Jim Chanos is Shorting Oil Majors – Which One?

Thursday, June 17th, 2010

Business Insider Submits:

Bloomberg TV got famed short seller, Jim Chanos, to talk Big Oil today. He said that he’s not short B.P., but that there is another well known oil company who he thinks is playing fast and loose with their cash flow and dividend funding.

Of course not wanting to piss of regulators who are still confused over the merits of how short sellers help the market he didn’t name names.

So we checked in with a large investor with knowledge of the fund’s holdings who told us that it’s American integrated oil giant Exxon that Chanos has a big short position on.

Chanos, founder of Kynikos Associates told Bloomberg TV today, “”Our decision [to short oil major] 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.”

Chanos, who built his career on data mining company balance sheets to find who’s not as healthy as they lead the market to think, is believed to have gotten into his Exxon short over a year and half ago. As Business Week and a few sharp blogs noticed in February 09 Exxon is a ‘religion stock’. Meaning investors own it because it’s done well before and some on the street assume its management knows what it’s doing – so why deep dive into their cash flow statements and worry about if they can replace all the barrels of oil they sell to keep the cash flow model going?

But Chanos points out in his Bloomberg interview, “They [We now know its Exxon] 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.”

Bloomberg Television’s Erik Schatzker has all kinds of Chanos insights, such as why he’s short China and his frustration with U.S. tax policy, that will air on “For the Record” next Friday, 6/25

Mike ‘Mish’ Shedlock, of Global Economics Trends Monitor submits the following notes, though he does not specifically identify Exxon:

Peak oil be damned, hedge fund manager Jim Chanos is betting against oil companies because they are not replenishing reserves.

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Please consider Jim Chanos Shorts Oil Majors, Ford Shares, Hasn’t ‘Played’ BP

Jim Chanos, the hedge-fund manager who made money betting against Enron Corp., said he is short- selling shares of large oil companies because investment in drilling and exploration is eating up their cash flows.

The founder of Kynikos Associates Ltd. said in a Bloomberg Television interview from his office in New York that his bearish calls on “some” energy companies, which he declined to identify, pre-date the April 20 explosion of the Deepwater Horizon in the Gulf of Mexico. That incident led to the largest oil spill in U.S. history and sent BP Plc shares down 49 percent through yesterday.

“If you look at their cash-flow statements relative to their income statements, you will see companies that haven’t replaced reserves in years, and haven’t seen any increase in revenues in years,” he said. “They’re borrowing their dividend. They’re in effect liquidating.”

Chanos said he’s adding to short-sales of Ford Motor Co. as the second-biggest U.S. carmaker will struggle to compete against General Motors Co. United Auto Workers, the union that owns holdings in GM and Chrysler Group LLC, may favor those companies over Ford when negotiating upcoming labor contracts, he said.

“It’s going to be very interesting to see how it is that the union, which controls the employees — and I contend these entities are still run for their employees and retirees more than the shareholders — are going to look in an environment going forward, where the UAW is a major equity holder in some of the other entities,” the investor said. “It adds a new dynamic to the twist.”

Inquiring minds might be interest in a short Bloomberg video with Chanos.

GDP, Standard of Living, Geopolitical Tensions

My friend “BC” offers the following opinions…

Energy companies will be hit by both demand destruction of the product they sell but also the falling Energy Return on Investment (EROI) at peak production, reducing their ability to reinvest in capacity and exploration to sustain or increase reserves.

Because of Peak Oil, there is no mathematical possibility that China-Asia can achieve anything close to a Western per capita energy density, GDP, and standard of living without causing a dramatic decline or collapse of the Western economies.

The more Asians and others decide to compete with the Western economies for energy resources, the more likely Westerners will resort to desperate means to manage or try to prevent decline or collapse.

The post-Oil Age decline will not be a single collapse event. Rather, we are more likely to see a kind of stair step decline, like a ball bouncing downstairs, with increasing volatility of supply and price shocks from a positive feedback effect, reducing the very long-term trend of real GDP, per capita GDP, and population growth to 0% and negative.

Mike “Mish” Shedlock

http://globaleconomicanalysis.blogspot.com

Tags: Bloomberg Tv, Business Insider, Business Week, Cash Flow Statements, China, Company Balance Sheets, Data Mining, Deep Dive, Exxon, Flow Model, Income Statements, Jim Chanos, Kynikos Associates, Liquidating, Mining Company, Name Names, Oil Companies, Oil Company, Oil Giant, Oil Majors, Short Position, Short Sellers, Tv Today
Posted in China, Markets, US Stocks | No Comments »

TrimTabs’ Charles Biderman on massive insider selling

Monday, August 31st, 2009

As a follow up to last week’s comment on TrimTabs’ report last week re: insider selling vs. buying, here is the Bloomberg TV clip of Charles Biderman’s appearance.

“Insider selling is 30x insider buying, while corporate stock buybacks are non-existent. Companies are saying they don’t want to touch their own stocks,” said Biderman. “I don’t know where the money is coming from to keep the markets from not plunging.”

How about the fund managers described in Merrill Lynch’s Fund Managers’ Survey?

