Jim Chanos is legendary for selling high and buying low, deriving much of his fame from shorting Enron in 2001 and his whistle-blowing coverage on Baldwin United, which subsequently filed for bankruptcy. His hedge fund’s name, Kynikos, is Greek for “cynic,” which pretty much says it all. In addition to being a fraud and gimmicks hawk, Chanos is also a China super-bear, claiming that the country has a significant housing bubble and that its banks are “built on quicksand.”
Hedge funds aren’t required to reveal their short positions but they have to reveal their long positions in publicly traded U.S. stocks in regulatory filings. We want to speculate on Chanos’ short positions based on his long positions, which you can view here. Chanos is long the market because it serves as a benchmark for the fund’s shorts, and he is also long on some stocks in order to hedge his short sales. These are best guesses based on interviews, his long positions, and market comparisons.
Long Amazon.com, Short Hewlett-Packard
Chanos remarked earlier this year that Hewlett-Packard Company (NYSE:HPQ) was a great shorting idea, claiming that the company was fudging its acquisitions as research cap ex numbers. Hewlett-Packard Company (NYSE:HPQ) shares are down 26 percent since the end of March. Chanos is particularly keen on picking stocks that look like value plays “all the way down.” HP certainly looks that way: shares are trading at 4.25 times estimated forward earnings, whereas the broader IT sector is trading at about 13 times forward earnings. Chanos looks beyond this, though, and tries to determine if the company has long term profitability.
His answer for HP is “no.” The company, in his estimation, is trapped in a post-PC world without a particularly strong hand in enterprise or mobile computing. Furthermore, he notes, the company’s printer division is soon to be eclipsed by tablet computing—there’s no need to print things to read that are digitally represented on a tablet. Amazon.com, Inc. (NASDAQ:AMZN) seems to be the natural opposite; it is poised to come out with a smart phone of its own and already has the successful Kindle franchise of tablets at its fingertips. Chanos reported a 40% increase in his long Amazon position. Best Buy Co., Inc. (NYSE:BBY) might be another short pairing with Amazon.com, Inc., since Amazon has essentially sucked away Best Buy Co., Inc.’s customer base over the years.
Long JP Morgan, Short Chinese Banks
Last year, Chanos reported that he was long U.S. banks in order to hedge his short position in the Agricultural Bank of China (PINK:ACGBY). Chanos claimed that “the rating agencies are getting this one really wrong,” and he said earlier this year in a Bloomberg interview that Chinese bankers should essentially keep sending chocolates to Spain and Greece for stealing the limelight. The pink sheet is down 21 percent year-over-year.
Chanos is long JPMorgan Chase & Co. (NYSE:JPM) as a hedge for this short bet. Chanos is not the only one with concerns about China. Ray Dalio noted last year that Chinese fiscal policy might prove to be a problem if the country did not loosen up its monetary policy (view Dalio’s Bridgewater portfolio here). However, China has begun to take gradual steps in this direction, though it has not been enough to completely alleviate risk that Dalio still considers problematic. That said, the Chinese housing market is still rife with speculation: private investors are purchasing vacant, brand-new apartments and ghost-towns of new houses with the hopes that they will increase in value. The ominous possibility that prices will increase to a level that is prohibitive for the average Chinese home or property buyer is indeed quite alarming.
Long Macy’s, Short JC Penney
This one seems like a pretty plausible inference. Macy’s, Inc. (NYSE:M) shares are up 25 percent year-to-date, and same-store sales rose 5.1 percent last quarter. On the other hand, J.C. Penney Company, Inc. (NYSE:JCP) saw same-store sales drop 21.7 percent last quarter. As we detailed elsewhere, the company is undergoing a massive, and rather risky, reconstruction under its new CEO, former Apple exec Ron Johnson. Chanos upped his stake in Macy’s, Inc. 130 percent, indicating that he probably upped his sales of the short-sale counterpart.
Chanos has some opposition here in the hedge fund world, most notably from Bill Ackman at Pershing Square. Ackman has been a cheerleader for Ron Johnson and the turnaround at J.C. Penney Company, Inc., believing that increasing sales per square foot for the company will lead this chronically-unprofitable retailer back to profitability. There is plenty of skepticism, though, as J.C. Penney shares continue to rise in the wake of an abysmal second quarter report.
Disclosure: Brian Tracz is long J.C. Penney.