Jim Chanos Says China 'Worse Than You Think;' Reveals SolarCity Short

Noted short seller and founder of Kynikos Associates Jim Chanos recently appeared on CNBC to share his thoughts on the markets.

He mentioned that he feels that China is "worse than you think" and that "the biggest lesson over the last three months, for me anyways, is people are beginning to realize that the Chinese government is not omnipotent and omniscient."

Chanos, of course, has been a long time vocal skeptic on China's growth and property market.

Turning to the US, Chanos feels that people have gotten a bit 'complacent,' noting that markets have gone basically straight up and that's not how markets work.  He also mentioned that he's short Hewlett Packard (HPQ), Caterpillar (CAT), Shell, Chevron (CVX) and also unveiled a newly disclosed short: SolarCity (SCTY).

He called HPQ a "challenged business" and thinks it's in secular decline.  He says "in technology if you're not growing, you're in effect dying."

On CAT, he said it's a commodities supercycle problem.

On SCTY: Chanos argues the problem is that they have a residential model and it's really "a subprime financing company in effect" since they lease out solar panels.

Embedded below are clips from Chanos' interview:

On China:



On Hewlett Packard:



On SolarCity:



On Caterpillar:



For more from this short seller, be sure to also check out Jim Chanos' interview on Wall Street Week.

Jim Chanos on Wall Street Week: Short Selling, Sotheby's, Energy, China & More

Anthony Scaramucci's rebooted version of Wall Street Week continues its streak of impressive guests.  This week, Kynikos Associates founder and noted short seller Jim Chanos appeared on the program.

He talks about how he got involved in the stock market and why short selling is important.

Chanos also touched on why it's important to set capital limits (position sizes) on shorts.  While a short can only go to zero, it can move against you and technically go up infinity.  When a short position moves against you, it actually gets larger in size.  So you have to ask yourself: how much am I willing to bet on this position?  He mentioned 2% to 3% as a typical sized short and never more than 5%.  "Never let one idea carry you out."

As to where he looks for shorts, he likes: flawed accounting, structurally unsound businesses, and businesses on the wrong side of a deep cycle.

Specifically, Chanos noted he is short Sotheby's (BID) as the company has benefited from the easy money generated by quantitative easing worldwide.  While he sees the company as a proxy for measuring how the ultra wealthy are faring (are they buying more art and fine goods or not?), he argues that BID is not a good way to play that because their business model is deteriorating as they compete with Christie's and super dealers.

Chanos also notes he's bearish on the energy space as the integrated oil space has problems.  We've detailed Chanos' presentation at the SALT conference. 

Lastly, he also shared his views on China.


Embedded below is the video of Jim Chanos' appearance on Wall Street Week:



If you missed them, be sure to check out Barry Rosenstein's appearance on Wall Street Week, as well as Carl Icahn's interview and Jeff Smith's appearance as well.  Jeff Gundlach also appeared too.

SALT Conference Best Ideas Panel: Chanos, Bass, Burbank, Cooperman, Karsch

At the Skybridge Alternatives (SALT) Conference in Las Vegas, the best ideas panel featured top hedge fund managers giving their top stock picks.  Here's a summary:


SALT Conference Best Ideas Panel: Chanos, Bass, Burbank, Cooperman, Karsch

Jim Chanos (Kynikos Associates):  Short oil integrators.  Specifically, short Royal Dutch Shell (RDS), doesn't like the merger with BG.  Short Chevron (CVX) as well due to their liquefied natural gas (LNG) challenges.  He also summed up Brazil's Petrobras (PBR) by saying they're "lying, cheating and stealing."  Also check out Chanos' SALT interview we posted earlier.


Kyle Bass (Hayman Capita): Long Perrigo (PRGO).  Doesn't think they get bought out by Mylan, but thinks someone else acquires them.  "We're short enough pharma."  Bass' separate new fund has been challenging pharma patents and says the industry is ridiculous as prices of drugs have spiraled out of control.  He gave the example of Mylan's (MYL) epipen drug specifically.  Says 13% of the company's revenue comes from this drug (which came off patent back in the 1950's).


