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Short Selling Guru Jim Chanos Has Some Short Ideas for 2013

December 23, 2012 | About:

A good interview with Chanos where he addresses China, Natural Gas, Coal, Vale (VLE) and Petrobas (PBR).

Jim Chanos has made a very nice living and a big reputation out of seeing what others overlook, particularly when it comes to overvalued companies. The prominent short seller's big wins include sniffing out problems at Enron, Tyco, and WorldCom in the early 2000s before those companies imploded. Chanos figures that if he and his colleagues get two-thirds of their picks right, they are doing very well. This year, as equity markets have rallied, the two short funds he runs are down slightly, versus an 18% decline through November for short sellers tracked by the Dow Jones Credit Suisse Hedge Fund Index. Chanos, 55 years old, founded his own firm, Kynikos Associates, in 1985 and currently oversees about $6 billion of assets. He remains bearish on China, and more recently has been taking a skeptical view of leveraged natural-gas exploration-and-production companies. Barron's sat down with Chanos recently at his midtown Manhattan office.

Barron's : Let's start with your big-picture view.

Chanos: As we went into 2012, we thought, from an investment point of view, that the U.S. was the best house in a bad neighborhood. Since then, pretty much all of the bad neighborhoods have done well, including the U.S., whereas people were pretty cautious a year ago and were looking at the world as a glass half-empty. They are now pretty ebullient and see the world as a glass half-full. So we are seeing opportunities in names that we had covered earlier this year or in 2011 or 2010. We are seeing lots of new ideas on the short side, both in the U.S. and globally, and generally we have a lot to do. The world has come around to the view that the central banks generally are omnipotent and have solved all the world's problems, but we are a little bit less sanguine on that point of view.

What's wrong with that view?

The central banks, like any committee, may get something right, and they may get something wrong. But they are not right all the time. And investing one's capital on the basis of where central banks are planning their policy moves is a little bit frightening.[/i][i]Because there is too much liquidity?

Well, liquidity is a double-edged sword. It can raise asset prices. But it can also create overcapacity, overconfidence, and overvaluations. Right now, it is on the road to doing all three.

You mentioned that you are seeing opportunities in names that you covered. What do you mean by that?

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