Tag Archives: Chanos

Chanos and HP; More Case Studies and HAPPY THANKSGIVING!

Jim Chanos: Hewlett-Packard Is ‘Ultimate Value Trap’

Published: Wednesday, 18 Jul 2012 | 1:22 PM ET
Jim Chanos is short Hewlett-Packard.the company as “the ultimate value trap,” Chanos said he is short Hewlett-Packard during the “best idea” panel at the CNBC and Institutional Investor Delivering Alpha conference.

Chanos, president and founder of Kynikos Associates, said Hewlett-Packard [HPQ 11.6914 -1.6086 (-12.09%) ] has been hiding the true costs of its R&D through acquisitions. Once the costs of these acquisitions are taken into account, revenues and cash flow at the company are “basically flat,” Chanos said.

This means that investors looking simply at metrics such as price to earnings may mistakenly view HP as “cheap,” or a “value” investment opportunity, according to Chanos.

What’s more, the personal computing business is in decline, Chanos said. The growth of tablets and smart phones will continue to eat away at PC sales, Chanos predicted.

“People will still buy PCs. It just won’t be a very profitable business,” Chanos said.

Chanos said his analysis could be applied to several other technology companies. He mentioned that he had previously discussed shorting Dell, but the decline in the stock has made him “less excited about that idea.”

How Jim Chanos Spotted the HP Scandal

Published: Tuesday, 20 Nov 2012 | 10:17 AM ET

By: John Carney
Senior Editor, CNBC.com

While many investors were caught off-guard Tuesday morning by the giant, allegedly fraud-ridden write-down by Hewlett-Packard of the value of Autonomy, hedge fund manager Jim Chanos wasn’t one of them.

(Read more: Hewlett-Packard Walloped by Charge Relating to Fraud)

Chanos, the founder of Kynikos (greek for “cynic”) Associates said HP was one of the companies he regarded as “the ultimate value trap” in a presentation delivered in July at the Delivering Alpha Conference sponsored by CNBC and Institutional Investor.

(Read more: Jim Chanos: Hewlett-Packard Is ‘Ultimate Value Trap’)

Chanos related the story of why he began to consider shorting HP [HPQ 11.69 -1.61 (-12.11%) ] . He had been short Automony, the British cloud-based business software and data company. When HP bought the company at a hefty premium, this raised a red flag for Chanos. What’s more, Chanos pointed out, several top Autonomy executives left the company shortly after the acquisition.

Although some investors believed that HP was cheap enough to be considered a “value stock” because its price-to-earnings ratio was relatively low compared to competitors, Chanos said that HP appeared to be masking the true costs of its basic R&D costs with spending through acquisitions. If those costs were expensed as operating costs rather than capitalized as acquisitions, then revenues and cash flow at HP were basically flat, Chanos said.

Chanos said that the attempt to grow through acquisitions—HP had done $37 billion in acquisitions over the last four to five years—had not paid off for HP and that its core businesses were struggling. The personal computing market, in particular, was under assault from mobile technology, with people increasingly abandoning laptops for tablets. The company was engaged in “value destruction through acquisition,” Chanos said.

Chanos, who rose to fame after short-selling Enron prior to that company’s downfall, was led to short HP because of the acquisition of Autonomy, a deal which HP now says was tainted with billions of dollars of fraud. Another very prescient call by Chanos. by CNBC Senior Editor John Carney

See Autonomy Annual Report–What did HP’s Team Miss?JaarverslagCOM_Autonomy_2010

Here is what one pro says…….http://brontecapital.blogspot.com/2012/11/hewlett-packard-and-autonomy-notes-from.html


More Case Studies and Valuation Articles:

Earnings Quality CS
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Reading of Interest: Market Perspective Since the 1800s

Value Investing Newsletter

Value investing newsletter/email–ask to be on his distribution list so you can uncover interesting articles on investing: pcordway@gmail.com,

Two excellent blogs we can learn from:



And thanks to a reader, we have a chart book of markets since the 1800s for perspective. Fascinating!  The Longest Picture

Marie Eveillard

Another investor with an Austrian perspective on the gold market: http://www.kingworldnews.com/kingworldnews/Broadcast/Entries/2012/1/24_Jean-Marie_Eveillard.html

Investment Fees: http://blogs.cfainstitute.org/investor/2012/06/28/investment-management-fees-are-much-higher-than-you-think/

 Chanos Discusses Value Traps

 Chanos Value Traps June 2012 and more on Chanos:



Try to go the extra mile and look up the financials of any company he speaks about. What can you use from studying his presentation?

