Economics, Videos

Jim Chanos On His Favorite Shorts: Full CNBC Transcript

The following is the unofficial transcript of a CNBC EXCLUSIVE interview with Kynikos Associates Founder and President Jim Chanos and CNBC’s Sara Eisen on CNBC’s “Closing Bell” (M-F 3PM – 5PM) today, Thursday, December 13th from the Yale CEO Summit. The following are links to video from the interview on CNBC.com: https://www.cnbc.com/video/2018/12/13/chanos-worried-about-interest-rate-sensitivity.html and https://www.cnbc.com/video/2018/12/13/famed-shortseller-jim-chanos-on-new-shorts.html.

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MORGAN BRENNAN: Welcome back to the “Closing Bell.” Short seller Jim Chanos telling Sara Eisen earlier today that he is now short casinos Wynn and Las Vegas Sands. Those stocks trading lower on the day. Sara joins us now with more. Hey Sara.

SARA EISEN: Hey Morgan. Yes. We talk a lot about the new shorts and what it all has to do with the U.S. China trade night. But I started off asking Jim about this volatility and the downturn we have seen in the markets, which should be a redemption for some of the short sellers, and whether he sees it lasting. Watch.

JIM CHANOS: One of the things that worries me is just how fragile we seem to be to small rises in interest rates. Right? So if I were to tell you that nominal GDP growth recently was 6% with record low unemployment and you know, good jobs numbers, good wage numbers and you’d say, “Gee, we were having a problem with 3% interest rates.” You would say, “That’s – you know, what kind of fragility in the system? I was just in the summit – the Yale CEO Summit here. And you know, people were talking, being interest rate sensitive. I can’t name names but in interest rate sensitive industries, we’re talking about what a slowdown they’ve seen in the last two months for their business. And you know, this is basically interest rates going from 2.5 to 3%, mortgage rates going from 3.5 to 5. Look at Europe. Europe’s suddenly struggling with basically 0% interest rates. And so something seems to be a little bit off. That if 8 or 9 years into a recovery we can’t handle a ten year, which normally trades about a full point below nominal GDP, that would be 5% right now. We certainly if rates went to 5%, I think people would probably lose their minds.

SARA EISEN: A lot of freaking out about the 3%.

JIM CHANOS: Yeah. So it’s -- I don’t if it’s because of the build-up of debt overall in the global economy or what it is. We seem to be basically very sensitive through higher interest rates. At previous cycles we wouldn’t have been.

SARA EISEN: I wanted to ask about China. I always think of you as a famous China bear. You were betting against it for a long time.

JIM CHANOS: Yeah. It’s been a good short.

SARA EISEN: Are you still short? I mean – what I thought was that you actually hadn’t been taking advantage that the fact that the Shanghai composite basically melted down this year.

JIM CHANOS: A quarter or two ago, we were probably the least short China that we’ve been in the last ten years. And that was not that we were becoming bullish on China. It is just that there were better opportunities elsewhere. Because the Chinese market has gone basically flat for the last ten years. But more recently we’ve added some new and old names. And one area I was scratching my head about is the Macau casino guys. And what’s fascinating is whatever your views on Macau, the U.S. operators trade at a premium to the Chinese operators. And while that has normally been the case, I think in light of the trade tensions that doesn’t make a lot of sense right now - particularly because the trade deal not withstanding, the licenses are coming up for renewal with Chinese authorities and negotiations start next year and into 2020. The licenses expire typically 2020 and 2021.

SARA EISEN: So you think this is going to be a political punching bag for China?

JIM CHANOS: It could be. I mean I think if – at the very least the U.S. operated should trade at a discount. And, you know, what’s really ominous is that if you examine the nature of the concessions and you read the disclosures and SEC documents the Chinese government holds all of the cards. They literally could put these guys out of business if they want with no recourse. And so --

SARA EISEN: So who are you shorting?

JIM CHANOS: Well we are basically short the U.S. guys. You would know the names --

SARA EISEN: Wynn.

JIM CHANOS: Wynn.

SARA EISEN: Las Vegas Sands.

JIM CHANOS: And Sands. And particularly their Hong Kong listed Asian operations. And then in our hedgefund we’re actually long the Chinese operations. Because again, that way we don’t have to make a stand on Macau itself. But just on the free put, if you will, politically. Having said that, you know, these are still not cheap stocks. They have come down a bit. But all of them --

SARA EISEN: Have you been short during – the way down?

JIM CHANOS: We have been short since the summer. I think that what’s interesting is that the Chinese operation have come down as much as the U.S. operation. So it is more general concern about growth than it has been political.

