Chanos Shorts Oil Majors, Ford, Hasn’t ‘Played’ BP

Hedge fund manager Jim Chanos, founder of Kynikos Associates Ltd., spoke with Bloomberg Television’s Erik Schatzker for a special that will air on “For the Record” next Friday, 6/25. Chanos talks for the first time about his new short positions since he went public with his bet against Chinese property in January 2010.

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Transcript after jump

Chanos on shorting oil majors but not currently shorting BP:

“No, no we haven’t played BP in any way shape or form. We’ve short some of the majors but we just not short BP, interestingly.”

“[Decision to short oil majors] predates [the Horizon Deepwater rig], and it has to do with financing. If you look at some of the biggest oil companies in the world — and I’ll let you use your own imagination as to which ones those are, there’s a small handful. If you look at their cash flow statements relative to the income statements, you will see companies that haven’t replaced reserves in years and haven’t seen any increase in revenues in years and yet their capital spending eats up all of their cash flow, meaning they are borrowing their dividend. They are in effect liquidating. And investors don’t realize that. It’s one of the reasons why – and the market does [realize it] to some extent – that’s why the yields are so high. But they’re not earning, in economic terms, in many cases, those yields. And if people did a careful analysis of the cash flows of some of the biggest, most well regarded, integrated oil majors, I think they would be surprised at what they’d find.”

Chanos on shorting Ford:

“The issue is of course that the UAW owns big chunks of GM and Chrysler. They don’t own as proportionately any Ford to speak of. And so it’s going to be very interesting to see how it is that the union, which controls the employees, and I contend that these entities are still run for the employees and their retirees more than their shareholders, are going to look at an environment going forward where the UAW is a major equity holder, than some of the other entities. It adds a new dynamic to the twist, definitely.”

“We’ve been short the auto makers in a major way since I believe ’03 or ’04. Less so in the midst of the crisis, during their bankruptcies, and we are starting to add positions again and in the past three months.”

On 2010 market performance:

“2010 has been a struggle. There’s been a lot of situations, high risk assets that have gone up and stayed up and there’s been a lot of value stocks that have actually gone down. So really since March of ’09 where the risk trade, as people have said, has gone on, we’re back to the shorts struggling again, generally speaking, on a fundamental basis.”

On China investment:

“There are still a lot of people who have a lot invested, both financially and psychologically, in China. It is perceived as the great up and coming country. And the country that is going to pull us all out of our debt-laden morass and if that doesn’t happen, a lot of people are going to have to re-evaluate their investment philosophies.”

“We’ve taken the position across the board in a variety of different markets. Now up until recently it was difficult to get short in the Chinese mainland markets, so you had to do it through the Hong Kong market, some shares in Singapore, some shares trade in the U.S. and some shares trade in London. The bigger positions you could take of course were either in Hong Kong, listed 8 shares or in what we call the first derivatives, which was some of the commodity plays, of companies that sell into China, like some of the mining companies for example.”

On U.S Tax Policy:

“What I do have a problem with, personally, is the hedge fund industry or the private equity industry or the venture capital or the real estate –all private capital –asking for and still getting to some extent, lower tax rates on certain forms of income that I believe are income, not returns on capital, than say teachers, soldiers, fireman and policeman.”