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WHEN: Today, Wednesday, May 4th
WHERE: CNBC's "Fast Money Halftime Report"
Following are excerpts from the unofficial transcript of a CNBC interview with Jim Chanos, President and Founder of Kynikos Associates, on CNBC's "Fast Money Halftime Report" (M-F, 12PM-1PM ET) live from the Sohn Investment Conference in Partnership with CNBC, today, Wednesday, May 4th. Following is a link to the video on CNBC.com: http://video.cnbc.com/gallery/?video=3000514995.
All references must be sourced to CNBC.
Chanos on the election
Well I suspect that if Hillary retains her lead and she's got solid lead in the polls as well as the betting markets, I suspect people relatively know her positions, whether you agree with them or not. I think the wild card is Mr. Trump. We're not really quite clear what his policies are.
Chanos on China
The China story is the gift that keeps on giving on the short side in that it keeps morphing as the credit bubble gets bigger and bigger and bigger and finds different outlets. They're reinflating the real estate market again which is sort of amazing to me but they're doing it. They've opened up the credit spigots up again. So I suspect that going forward some of the things that worked back in 2010, 2011 and 2012 are going to work again.
Chanos on shorting Alibaba
We are shorting it. And we're shorting it for accounting reasons. We have real questions on some of their metrics. We have real questions on their cash flow. And most importantly, the biggest part of their business, which is the fulfillment side of the business, delivering you the package, is unconsolidated on their financial statements. And we just don't see how profitable or unprofitable that business is. I suspect it's unprofitable. And that they're funding it from the cash flows from the parent. So therefore there's no real free cash flows at Alibaba.
Chanos on still shorting Valeant
We're still short Valeant, Scott. It's interesting because people are trying to bottom fish in this name thinking that the stock is cheap. But we think it's anything but cheap. Everybody's using metrics that are just as bad as Valeant's accounting itself. And they're excluding all of the bad stuff.
Chanos on Valeant's drugs
They don't develop their own drugs. They buy them. The life on their drugs are anywhere from 2 years to 20 years. The most a drug can have is a 20-year patent. If we take a look at the fact that they've bought 40 billion dollars worth of companies and we use a 20-year life on those purchased companies, which is generous, that's 2 billion dollars a year they ought to set aside for in effect rolling off drugs. You take that number out of the 3 and a half billion, interest of one and a half, two billion to amortize, there's nothing for the shareholders.
Chanos on Valeant's game over
Valeant was genius at gaming the system. That game is over. And so the ability to hike prices on drugs for toe fungus, to 8500 dollars from 800 dollars, or compounds like that, is over. And that's what I think people - they're looking in the rear view mirror here, not understanding that this was financial engineering, this was not pharmaceutical development.
Chanos on Bausch & Lomb
Bausch & Lomb benefited from Pearson's aggressive price hikes because Bausch & Lomb has some pharmaceuticals built into it. And people are throwing around 10 to 20 billion dollars for Bausch & Lomb. I doubt it's worth 8 or 9.
Chanos on hedge funds
A lot of hedge funds have simply become turbocharged mutual funds. And you don't need to charge 2 and 20 to get market exposure. Vanguard will sell it to you for less than a quarter of one percent.
Chanos on Cheniere
The problem is you're just simply overpaying for it with no chance at all for cost overruns. In addition we believe Cheniere's cost estimates are too low in their forecast. Having said all that, you're paying a ridiculous price for 2020 or 2021 cash flows relative to almost any other type of energy infrastructure play you can buy in the marketplace today. So people are paying up for a hoped-for income stream, which again we think is overstated, through their cost estimates not their revenue.
Chanos on the LNG glut
The glut continues for the next handful of years and that there isn't any pricing flexibility over and above their contracts. And so the call option from that is de minimis. But again you can buy that. You can buy LNG exposure. You can buy Chevron. You can buy Royal Dutch at prices that are much, much cheaper than Cheniere. And that's what's so interesting. People are paying up for the pure play and really in excessive amounts. In addition, the plants, with the exception of one, haven't been built yet so you're still at risk of cost overruns over the next 5 years as they get built out.
Chanos on shorting Tesla
One of our historical sign posts, of a company in trouble is when numbers of senior people leave over a short period of time. Tesla fits that bill. We have a chart that we've had -- I guess we're going to have to update it this afternoon -- of senior executives leaving Tesla. It is a flood of people leaving in the past few years. And that is not a good sign and this is a company that can't forecast its deliveries one quarter out. And yet everybody is confident about what they're going to make in 2020 or 2025. I want to see them make the model 3 and sell it profitably. I don't think they can do it.
Chanos on Solar City
In the last quarter, Solar City had lease revenues of 75 million dollars. If we assume no expenses, one person at headquarters to basically take the lease payments to the bank, no depreciation, no interest, whatever, they have 6 billion of capital employed in the business. 300 million divided by 6 billion is a 5 percent return on the solar leases. We think that John Hancock was using something like an 8 percent discount rate. So the problem with Solar City is they're losing money on every installation and making it up on volume. And that's a problem when you have a levered balance sheet. I think Solar City gets into financial trouble in 2016.
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