Jim Chanos Shorting Petrobras & Fortescue Metals, Bearish on Coal Industry ~ market folly

Wednesday, May 2, 2012

Jim Chanos Shorting Petrobras & Fortescue Metals, Bearish on Coal Industry

Jim Chanos appeared on Bloomberg yesterday from the Milken Institute Global Conference in Los Angeles.  The Kynikos hedge fund manager talked about his short selling strategy and his role as a "realtime financial detector."

Chanos on What He's Shorting Now

Chanos, of course, is famous for flagging Enron, among other notable frauds.  So what's he short now?  Petrobras (PBR).  He says that integrated oil companies are 'liquidating trusts.'

He also believes that natural gas is undergoing a revolution in the US and so he thinks this is bad news for the coal industry (particularly thermal coal).

He's also short Fortescue Metals in Australia.  This company essentially handles China's growth by supplying iron ore.  Chanos points out that iron ore prices have spiked up huge after being largely the same price for 100 years.  He doesn't think that's sustainable as it's not a rare earth.

You can also check out Chanos' bearish view on China.  He also thinks Chinese banks are "built on quicksand."

Chanos on Value Traps

The hedge fund manager says that a lot of his best short ideas have "looked cheap all the way down.  Just because a stock looks cheap does not mean it's good value."  He's short the personal computer space. 

We've highlighted how Chanos is short Dell and thinks it will continue to appear cheap as tablets continue to proliferate.  David Einhorn of Greenlight Capital (who is long DELL), would argue that the company is focused on the enterprise, not the personal computing market.  Chanos' secular shift in the personal computing world makes sense, but it seems like there might be better ways to express that bet.

He also mentions that while he's obviously a short biased fund, he's "long the market" as that's what he's benchmarked against.  His shorts have to inversely outperform the market for his hedge fund to earn its performance fee.

Embedded below is the video of Chanos' interview:

For more on Kynikos Associates, head to Chanos' presentation: beware the global value trap.

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