CNBC Transcript: Kynikos Associates Founder and President Jim Chanos on CNBC's CLOSING BELL Today

CNBC Transcript: Kynikos Associates Founder and President Jim Chanos on CNBC's CLOSING BELL Today

CNBC Transcript: Kynikos Associates Founder and President Jim Chanos on CNBC's CLOSING BELL Today

The following is the unofficial transcript an EXCLUSIVE CNBC interview with Kynikos Associates Founder and President Jim Chanos on CNBC's "Closing Bell" (M-F 3-5PM) today, Wednesday, June 13th. Watch video of the interview on CNBC.com here!

KELLY EVANS: WELCOME BACK. AS YOU JUST HEARD, TESLA CEO ELON MUSK REPORTING HE BOUGHT MORE THAN 70,000 ADDITIONAL SHARES OF TESLA. LET'S GET TO SOMEONE WHO'S QUITE BEEN CRITICAL OF THE COMPANY IN THE PAST. JOINING US EXCLUSIVELY FROM THE YALE CEO SUMMIT IS JIM CHANOS PRESIDENT AND FOUNDER OF KYNIKOS ASSOCIATES. JIM, WE WERE JOKING A MOMENT AGO, DID YOU SELL HIM THE SHARES?

JIM CHANOS: I DON'T THINK SO. NOT SPECIFICALLY, KELLY. HOW ARE YOU?

EVANS: WE'RE DOING QUITE WELL. AND THANKS VERY MUCH FOR JOINING US. AND HOW MUCH LONGER CAN YOU KEEP THE TESLA SHORT ON?

CHANOS: OH, I THINK MOST SHORT POSITIONS YOU CAN KEEP ON INDEFINITELY. THERE'S NO TIME FRAME ON THEM. IT'S JUST A MATTER OF PRICE AND YOUR WILLINGNESS TO HOLD AND EITHER TAKE TEMPORARY LOSSES OR BOOK PROFITS. SO THERE'S NO TIME FRAME ON A SHORT SALE.

WILFRED FROST: AND JIM, WHAT'S YOUR TAKE ON THE FACT THAT ELON MUSK HAS JUST BOUGHT MORE SHARES? DOES THAT ALTER YOUR CONVICTION AT ALL IN WANTING TO BE SHORT? AND IN PARTICULAR, HIS COMMENTS - HIS ACTIONS OVER THE LAST COUPLE OF MONTHS, I GUESS YOU COULD SAY, HIS NEGATIVE COMMENTS TOWARDS ANALYSTS AND THE MEDIA FOR CRITICIZING HIM, AND WHAT'S YOUR TAKE ON ALL OF THAT?

CHANOS: WELL I MEAN, I THINK IT'S INTERESTING. MORE INTERESTING WAS THE FACT THAT HE HAD AN ANNUAL MEETING LAST WEEK. AND AS USUAL FOR TESLA, LOTS OF PREDICTIONS WERE MADE. AND LOTS OF FUTURISTIC SHALL WE SAY HYPE BUT SOMEHOW THE COMPANY AND ITS LEADER COULD NOT SEE THE IMMEDIATE FUTURE AND SEE THE LAYOFFS THAT THEY WERE ABOUT TO ANNOUNCE A FEW DAYS LATER. SO AGAIN, IT'S OFTEN THIS MATTER OF IT'S ABOUT THE FUTURE, IT'S ABOUT KEEPING INVESTORS FOCUSED ON SOME POINT OUT IN THE FUTURE WHEN THEY HOPE THE COMPANY WILL BE PROFITABLE. BUT THE FACT OF THE MATTER IS THE COMPANY IS NOT PROFITABLE FROM OPERATIONS. THE COMPANY WILL PULL OUT ALL THE STOPS. IT WILL DO A LOT OF ONE-TIME ITEMS, WE BELIEVE, TO SHOW A GAP PROFIT IN THE THIRD QUARTER. BUT THEY ARE JUST THAT, ONE-TIME ITEMS. AND THE BASIC PROBLEM IS THAT HE'S MAKING THE CARS AT NOT ENOUGH OF A GROSS MARGIN TO MAKE MONEY. AND THAT'S BEFORE THE COMPETITION ROLLS OUT, WHICH IS LATE THIS YEAR AND EARLY NEXT YEAR.

