Wednesday, November 20, 2013

BATTLE Short-Seller Jim Chanos vs. Warren Buffett

MarketWatch explains:

When the Oracle of Omaha talks, people listen, which is why the oil sector and Exxon Mobil XOM +0.16%got lots of attention after regulatory filings revealed Warren Buffett’s Berkshire Hathaway had taken a major stake in the company.
While Buffett’s move on Exxon looked to some like a contrarian call, legendary short seller Jim Chanos was positively growling over the oil sector Tuesday, telling the Reuters Global Investment Outlook Summit that his Kynikos Associates fund is bearish on national oil companies and the integrated majors, in New York on Tuesday. Watch the video.
“The costs of finding this stuff [oil] has gone through the roof. The economics are clearly deteriorating,” said Chanos. “It isn’t the same cash-flow-generating business it used to be.”
His big worry is that growth potential for Exxon and others in the sector is limited because they not only have to keep shelling out the big bucks to locate oil, but also must pay dividends and fund buyback programs.
Commenting directly on that Berkshire BRK.A -0.08% BRK.B +0.06% stake, Chanos said Buffett likely has “his reasons, but, unmistakably the returns are dropping”:
 ”It looks increasingly to us like an a value trap.”
The article cited Thomson Reuters data that showed Exxon’s return on capital down 18.7% last year from 27% in 2008, a measure that Chanos described as “really ominous.”

1 comment:

  1. The skeptic in me can't help to wonder if Buffett is acting on some insider knowledge from his buddies in government.

    We have a recent and somewhat unprecedented defeat of the Ethanol lobby and talk about scaling back their mandates, which would increase demand for gas/oil.

    Maybe there's more of that coming from the EPA and Buffett knows it.