SARA EISEN: So is this a bet that the trade war is not going to be soon resolved – ?

JIM CHANOS: I think it’s more that that could happen. And t’s not being priced in the stocks. It’s not a prediction that it will happen but I could also certainly see we walk in one day and people’s daily points out to the world that the U.S.

SARA EISEN: The licenses are up.

JIM CHANOS: The U.S. licenses are coming up. And by the way, one them is being run by a guy who’s the biggest donor – one of the biggest donors to President Trump. And how can that not – how can the Chinese not know that?

SARA EISEN: So how much further do you see Wynn and Sands falling?

JIM CHANOS: I don’t know. We are just going to follow the news. And as I said, their businesses, it’s not as if things were great any way. The growth had slowed down there so the stocks had gotten hit back after the second and third quarters. So there has been a general slowdown with Macau because of generally being up against good numbers a year ago.

SARA EISEN: It’s interesting because you for so long were sounding alarms on the China fueled debt bubbles, and their growth. Now they are actually in that China play betting against U.S. companies who operate there instead of Chinese companies.

JIM CHANOS: Well, there is another ancillary issue there. Which is I think the Chinese are worried about their currency. And one of the corollaries to the debt issue is -- is that they begin to worry about money leaving the country. And that’s a Macau issue too. And they had that fear in 2014, 2015. And the Macau took it on the chin. So Capital can shut that spigot off whenever it wants to.

SARA EISEN: Capital play.

JIM CHANOS: Capital play. Yep.

SARA EISEN: Money leaving Macau which is --

JIM CHANOS: Exactly. And in light of what we are seeing with the Huawei situation, money coming into foreign real estate markets like Canada, I mean all of this stuff is inner linked. And it has to be political when you talk about China because it’s a state-run economy. And they are not separate.

SARA EISEN: The problem is you have President in this country that is worried about a market fall and that intervenes on a daily basis to change the mood of the markets and the narrative around the China trade talks. And so far, it looks like he wants to make it better.

JIM CHANOS: I’m sure he does. And --

SARA EISEN: Kind of works against you on this -- on this trade?

JIM CHANOS: We’ll see. China has an interesting way. They know that, right? They know the President is obsessed with the stock market so it’s also in there just to wait him out if that’s your logic. And so -- and I don’t know that I would want to predict what he will do any given day anyway.

SARA EISEN: Is this your highest conviction in trade right now?

JIM CHANOS: It is up there. It is -- we have a lot of trades on. But --

SARA EISEN: Anything else you want to share?

JIM CHANOS: I think that’s enough.

SARA EISEN: Guys we did talk about some of his other high conviction trades including Tesla and how about the recent improvement in fundamentals for the company with high expectations for profitability for Tesla in the fourth quarter. We’re going to play that in the next hour of the “Closing Bell,” why he is still short this company and pretty negative about the so called fundamental improvements. And we also talked about another one of his shorts - Dunkin Brands, which has been up since Chanos first announced that he was short on CNBC. We’re going to talk about it with him and we’re also going to talk about it with Nigel Travis, the chairman of Dunkin Brands, all coming up here from the Yale CEO Summit. For now back to you.

MIKE SANTOLI: Yeah. Those are two that obviously have caused a lot of pain to a lot of short sellers, Sara. But you know, it’s interesting to hear him talk about Las Vegas Sands and Wynn when, you know, Jim Chanos for years would look at accounting irregularities and valuations and all of these other factors. These are like geopolitical shorts right now.

SARA EISEN: Kind of. Though he did say the evaluations on Wynn and Las Vegas Sands are still elevated despite the slowdown. He talked about some of the weakness in Las Vegas and sort of wondered whether there were structural issues facing Vegas like millennials not wanting to go there and it just not being that popular of a destination, increased sports betting for instance hurting Las Vegas. So other fundamental reasons but you’re right, it is certainly -- it sounded like from Chanos that the central part of this thesis is that China has all of the power when it comes to renewing licenses and nobody is paying attention to the fact that they are up for the first time in several years. And so that could really do a lot of damage to the subsidiaries that a Wynn or Las Vegas Sands has over there, which he also mentioned are saddled with debt. So tere is definitely a financial sort of thesis here Mike to your point.

MIKE SANTOLI: Sure.

SARA EISEN: But you’re right. It’s not like he was questioning that. He does see though a lot of downside ahead.

MIKE SANTOLI: Yeah, fascinating. Those stocks are down 30 plus percent. Sara, thanks. We’ll talk to you again soon.