EVANS: JIM, THE LAST TIME WE SAW YOU, YOU HAD JUST ANNOUNCED YOU WERE ALSO SHORT ON DUNKIN BRANDS. BEFORE WE GET INTO THAT, ANY OTHER POSITIONS THAT YOU CARE TO SHARE NOW? ANY COMPANIES, ESPECIALLY WITH THE MARKETS ON A COMEBACK LATELY, THAT YOU - PLACES WHERE YOU'RE TAKING A LOOK AND SAYING, "NOPE. TOO MUCH HYPE, OVERVALUED."

CHANOS: WELL, I MEAN, ONE OF THE THINGS WE TALKED ABOUT TODAY AT THE CONFERENCE WHICH I THOUGHT WAS INTERESTING AND WE HAD THE AUTHOR OF "BAD BLOOD" JOHN CARREYROU FROM "THE WALL STREET JOURNAL" TO TALK ABOUT THERANOS, IS THE CULTURE IN SILICON VALLEY AND THIS TIES A LITTLE BIT IN WITH TESLA. AND WHY SOME OF THESE THINGS APPEAR TO BE GROWING OUT IN SILICON VALLEY, THE WILLINGNESS TO SORT OF SAY ANYTHING BY CEOs. THERE WAS - THERE WAS AN EXPOSE OR VICE MEDIA TALKING A LITTLE ABOUT THE SAME THING. AND THE LACK OF DUE DILIGENCE ON BEHALF OF BOTH THE BOARDS AND THE INVESTORS IN BELIEVING A LOT OF THESE THINGS. AND IS IT INCREASING AS THE MARKET GOES ON? AS I THINK YOU KNOW JEFF SONIFELD WHO RUNS THIS CONFERENCE IS ALSO ONE OF MY BOSSES UP AT YALE WHERE I TEACH A COURSE ON THE HISTORY OF FINANCIAL FRAUD. AND ONE OF THE CENTRAL TENETS OF THE COURSE IS THAT THE FRAUD CYCLE FOLLOWS THE FINANCIAL AND BUSINESS CYCLE WITH A LEG. AND THAT IS AS BULL MARKETS GO ON, PEOPLE'S SENSE OF DISBELIEF IS REDUCED AND THEY BEGIN TO BELIEVE THINGS THAT ARE TOO GOOD TO BE TRUE. IT'S HUMAN NATURE. AND BAD PEOPLE TAKE ADVANTAGE OF THAT. AND I THINK WE'RE GOING TO SEE AN INCREASE IN THESE KINDS OF REVELATIONS AS TIME GOES ON. PARTICULARLY OUT IN SILICON VALLEY. I AGREE WITH JOHN CARREYROU ON THAT - THAT THERE SEEMS TO BE A CULTURE WHERE YOU'RE ALLOWED TO SAY THINGS THAT IN ANY OTHER TIME, PEOPLE WOULD SAY IS ILLEGAL. YOU CAN'T LIE TO INVESTORS. AND THIS IS THE PROBLEM -

FROST: SO JIM, ARE YOU SAYING THERE ARE A LOT OF BAD PEOPLE IN SILICON VALLEY AND THERE ARE SOME BIG FRAUDS THAT ARE GONNA COME OUT OF THAT FROM COMPANIES THAT OTHERWISE WE TALK ABOUT POSITIVELY DAY-TO-DAY?

?>?> I'M SAYING THE FIELD IS FERTILE FOR THAT, WILFRED. AND THAT WE'RE SEEING INSTANCES OF THAT AND I THINK WE'RE GONNA SEE MORE OF IT. I'M NOT SAYING EVERYBODY IS LIKE THAT, OF COURSE. BUT THAT INVESTORS NEED TO DO THEIR DUE DILIGENCE. INVESTORS NEED TO HOLD, YOU KNOW, PEOPLE AT SILICON VALLEY TO THE SAME STANDARDS THEY HOLD CONSUMER PRODUCTS MANUFACTURES AND AUTOMOBILE MANUFACTURES, HOME BUILDERS, WHATEVER IT MIGHT BE. YOU CAN'T NOT TELL THE TRUTH. AND THAT AT THE END OF THE DAY WAS THE STORY OF THERANOS AND I THINK IT'S THE STORY AT SOME OTHER COMPANIES AS WELL.

