Jim Chanos, founder and president at Kynikos Associates, joined hosts Stephanie Ruhle and David Westin on Bloomberg TV’s new flagship morning program, Bloomberg <GO>. Chanos discussed his short on Tesla and SolarCity and the challenges in the green technology industry. He also spoke about how Glencore is suffering from the change in its business strategy in 2012 and hints that he took a short position in the company.
When asked whether he went short on Glencore last week , Chanos said: “We’re not going to comment on our position on Glencore. But I will say is we know the company pretty well.” He added “Let’s just say I’m a potential purchaser…to close out a short position you have to buy stock.”
When asked about shorting Tesla, Chanos said: “We haven’t disclosed our position officially in Tesla. Let’s just say I’m not very positive on the company and we’ll leave it at that.” Of Volkswagen, he added: “If anything I think we’d be looking at Volkswagen on the long side. But we have not invested in Volkswagen.”
Chanos: I’m a Potential Purchases or Glencore Stock
Chanos Talks Commodities, Cheniere and Glencore
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Chanos: Greece is a Precursor of Problems in EU
Word Association with Jim Chanos
FRANCINE LACQUA: We’re going to find out what Mr. Chanos thinks. The potential mini sale is just one of the latest deals driven by this massive drop in commodities. While PIMCO said last week the worst is behind us, Goldman and Citigroup say the pain is far from over. In fact Citi’s Ed Morse said over the weekend cost deflation will only make the cycle worse.
Jim, welcome. You are short natural gas producer Cheniere (PH) and your short, what is that Coal Company Console. Where do you see opportunities in commodities right now?
JAMES CHANOS: Well, the commodity space has been under general deflation since 2012. The commodity super cycle that took off when China entered the WTO in ’01 is really sort of a once in a lifetime type event. We saw capital spending go globally in mining; go from $14 billion a year in ’01 to $125 billion in 2012. I mean that’s just amazing growth. Of course because of our friends in China.
LACQUA: Our friends in China?
CHANOS: Our friends in China. And so as China inexorably slows and it’s slowing and inexorably as it builds out its infrastructure and finishes doing that, demand for hard commodities, copper, iron ore and so forth are going to be under pressure.
And what has happened as always happens but made worse this time is that people expanded their investment in the space to meet that demand as if it would never end. And now we have the hangover from that. Who knows how long that will last?
DAVID WESTIN: But going back to Cheniere (PH) for a second.
WESTIN: They have a lot; at least they say they have a lot of their business locked up in long-term contracts.
WESTIN: Which they say should protect them from some of this.
CHANOS: Well, about half of their estimated 2020 or 2021 EBIDA of $4 billion is locked up in the take or pay about $2 billion of that. So it’s a little bit of a myth that all of it is accounted for. They still are going to be dependent on the spot market for a huge amount of the what the bulls think they’re going to make. And in fact the spot market’s in disarray already in liquefied natural gas.
WESTIN: But how much of your short on Cheniere is based on the assumption they’ll have to be modification in those long-term contracts?
WESTIN: If you knew all those contracts would be honored–
CHANOS: Yeah, we think they will be.
WESTIN: Does it affect your position?
CHANOS: No, not at all, because if you think all of these so-called trains, they’re expensive David. They’ll probably over $30 billion in debt Cheniere when they’re done building these things out. That will be $2 billion in interest annually. $30 billion worth of plant and equipment in the swamps of Louisiana is going to depreciate we think about $1 billion a year, 30 year life.
RUHLE: All right, let’s assume fundamentally you’re right. You’re going up against Carl Icahn.
CHANOS: Carl’s a good investor. You know? But we never worry about personalities when we invest Stephanie. We’re always looking at the actual fundamentals of an idea. And you’ll have to ask Carl why he’s in it. But we just think that the numbers don’t pencil out.
RUHLE: OK. Well, you’ve got other personalities. Glencore, Ivan Glasenberg is known as one of the shrewdest business guys out there in the commodities space. Just last week John Mack who is on their board who doubled down and bought more of their stock when things went down, said he’s never been more confident in this company. In fact he said it was short sellers who caused things to go down.
CHANOS: Yeah, I think–
RUHLE: Not you specifically but are you one of those short sellers?
CHANOS: I think he said something similar in ’08 during the crisis.
CHANOS: He blamed, I believe Mr. Mack blamed short sellers for the problems in the investment banks, which of course, turned out not to be true. We’ll leave it at that.
Look the problem with Glencore is that this is a company that was 80% trading 20% hard assets.
CHANOS: Until 2012. Right at the top of the cycle they bought Xstrata. Changed the face of the company completely so that they’re now 80% hard assets, 20% trading. And the whole idea was, was if there was a downturn in the commodities markets, the trading acumen would help offset the hard assets. It didn’t work that way. The traders were long the same commodities the mining assets were.
And so if that was the reason to put this thing together one has to question that strategy. And if you look before that 2012 deal, Glencore was earning double digits on its capital. It was a trading house that was basically a good trader. Now they’re earning low single digits on their capital. It’s changed businesses.
RUHLE: You sure know a lot. Does that mean you went short last week?
CHANOS: Let’s just say I’m a potential purchaser.
RUHLE: You’re a potential purchaser.
CHANOS: I’ll let you think about that for a second.
RUHLE: A potential purchaser of what?
CHANOS: Well you have to close out a short position you have to buy stock right?
WESTIN: What about the moves they’re making now? They’re selling cooper mines.
CHANOS: So they were buying assets at the top of the market.
CHANOS: And now that commodities have crashed, they’re selling assets. Does that sound smart to you?
WESTIN: But do you think that, I mean zinc they cut way back on.
WESTIN: Right? On Friday.
WESTIN: And there was indication in the markets as I recall, the terminal indicated that really the price was going up on zinc.
WESTIN: Do you think that they are in a situation–
CHANOS: They’re getting rid of the–
WESTIN: To support the