than $50 million.  I’ll do them for $40 million for you.

All kidding aside.  We were short Herbalife back in 2011 and into 2012.  But as we were looking at Herbalife, we saw that Nu Skin actually with its China exposure, given our views on China, had real risks.  And that one’s been kind of lost in the shuffle and is down quite a bit, as the bulls and bears have battled out in the verdon (ph) of Herbalife .

SCHATZKER:  So what happens next?

JIM CHANOS:  We’ll see.  I mean, Nu Skin reported last night, they announced an SEC investigation, and there are some issues there.  But we’ll see how it plays out.

SCHATZKER:  Jim, I know you have been taking a hard look at some of the oil majors for a long time. You and I have talked about it a couple times over the years.  In fact, where you short — did you have any significant short positions in oil stocks heading into the oil correction?

JIM CHANOS:  We did, and we still do to a lesser extent.  But we did.  But we’ve been short them — not only the majors but of the North American E&P space now for a few years.  And we’ve been talking about it for a few years.

And the majors are a much different story than the North American frackers, which one of my colleagues discussed somewhere else —

RUHLE:  David Einhorn’s fracking (INAUDIBLE).

JIM CHANOS:  Exactly.  Earlier this week.  And the majors have a much, much different problem and that is replacing their reserves in very difficult and expensive costly places.  The E&P, the North American fracking story is the story of a an economic business model story.  And we agree with David about that.

SCHATZKER:  Why is he short position smaller now?  Just because —

JIM CHANOS:  They’ve gone down a lot.  We covered some of our shorts in the first quarter, but the stocks have all snapped back quite nicely and we’re looking again this area.

In the majors, they’re all sort of unique because they have their own geologies, locations, and stories.

SCHATZKER:  Some would like the Arctic, some would like the Gulf, some would like the Middle East.

JIM CHANOS:  Right, you might hear a little bit more about that later today.

RUHLE:  Really?  In your presentation.

JIM CHANOS:  Well, I don’t want to give away anything.

SCHATZKER:  Come on, just a little hint.

JIM CHANOS:  Sorry.

RUHLE:  OK, let’s talk about another iconic guy with quite a few super fans.  Not Warren Buffet, Elon Musk.  Tesla is a name it seems that people love to love.  You’ve got a different view, Mr. Chanos.

JIM CHANOS:  Well, I’m a little more skeptical on Tesla.  And again we focus not on the personalities and but on the facts.  And you referenced the Morgan Stanley piece this morning on the cash burn.

The more cars he sells right now ,the higher the cash burn.   That’s not a position you want to be in.  In addition, his gross margins in the auto business, ex-tax credits, are dropping.  Not going up.  And as an auto manufacturer, you want economies on scale.  You want your margins to be flat to up.

And then there’s just this nonsense quite frankly about the battery.  Last night on the call he basically, Mr. Musk, referenced the fact that the smaller of the power wall units is really not economic.  He acknowledged that, in the U.S., and really it’s only — would be marketed in Germany and Australia, exactly.   And we had done some work on that last week and penciled out the numbers and realized right away that neither of the units are really economic, with exception maybe of peak hours in California.

So this story is all about 2020, 2025, the giga factory.  And I just keep pointing out that analysts who have very precise valuations for 2025 in this company can’t seem to get the current support right.

SCHATZKER:  Here’s a question.  If he can — yes, you have to give Elon Musk some credit for inspiring people to suspend disbelief.  If they can suspend disbelief for long enough, can he get to a point where he is generating enough cash that this company no longer presents a risk?

JIM CHANOS:  Well, anything is possible, Erik, but I’m in the business of trying to bring belief back into suspension so I take a different point of view.

RUHLE:  Besides running a victory lap, any updated thought on Petrobras?

JIM CHANOS:  Well, it’s interesting.  Petrobras seems to be the gift that keeps on giving for the skeptics.  And, you know, it is a troubled company, clearly.  It’s far more troubled than we even thought it was a year, year and a half, ago.  You and I spoke about it I think the fall.

RUHLE:  Six months ago.

JIM CHANOS:  And the corruption is — has proven to be deeper than we thought.  They’ve got some problematic issues.  Again, a lot of the value there is on the comp (ph), in the production and exploration going forward in the next five years.  And I think it’s interesting that the stock has also bounced on the recently rallying (ph) oil.  But the numbers still are pretty grim.

RUHLE:  Still short?

JIM CHANOS:  We’ve covered almost all of our positions.

RUHLE:  There you go.  Jim, such a pleasure.

JIM CHANOS:  My pleasure.  Thanks, guys.

RUHLE:  Jim Chanos, one of my faves.  Jim Chanos, founder and CEO of Kynikos Associates.

SCHATZKER:  Live with us in Las Vegas.