EVANS: ON DUNKIN SPECIFICALLY, JIM, WE HAD THE CEO ON RESPONDING TO YOUR SHORTING OF THE COMPANY. AND HE SAID - I THINK WE CAN PLAY THE SOUND BITE - BUT HE SAID, "LISTEN. THE STOCK HAS GONE UP SINCE YOU ANNOUNCED YOUR SHORT POSITION." WH--

CHANOS: WELL IT GETS -

EVANS: GO AHEAD.

CHANOS: THAT GETS BACK TO THE PREVIOUS CONVERSATION. IT SEEMS TO ME THAT BOTH THE PROSECUTION AND DEFENSE OF BAD BEHAVIOR IS THE STOCK PRICE. SO IF THE STOCK PRICE GOES UP. DESPITE PEOPLE RAISING SOME REAL SERIOUS CONCERNS, IT'S OKAY. RIGHT? THE MARKET HAS VOTED AND THEREFORE IT'S IRRELEVANT. IF THE STOCK PRICE GOES DOWN OR THE COMPANY ENCOUNTERS FINANCIAL DIFFICULTY, WHY, THEN, WE NEED TO HAVE AN INVESTIGATION. AND REALLY THE STANDARD SHOULD BE MUCH HIGHER THAN THAT. THE STANDARD SHOULD BE YOU CAN'T LIE TO INVESTORS. I MEAN, WE HAD A WELL KNOWN INVESTOR, MAYBE THE MOST WELL KNOWN INVESTOR IN THE WORLD LAST WEEK TALKING ABOUT IN HIS QUEST ABOUT NOT HAVING TO RELEASE GUIDANCE SAYING HE SERVED ON BOARDS WHERE THE CEOs MADE UP THE NUMBERS. AND I THOUGHT THAT WAS THE MOST NEWSWORTHY PART OF THAT INTERVIEW WAS THAT HERE YOU HAVE THE MOST WELL RESPECTED INVESTOR IN THE WORLD SAYING HE WAS ON A BOARD WHERE THE CEOs MADE UP THE NUMBERS. AND I WAS SORT OF FLOORED BY THAT. AND THAT OF COURSE WAS NOT THE NEWS FROM THAT INTERVIEW. AND I THOUGHT THAT IF THIS WELL REGARDED INVESTOR IS SAYING THAT, THEN YOU KNOW, OH MY GOSH. WE REALLY NEED PEOPLE TO BE LOOKING OUT FOR INVESTORS WHEN MANAGEMENTS DO THIS. AND IF SOMEONE LIKE WARREN BUFFETT WON'T DO THAT, THEN WE'VE GOT AN ISSUE.

FROST: JIM, JIM -- STEPPING AWAY FROM TALKS OF POSSIBLE FRAUD, I WANT TO ASK YOU ABOUT THE MEDIA LANDSCAPE. AND OF COURSE, AT&T/TIME WARNER DEAL HAS BEEN APPROVED. THERE'S NOW TALK OF ALL SORTS OF OTHER POTENTIAL MEDIA CONSOLIDATIONS. DOES THAT NOW POSE A BIG THREAT TO THE LIKES OF Netflix -- THE NEW MEDIA COMPANIES? ARE THEY GOING TO MEET THEIR MATCH, AS IT WERE?

CHANOS: IT SEEMS TO ME THAT Netflix IS THE ONE PROVIDING THE DIFFICULTIES FOR THE OTHER COMPANIES, WHICH IS WHY YOU HAVE THE MERGERS. AND I THINK AS I READ THE COUNTS WERE NOT INVOLVED THERE. BUT THE JUDGE SAID BASICALLY THE SAME THING. THAT IT'S NOT JUST THE NEED THE MEDIA COMPANIES WE HAVE TO LOOK AT FOR ANTITRUST, WE HAVE TO LOOK AT SILICON VALLEY AS WELL BECAUSE THEY IN FACT ARE THE REAL COMPETITION. SO I THINK TO ME IT SEEMS, JUST AS AN OUTSIDE OBSERVER WITH NO SKIN IN THE GAME, IF YOU WILL, THAT THESE ARE DEFENSIVE MERGERS.