John Burbank (Passport Capital): Long NCB AB, a Saudi Arabian banking play.  "The banking giant you've never heard of in the country you're too scared to invest in."  He says the vast majority of deposits don't pay interest due to Sharia Law so they'll be in a good position when rates rise.  Harps on the fact that outsiders are going to be able to invest in Saudi and by 2017 90% of investors will own some part.  "All the risks are already known in Saudi."  This isn't a new theme from him as Burbank has pitched Saudi investments in recent years.


Lee Cooperman (Omega Advisors): As he has been for a while now, he again advised reducing fixed income exposure.  He also said to go short on any rally if you're adventurous. His stock picks were the same as his Sohn Conference picks: ACT, AER, C, DOW, GM, GOOGL, PCLN.


Michael Karsch (Hunter Peak Capital): Long NOS SGPS, a Portuguese cable/wireless provider.  Biggest cable play and #3 wireless provider in the country, a hidden gem.


For more from the SALT conference, check out Dan Loeb's talk.

Jim Chanos at SALT Conference: Royal Dutch Shell, Chevron, Petrobras, NuSkin, Tesla

At the Skybridge Alternatives (SALT) Conference in Las Vegas, short seller Jim Chanos of Kynikos Associates sat down with Bloomberg's Stephanie Ruhle to talk about markets as well as some of his past and current short positions.  He mentioned NuSkin, Tesla, Petrobras and talked about other oil plays in general.

*Update: He's now delivering his presentation at SALT: short oil integrators.  One of his slides entitled "Brazil: risk masquerading as opportunity."  Sums up Petrobras as: "lying, cheating, and stealing."  He says he's short Royal Dutch Shell.  He's also short Chevron (CVX) due to LNG problems, among other things.

Embedded below is the video of Chanos' interview at SALT:

Goldman Sachs Very Important Short Positions For Hedge Funds: Q1 2012

Goldman Sachs is out with its Q1 2012 Hedge Fund Trend Monitor and we've already posted up Goldman's VIP list of most important stocks to top funds.  Now we're posting a new addition to their research: the very important short position list.

This tracks short exposure of hedge funds as an equal-weighted basket that "consists of 50 S&P 500 constituents with the highest total dollar value of short interest outstanding."  It can be accessed on Bloomberg via < GSTHVISP >.

Goldman emphasizes that this list is not based on 13F holdings (because hedge funds are not required to disclose shorts).  They also note that it's not a basket of stocks most held short.


Goldman Sachs Very Important Short Positions For Hedge Funds

Stock, value of short interest (in $ billions)

1. Johnson & Johnson (JNJ): $2.9
2. Exxon Mobil (XOM): 2.8
3. Intel (INTC): 2.6
4. International Business Machines (IBM): 2.4
5. Amazon.com (AMZN): 2.4
6. AT&T (T): 2.3
7. Chevron (CVX): 2.1
8. Verizon (VZ): 1.8
9. Duke Energy (DUK): 1.7
10. Walt Disney (DIS): 1.5
11. Abbott Laboratories (ABT): 1.4
12. Coca Cola (KO): 1.4
13. General Electric (GE): 1.4
14. Walmart Stores (WMT): 1.3
15. Caterpillar (CAT): 1.2
16. ConocoPhillips (COP): 1.2
17. Walgreen (WAG): 1.2
18. Time Warner (TWX): 1.1
19. Lockheed Martin (LMT): 1.1
20. Home Depot (HD): 1.1
21. Dell (DELL): 1.1
22. Bristol Myers Squibb (BMY): 1.1
23. Oracle (ORCL): 1.1
24. Schlumberger (SLB): 1.0
25. United Parcel Service (UPS): 1.0


Of the above. David Einhorn recently made comments about Amazon.com (AMZN) at the Ira Sohn conference.  While he seemed to be skeptical of the company during his talk, he did not say he was short.  He highlighted that the company has destroyed other businesses, taking market share, but criticized their weak profit growth.