Chanos Testimony on Enron, Slide into Tyranny? Federal Reserve Theft?

“First They Came for the Jews” By Pastor Niemoller

First they came for the Jews and I did not speak out because I was not a Jew.

Then they came for the Communists and I did not speak out because I was not a Communist.

Then they came for the trade unionists and I did not speak out because I was not a trade unionist.

Then they came for me and there was no one left to speak out for me.

America’s Slide into Tyranny

Or the “Patriot” Act’s stomping on the 4th, 5th and 6th Amendments to the US Constitution. Who has ever heard of the Bill of Rights? http://www.archives.gov/exhibits/charters/bill_of_rights_transcript.html

When I read this, I puked on new suede shoes. http://lewrockwell.com/goyette/goyette22.1.htmlay

Pay close attention. This is how it happens…

President Obama found a moment of reduced visibility, in an unwatched hour on New Year’s Eve, to sign the latest assault on the Fifth Amendment. In signing the National Defense Authorization Act of 2012 on New Year’s Eve, Obama knew the nation’s attention would be elsewhere, diverted by revelry, football, New Year’s Day, and a Monday national holiday.

In case you haven’t heard, the National Defense Authorization Act allows the government to detain people indefinitely – yes, it includes American citizens who can be taken even on our native soil and imprisoned – merely on the basis of accusations.

The measure is “so radical,” says Human Rights Watch, “that it would have been considered crazy had it been pushed by the Bush administration.” And although Obama appended a signing statement as he put his name to the act, solemnly assuring the nation that the power he insisted on having won’t be used recklessly, it is a political gesture that has no more force of a law than attaching a little yellow sticky note to the bill. If the clear language of the Constitution itself cannot bind the governing classes, it is hard to imagine a post-it note having much effect on the current or future presidents now that the indefinite detention of Americans without trial has been legislatively countenanced.

There you have it in a nutshell, the new American way: Guilty until proven innocent. This is how once-free people slip into state tyranny and slide into martial law.

I ask if any here feel safer?

So Where Does the Federal Reserve Earn the Money?


The Federal Reserve turned $76.9 billion over to the U.S. Treasury last year, close to the record amount transferred to the government’s coffers in 2010, amid a strong profit generated from its expanding portfolio of securities.

Preliminary unaudited results released by the central bank Tuesday showed the Fed had net income of $78.9 billion in 2011 mainly thanks to higher earnings on securities it bought to counter the recession and promote recovery….the Fed’s crisis-lending programs have produced profits. The increase in 2011 income was primarily a result of $83.6 billion in interest earnings from holdings of U.S. Treasurys, federal agency debt and securities held by government-run mortgage finance firms Fannie Mae and Freddie Mac, the Fed said.

Got that? The Fed printed billions of new dollars and earned a profit after all this nonsense. For the record the money supply (M2) grew in 2011 by nearly $ 850 billion. The total monetary base came in at aprox. $8.5 trillion.

Note: Don’t try this at home. You would get arrested for counterfitting. But do you think you could “earn” a profit of $77 billion, if you printed, over-time, some $8.5 trillion to buy Treasury securities and the like, which means, as part of the circus, you could give the Treasury the money to pay you the interest that you then give back to them and release a press release about your financial acumen?

Quiz: Any guess as to where this money actually comes from? Who loses? 

Enron Case Study Addition

We have discussed Enron in prior posts here:

http://wp.me/p1PgpH-1R Enron so What is it Worth?

http://wp.me/p1PgpH-2U  Analysis of Enron Case Study

http://wp.me/p1PgpH-34 Video of Enron Collapse

An alert reader gave me a heads up to add this to the Enron Case Study:

Full Hearing Testimonies on the Enron Scandal:  http://republicans.energycommerce.house.gov/107/action/107-83.pdf

Chanos Testimony: http://energycommerce.house.gov/107/hearings/02062002Hearing483/Chanos782print.htm

Please stop me before I post again…..but I had to alert you to the above. Most will enjoy reading the Chanos testimony. Note how he FOUND the idea. From our prior study of this case we know that great businesses do not need to layer on complicated debt to grow. Complexity in financial statments is a RED FLAG.