EVANS: YEAH. JIM, WHAT ABOUT CHINA? WE KNOW IN THE PAST YOU HAD TALKED ABOUT SHORTING ALIBABA. I THINK COVERED THAT ONE AWHILE AGO. BUT WHAT ABOUT THE OTHER NAMES NOW THAT WE CONTINUE TO SEE HIGH VALUATIONS -- I WAS THINKING EVEN OF THE ZTE INSTANCE WHICH IS NOT WHAT YOU'RE TYPICALLY LOOKING FOR BUT A COMPANY THAT YOU KNOW, IT'S CORE BEHAVIORS LED IT TO A NEAR COLLAPSE FROM BEING HUGELY VALUED AND A PREVIOUSLY LEGITIMATE ENTERPRISE. YOU KNOW, ARE YOU LOOKING AT CHINA - WHETHER IT'S BECAUSE OF THE TRADE ISSUES OR JUST BECAUSE OF THE CULTURE THERE AND SEEING THE FRESH NAMES TO SHORT?

CHANOS: SO CHINA DOES NOT SEE THE TRADE ISSUES OVIOUSLY THE SAME WAY WE DO. BUT THEY ALSO DON'T SEE THEM IN THE SAME ECONOMIC IMPORTANCE AS THE CURRENT ADMINISTRATION IN THE U.S. DOES. CHINA IS MUCH MORE FOCUSED ON RIGHT NOW ON THINGS LIKE THE ONE BELT ONE ROAD INITIATIVE, WHICH IS A STRATEGIC INITIATIVE AS WELL AS FINACIAL. AND CHINA IS GOING TO BE MORE THAN HAPPY SETTING ASIDE THE FINANCIAL QUESTION TO TAKE UP ANY MANTLE THAT THE U.S. IS WILLING TO SORT OF GIVE UP IN TERMS OF LEADERSHIP. THEY'RE MORE THAN HAPPY TO FILL THAT VOID AS A RISING POWER. AND SO THEY -- THE ASPECTS OF TRADE WITH THEM ARE NOW TAKING SECOND OR TERTIARY VIEWPOINT TO THE OPPORTUNITY THAT THE U.S. IS GIVING CHINA NOT ONLY IN ASIA BUT GLOBALLY TO BECOME A RESPECTED POWER. AND I THINK THAT'S ONE OF THE -- AND I DON'T WANT TO MAKE THIS POLITICAL, THE CONVERSATION, BUT THEY SEE THE TRADE ISSUE THROUGH THAT PRISM, WHERE WE ARE SEEING THE TRADE ISSUE SIMPLY THROUGH THE PRISM OF LOST JOBS AND IMMEDIATE TARIFFS AND A BILATERAL KIND OF THING. I THINK CHINA IS LOOKING MUCH FURTHER AHEAD AND FURTHER DOWN THE ROAD ON THIS THAN WE ARE. HAVING SAID -

EVANS: ANY REASON TO SHORT ALIBABA AGAIN? JUST -- I MEAN, IT'S BEEN AN EXTRAORDINARY RUN. BAIDU, ALIBABA, TENCENT. XIAOMI'S ABOUT TO LIST.