Jim Chanos is short Dell (DELL) and he points to the decline of personal computing in favor of tablets and other mobile devices.  He's been correct in that regard as Dell recently reported declines in those segments in their latest earnings release.  But of course the bull case points to Dell's other business lines as they shift toward the enterprise. 


Here's the rest of Goldman's Very Important Short Positions List:

26. Amgen (AMGN): 1.0
27. AvalonBay (AVB): 1.0
28. Chipotle Mexican Grill (CMG): 1.0
29. Boston Properties (BXP): 1.0
30. Union Pacific (UNP): 0.9
31. Simon Property Group (SPG): 0.9
32. Procter & Gamble (PG): 0.9
33. Cerner (CERN): 0.9
34. Host Hotels & Resorts (HST): 0.8
35. Kohl's (KSS): 0.8
36. Waste Management (WM): 0.8
37. CenturyLink (CTL): 0.8
38. Carnival (CCL): 0.8
39. Philip Morris (PM): 0.8
40. American Express (AXP): 0.8
41. DuPont (DD): 0.8
42. McDonalds (MCD): 0.8
43. MetLife (MET): 0.8
44. Fastenal (FAST): 0.8
45. Merck (MRK): 0.7
46. Comcast (CMCSA): 0.7
47. Sysco (SYY): 0.7
48. Freeport McMoran (FCX): 0.7
49. Alcoa (AA): 0.7
50. Staples (SPLS): 0.7


Be sure to also check out Goldman Sachs VIP list of most important stocks to hedge funds for Q1 2012.

Strategist Jeff Saut Cautious, But Likes Certain Dividend Stocks

It's been a while since we've checked in on what market strategist Jeff Saut has had to say. Given the drastic run up in equities this year, Saut is cautious. Yet while he's cautious, he doesn't want to bet on the downside.

This is because he thinks there's a likelihood the market could just as well see a sideways consolidation. In general, Saut has long believed it's imprudent to be bearish because a turn in the economy would translate into profits exploding, inventory rebuilding, and a capital expenditure cycle, topped off with a reduction in unemployment.

Lack of Down Days in the Market

Saut is most intrigued by the fact that the market has been able to jump over a ton of hurdles (a 21% rise in the price of gas being one of them).

He writes, "the SPX has now gone 35 trading sessions in 2012 without suffering a 1% down day. There have been 12 other years since 1928 where the SPX has traded higher for 30 sessions, or more, without a 1% down day. In all but one of those occurrences the SPX was higher at year's end with a median gain of more than 15%."

Dividend Stocks Saut Likes

So while he does think this bodes well for the market, he is still a bit cautious in the near-term as the market's recent rise has felt "unnatural" to him. As such, he has recommended the following conservative dividend stocks: Abbott Labs (ABT), Aflac (AFL), Chevron (CVX), McDonald's (MCD), Norfolk Southern (NSC), and Huntington Bancshares (HBAN).

Embedded below is Jeff Saut's recent commentary:



You can download a .pdf copy here.

For more recent market commentary, yesterday we posted up Eric Sprott's February commentary on why 2012 is the year of the Central Bank, as well as Passport Capital's John Burbank saying this is a stockpicker's market.

Jeff Saut: Decisively Cautious, Cites Dow Theory Sell Signal

Market strategist Jeff Saut takes a decisively more cautious tone in his investment commentary this week compared to previous notes and understandably so. The markets have seen somewhat of a precipitous decline that has many participants worried. The Chief Investment Strategist at Raymond James is currently very focused on "keep(ing) the profits accrued since the March 2009 bottom." This is definitely a defensive posture. And rather than focusing on the investment opportunities at hand on both the long and short sides of the portfolio, Saut seems solely concerned about protecting profits.