(h/t: ZeroHedge)

Tags: Appearance, Bloomberg Tv, Buying Stock, Charles Biderman, Corporate Stock, Insider, Insider Buying, Money, Stock Buybacks, Stocks, Trimtabs, Tv Clip
Posted in Markets | 1 Comment »

Emerging Markets in 2009

Tuesday, December 30th, 2008

Michael Hartnett, Chief Global Emerging Markets Strategist, Merrill Lynch is interviewed by Bloomberg TV, December 12, 2008 (click to view below), regarding his outlook for Emerging Markets in 2009. Here is a summary of that conversation:

• Volatility of all markets has meant that correlations have been very high.
• It’s been fiendishly difficult for EM to break away decisively from what’s going on in Washington and New York.
• China is a big factor that could help the rest of the EM break away.
  • In China there’s a raging debacle over what the economy will do next year.
  • People are quite pessimistic about what’s happening.
  • If the Chinese economy is able to come back more quickly and more strongly than a number of other economies around the world, that probably would be the moment you’d see the other EMs break away (from the high correlation).
• (anchor) Jim O’Neill from GS said that he likes China now for the first time in a while.
• We’ve been overweight China since the end of August.
  • Its been a good trade thus far, with A shares and Hang Seng up nicely.
  • Its not because China is going to be fabulously strong growth wise – those markets love when they get lots of liquidity.
  • That’s what’s happening at the moment – There is a big easing of monetary policy and credit policy.
  • The RMB is expected to remain robust.
  • China is the one equity market where the banks have outfperformed.
  • It doesn’t feel as if there’s an impediment to the stimulus that you’re getting from the Chinese government – I think the Chinese market will outperform next year.
• The consumer theme is very strong in China, and Emerging Markets.
  • If you go back a year ago, we were worried about inflation. Why?
  • Inflation compromises the purchasing power of the billions of consumers in these markets .
  • They couldn’t afford to spend on anything but food, and food prices were going through the roof. Its the complete opposite of that now. Oil is at $40, not $140 and food prices have come down a lot.
  • There’s a lot of purchasing power in China, India – obviously there’s a cycle as well – its not as if the numbers are going monstrously higher.
  • Today (12/12/08) we saw China report a 20%+ increase in retail year-over-year. That’s incredible when you consider that we’re in a global recession.
  • We think the demand story is there.
• In non-Emerging Markets there are a lot of US and European companies that are going to benefit enormously from the consumer story in EM.
  • Thinking laterally, there are a number of companies outside the EM that can benefit from that relative growth.
• The other story in the EM – You’ve got a number of countries that are attempting to reflate forcefully – India, Korea, South Africa, Brazil.
  • There are going to be opportunities in all of those countries.
• The other thing to think about is the “Best Companies,” the “Best in Breed,” concept.
  • We think the best in breed idea will be a big outperformer next year.

Where not to invest? (for now)

• There are a number of countries that have large current account deficits and you have to worry about how they are going to fund those deficits.
• There are some currencies, particularly in the Eastern European region to avoid.
  • Russia has a big problem right now, as it has destroyed a great deal of shareholder trust.
  • At some point next year, when the rouble troughs, and oil prices trough, Russia is going to move up significantly.
  • At the moment we recommending that our clients take their money out of Russia.
  • They have a big problem there like Saudi Arabia; they’re a one trick pony.
  • As long as oil prices were strong so was the economy, but with the lower oil price the economy has weakened.
  • Unless we get the oil price moving up in a strong fashion, its going to be very hard to persuade investors to put a large chunk of capital there.
• Certain places like Iceland and Hungary have gone to the IMF – its going to be very difficult for those economies to come back in a meaningful way.

Opportunities in Emerging Markets?

• India, Korea, Turkey and South Africa were taken to the brink by markets and now there are a lot of swap lines to support them.
  • What they’re doing in these countries is something almost revolutionary.
  • They have big deficits, they’re currencies have gone down a lot, and guess what they’re doing?
  • They’re cutting interest rates – (and they have lots of room to do it).
  • If they can convince the markets that their interest rate cuts can rescue their growth situations – those currencies are going to do very well.
  • In India for example, Industrial Production fell and policy formation (favours profound monetary easing).
  • India has great companies.
  • our clients are increasing their weightings from being underweight most of the last year since markets were overvalued and earnings expectations were too high in contrast to the idea that the economy could not do well in the context of high oil prices.
  • Now oil prices have fallen, and the current account deficit is improving and they’re cutting interest rates.
  • They are increasing their weightings to neutral, if not, overweight at the moment.

Rule of Thumb?

o We like large , not small companies.
o Looking for decent balance sheets, good management, and good brand.
o Survivors who can gain market share from those affected by the global credit crunch.

Click play to view

Tags: Bloomberg Tv, Brazil, Chinese Economy, Chinese Government, Chinese Market, Correlations, Debacle, Emerging Markets, Food prices, Global Markets, Hang Seng, Impediment, India, liquidity, Merrill Lynch, Michael Hartnett, Monetary Policy, O Neill, Outlook, Purchasing Power, RMB, Stimulus, Strategist, Volatility
Posted in Credit Markets, Economy, Emerging Markets, India, Markets, Oil and Gas, Outlook | No Comments »