CHANOS: YEAH IT'S -- THEY HAVE BEEN INCREDIBLE. YOU KNOW THAT MY VIEW ON ALIBABA WAS AN ACCOUNTING VIEW AND I STILL HOLD THAT VIEW, BY THE WAY, EVEN THOUGH WE'RE NOT SHORT THE SHARES. YOU KNOW, THE MOST AMAZING STATISTIC ABOUT ALIBABA I KEEP POINTING OUT TO PEOPLE IS THAT IF YOU LOOK AT ALIBABA'S TANGIBLE EQUITY, RIGHT NOW LESS EXTERNAL SHARE OFFERINGS, LESS ANY CAPITAL THEY'VE RAISED IN THE MARKETS, THEIR TANGIBLE EQUITY IS LOWER NOW THAN WHEN THEY WENT PUBLIC. SO FOR ALL THEIR PROFITABILITY, THEY'VE TAKEN BACK EITHER AFFILIATED COMPANIES OR MADE FURTHER DEALS. IT IS A FINANCIAL PERPETUAL MOTION MACHINE. IT'S QUITE A MARVEL TO BEHOLD. BUT BECAUSE OF MY VIEW THAT THE S.E.C. AND OTHERS PROBABLY AREN'T GOING TO BE TOO WORRIED ABOUT A CHINESE COMPANY'S ACCOUNTING, EVEN THOUGH IT TRADES HERE, WE STEPPED ASIDE AND I THINK IT WAS THE RIGHT MOVE.

FROST: JIM, WERE YOU SURPRISED ABOUT THE VALUATION THAT ALI PAY GOT RECENTLY WITH ITS LATEST PRIVATE FUNDING? -- MARKET CAPITALIZATION -- IMPLIED MARKET CAPITALIZATION OF OVER A HUNDRED BILLION DOLLARS, BIGGER THAN GOLDMAN SACHS AND MORGAN STANLEY.

CHANOS: RIGHT, WELL WILFRED, THAT'S EXACTLY TO MY POINT. WE'RE IN THIS GAME NOW WHERE ALL THESE COMPANIES WHO ARE AFFILIATED WITH EACH OTHER OR INVESTORS WHO ARE AFFILIATED WITH EACH OTHER, ARE SWAPPING - "I'LL SWAP YOU MY $250 BILLION CATS FOR YOUR $100 BILLION DOG," AND THEN WE DO A MARKUP ON IT AND THAT'S WHAT'S KIND OF SO AMAZING IN THIS STORY, THAT WE'RE TAKING THESE GAINS ON ASSET REVALUATIONS WHICH MAY OR MAY NOT HOLD UP. BUT THEY ARE NOT FROM CASH FLOW FROM OPERATIONS. ALI PAY IS BARELY PROFITABLE FROM WHAT WE KNOW. AND SO A BARELY PROFITABLE FINANCIAL FIRM NOW HAS AN IMPLIED VALUATION BASED ON THE LAST TRANSACTION OF $150 BILLION. THAT'S GOOD WORK IF YOU CAN GET IT IN ANY COUNTRY.

EVANS: JIM, BEFORE WE GO, ENVISION HEALTH CARE WAS JUST TAKEN OUT BY KKR. THAT CAUSE SOME PAIN AROUND THE OFFICE?

CHANOS: WELL, IT WAS TAKEN OUT AT A WHOPPING 7% PREMIUM. THIS ONE PUZZLES ME, KELLY, BECAUSE IF YOU LOOK AT THIS COMPANY, THEY'RE IN THE BUSINESS OF BASICALLY BUYING UP DOCTOR PRACTICES. AND IF YOU LOOK AT THE CASH FLOW STATEMENT, THEY HAD EBITDA OF $900 MILLION. THEY HAD CAPITAL SPENDING AND PURCHASE OF MANAGEMENT CONTRACTS OF OVER $900 MILLION IN THE -- 12 MONTHS. THERE'S NO FREE CASH FLOW HERE. AND THE BUYERS AND THE BANKERS ARE ABOUT TO PUT BILLION DOLLARS OF DEBT ON IT. I'M JUST KIND OF PUZZLED AS TO WHY ANYBODY IN THEIR RIGHT MIND WOULD THINK THAT THAT'S A SMART MOVE BUT, YOU KNOW, THEY'VE SPOKEN AND I HAVEN'T.

EVANS: THAT'S WHAT MAKES THE MARKET. JIM, THANK YOU VERY MUCH. ALWAYS A PLEASURE.

CHANOS: TAKE CARE GUYS.

EVANS: JIM CHANOS JOINING US FROM THE YALE CEO SUMMIT TODAY.

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