This all becomes intriguing when you consider Saut's commentary over recent weeks. Last week, Saut noted he removed market hedges during the turmoil. He was letting his protection go when he needed it most and when it was hardest to let go. Normally, that would be the right play. However, the market's precipitous decline has continued. And prior to removing his hedges, Saut argued that the market was in a bottoming process.

Now that we've come full circle, Saut highlights a few reasons to be cautious. Firstly, the market recently registered a Dow Theory sell signal (something that speaks for itself). Secondly, he cites weakening economic reports, specifically the sharp decline in the Economic Cycle Research Institute's weekly leading index. Additionally, Saut says his own proprietary indicator has registered a sell signal as well. There is one last signal he is watching for and that is the impending 'death cross' when the 50-day moving average crosses the 200-day moving average to the downside. Not to mention, a technical analysis video we recently highlighted points out a bearish engulfing pattern in the markets.

In the near-term, Saut is cautious. In the long-term, he thinks equity markets will be okay. He writes, "the yield-curve is still relatively steep, credit spreads have not leaped, the Advance/Decline Line appears steady, and earnings comparisons should remain favorable; so unless it is different this time the recent correction in the equity markets should resolve itself with higher prices."

To be honest, we're not quite sure how Saut comes to that conclusion after the barrage of negative signals and indicators he referenced earlier. Maybe he thinks the negative sentiment is overstated, who knows. Saut honestly admits he is cautious in the near-term and he's certainly not alone there as global macro hedge fund Prologue Capital outlined cause for concern as well recently. That said, Saut is still on the prowl for solid risk/reward situations. Specific stocks Saut is intrigued by currently include Chevron (CVX), Wal-Mart (WMT), and Peabody Energy (BTU). Saut in particular likes Wal-Mart under $50 per share due to strong fundamentals and Peabody for the 'supercycle for coal.'

Embedded below is Jeff Saut's market commentary for Raymond James:



You can download a .pdf copy here.

As mentioned before, you can view Saut's previous commentary including his removal of hedges and his call that the market was in a bottoming process. Overall though, his message is still clear: selectively upgrade the stocks in your portfolio. This could turn out to be a big call as the market is undoubtedly at a potential turning point here with the technicals looking bearish.

Analysts' Best Stock Picks For 2010

Raymond James' global research is out with a list of their analysts' best stock picks for 2010. Our previous post on this list was taken down due to the list not being distributed to the public yet. So, now that it is available publicly, here is their list. Their picks from this past year (2009) was up 52% compared to an S&P return over the same period of 30.1%, so they've outperformed by a wide margin. In fact, their annual list of stock picks has outperformed the S&P 500 in all year but one since 1996.



Their goal is to identify stocks that will produce "above-average price appreciation" over the course of the next year. They certainly did that with their 2009 list and so let's see if they can do it again with their impending 2010 selections.

Investment theme and stock pick lists for 2010 seem to be popular amongst the various financial institutions right now heading into the new year. Just yesterday, we covered the top ten investment themes for 2010 and how to play them. We've also detailed the top ten stocks held by hedge funds as well. Today we drill it down to specific stock picks for the new year courtesy of Raymond James. As always, take everything with a grain of salt as these reflect their own opinions. Without further ado, here's the list:


Analysts' Best Picks for 2010

1. Aflac (AFL)
2. Alpha Natural Resources (ANR)
3. Altera Corporation (ALTR)
4. Bank of America (BAC)
5. Best Buy (BBY)
6. Chevron (CVX)
7. Concho Resources (CXO)
8. CVS Caremark (CVS)
9. FLIR Systems (FLIR)
10. National Oilwell Varco (NOV)
11. Nuance Communications (NUAN)
12. Sybase (SY)
13. TD Ameritrade (AMTD)
    

Let's dive into some specifics regarding each of their picks:

Aflac (AFL): Raymond James likes Aflac because they feel there is room for growth from supplemental health insurance products. Additionally, they fancy AFL's entrance into the group market. Overall, they feel they will see continued long-term demand. Finally, RJ writes, "Our price target of $60, established on October 29, assumes a normalized P/E on our 2010 EPS expectation of 11.7x less expected investment losses of $2.35 per share. The normalized P/E target is a 20% discount to the then current S&P 500 P/E of 15.6x based on a mean 2010 EPS estimate of $71.17."

Alpha Natural Resources (ANR): Their pick here is based on valuation as well as leverage to the metallurgical coal market, an area that is strengthening. They are also well diversified in other areas and have a solid balance sheet. RJ's main thesis here is valuation based as they write, "Our $52.00 target price factors in our target multiples on the various metrics including 15x P/E ratio, 7.5x P/CF, and 7x EBITDA, which fit within the historical trading ranges of ANR, along with a long-term DCF analysis. Note that this does not include any value for the ~330 Bcf of natural gas reserves, which we believe is easily worth another $5.00 per share, with upside over time through its Marcellus acreage."

Altera (ALTR): Raymond James has selected Altera due to their positioning to capitalize on programmable logic devices (PLDs). They think ALTR will outpace the semiconductor industry in growth by 2x over the course of the next few years. Their analysts write, "ALTR shares remain one of our favorite ideas with a 12-month price target of $29, based on a 23x target P/E multiple to our 2011 EPS estimate of $1.25. This multiple is a slight premium to the shares' 21x historic P/E average over the last three years, which we believe is conservative given Altera's solid business model and leadership in the industry."

Bank of America (BAC): Their tagline on this stock is simply "superior upside potential." As we have covered previously, numerous hedge funds agree as BAC is one of the most popular stocks amongst hedge funds. Analysts at Raymond James feel an oligopoly has emerged in US banking and BAC is right up there with the best in risk-based pricing as they write, "Trading at only 69% of book value and 131% of tangible book value compared to the recent industry averages of 114% and 164%, respectively, shares of BAC offer attractive risk/reward pricing and compare favorably to large-cap peers. Bank of America has already received approval to pay back its $45 billion in TARP funds and we believe a CEO announcement is imminent, both of which should receive a favorable response from the Street."

Best Buy (BBY): RJ's analytical team feels Best Buy can continue to capitalize on the demise of Circuit City as they will continue to gobble up market share, expanding returns. Improving operating margins and an increasing consumer base is boosting BBY's performance and they feel management is one of the best in consumer electronics. RJ writes, "Our $52 price target was reached by placing a ~15x multiple on our FY11 EPS estimate of $3.45, which represents a 16.7% discount to its historical three-year average of 18x."

Chevron (CVX): Chevron is the 'best positioned' among the integrated oil plays, RJ says. This is due to their above average oil focus, their drill-bit track record as they have the highest resource replacement rate, and lastly their small refining segment which should benefit them as they feel those with large exposure to refining will suffer going forward. Raymond James' analysts write, "Quite simply, we believe Chevron should be a core long-term holding for energy investors. Our $92.00 target price is based on ~11.6x our 2010 EPS estimate of $7.92, a slight discount to the mean 2000-2009 P/E. Inclusive of the current 3.5% dividend yield, our target price implies total return potential of 18%."

Concho Resources (CXO): Their pick here is mainly due to high returns in the Permian Basin as the vast majority of their revenues are tied to the price of oil. Of CXO, RJ's analysts say, "Concho generates some of the highest cash margins in our E&P group. One of the company’s core plays, the Yeso, generates an 80% internal rate of return at $70/Bbl oil. Concho is also one of the best in the entire E&P universe on production growth per debt-adjusted share (~35% vs. 3% for the peer group)."

CVS Caremark (CVS): This selection is based on the fact that CVS's model is not broken and that valuation is still attractive. They argue that the worst is behind this name and that going forward retail tailwinds will be behind them and they will see improvements in their Long's acquisition. Raymond James analysts argue that CVS now has compelling relative valuation and that you could potentially be getting their PBM essentially for free. They write, "With expectations reset, the potential for an improved 2011 selling season, and continued share gains in retail, we believe shares are poised to expand off of these trough valuation levels, especially if management continues to deploy significant levels of FCF to share repurchases. Our $39 price target represents 13x 2011 EPS of $2.95, toward the low end of historic ranges." Back on November 5th on our Twitter account we actually mentioned that Lee Ainslie (hedge fund manager of Maverick Capital) was supposedly very keen on shares of CVS at an investment conference that took place before the recent disappointment. We'll have to see if he still favors it going forward.

FLIR Systems (FLIR): Their bullishness on FLIR is attributed to rising orders and what they deem to be attractive valuation. FLIR is a pure play on thermal imaging and infrared technology, an area with lots of growth potential. They write, "As time progresses through next year and investors value FLIR on 2011 earnings, we believe the stock can reach the $40.00 range as its multiple expands toward the historical average. Our $35.00 target price is a 23x multiple on our 2010 EPS estimate of $1.50, in-line with the firm’s historical average multiple and in-line with peers."

National Oilwell Varco (NOV): This has previously been a hedge fund favorite and now Raymond James feel it will benefit throughout 2010. Their rationale: compelling valuation, free cash flow that is strong, and inorganic growth opportunities. They simply feel this is the best name in the oil service space by writing, "Our target price of $60.00 is based on ~18.5x our 2010 EPS. This valuation is in-line with its oilfield manufacturing peers and represents a more reasonable valuation for the company given its tremendous cash position, decent yield, and excellent growth prospects."

Nuance Communications (NUAN): Raymond James feels that speech recognition will be a forcible trend in technology and that Nuance is how you can play it. NUAN is already well positioned in a market that is just now entering the mainstream. Their analysts feel that, "Catalysts for the stock could include: gradual improvement in on-premise enterprise sales and resurgence in enterprise speech growth rates to 10+%, continued large on-demand wins within healthcare, potential benefits from the healthcare stimulus for Dragon Medical, continued new handset and auto wins for mobile, large hosted mobile care wins, and strong cash flow generation."

Sybase (SY): Their analytical team has decided that Sybase actually makes sense in any market environment. However, they have picked it for their 2010 list because it is a recession-resilient business and that they can capitalize on secular growth. RJ says, "Our $49 price target is based on a forward P/E multiple of 19x our 2010 EPS estimate of $2.58. We believe this is justified due to continued license growth, an improving operating margin, and the belief that we will continue to increase our EPS estimates."

TD Ameritrade (AMTD): Rounding out their list of selections, TD Ameritrade makes the cut due to possible catalysts, a solid balance sheet, as well as possible earnings growth should the Fed raise rates during the next year. RJ's analysts write, "TD Ameritrade remains at a discount to peer Charles Schwab (SCHW/$17.88/Outperform), which is currently trading at 21x our 2010 EPS estimate of $0.84 and 14x our 2011 EPS estimate of $1.29."

So there you have it. A few peculiar insertions but some logical ones as well. We'll have to see if their list can outperform the S&P500 yet again this coming year. We've also covered some other research out of Raymond James as we detail their chief investment strategist Jeff Saut's weekly market commentary. You can check out his stock market commentary from this week, as well as his previous market commentary where he feels a weak dollar will drive further market upside.

Comparing their list to the top stocks held by hedge funds, we see very little overlap. However, one stock where they both resoundingly agree is Bank of America (BAC). Tons of hedge funds hold this name and Raymond James has labeled it one of their top picks. For more favored stock picks for the year 2010, check out the top ten investment themes for 2010 as well as the most popular stocks among hedge funds.

Analysts' Best Stock Picks For 2010

*Update: This post has been removed per the request of representatives from Raymond James. Our apologies for any inconvenience. In the mean time, we highly recommend checking out the top ten investment themes for 2010 as well as the most popular stocks owned by hedge funds.

If you wanted more research out of Raymond James, we've also detailed their chief investment strategist Jeff Saut's weekly market commentary. You can check out his stock market commentary from this week, as well as his previous market commentary where he feels a weak dollar will drive further market upside.