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00:00THAT IT SEEMED TO ALMOST ALWAYS WANT TO KICK THE CAN DOWN THE ROAD ON. SCARLET: VESTED INTERESTS ARE SPEAKING LOUDLY, MAYBE ONE PART OF IT. YOUR THOUGHTS ON ANOTHER DEBATE BETWEEN CEOS AND INVESTORS HEATING UP, OIL BACK TO AROUND $50 PER BARREL AND EXECUTIVES LIKE THE CEO OF CONTINENTAL RESOURCES OPTIMISTIC. HERE IS WHAT HAROLD SAID WHEN HE SPOKE WITH ALIX STEEL EARLIER THIS MONTH. > > I BELIEVE THIS PRICE BELOW $50 IS SHORT-LIVED AND WE ARE SEEING AT ABOUT $50, I THINK IT IS SUSTAINABLE ABOUT $50. WE SEE INVENTORIES CRASHING DOWN , COMING DOWN FASTER THAN THEY HAVE. OVER THE LAST TWO YEARS. SCARLET: YOU ANNOUNCED A SHORT ON CONTINENTAL WITH A HANDFUL OF OTHER SHALE PRODUCERS. NO SURPRISE DRILLERS ARE INCREASING DEBT TO FUND THESE PROJECTS, WHAT MAKES THIS TIME DIFFERENT? JIM: WE HAVE BEEN NEGATIVE ON THE SPACE ON AND OFF FOR BASICALLY THE LAST FIVE YEARS. THE PROBLEM IS THAT THE STRUCTURE OF THE E & P SPACE, THE FRACTURES IN THE U.S. THEY ARE DEPENDENT, THEY ARE CREATURES OF THE CAPITAL MARKETS. BECAUSE THE WELLS DEPLETE SO QUICKLY , THEY CONSTANTLY NEED TO RAISE MONEY TO REPLACE THE ASSETS. THIS IS THE CRUX OF THE STORY. THIS IS A GREAT DEAL FOR THE EXECUTIVES LIKE MR. HAMM, GREAT DEAL FOR THE FINANCERS ON WALL STREET, A REALLY CRUMMY DEAL FOR THE SHAREHOLDERS OF THESE COMPANIES. I DO NOT KNOW WHERE THE OIL PRICES BUT MR. HAMM DOES NOT KNOW WHERE THE OIL PRICES WILL GO IN THE FAMOUSLY REMOVED HIS HEDGES A COVENANT THAT WHEN THE OIL PRICES IS $80, $90 IN 2014. HE IS AN OIL PATCH GUY AND HE DOES NOT KNOW. THE PROBLEM IS THAT YOU HAVE TO LOOK AT THESE THINGS BASED ON WHERE THE OIL PRICES ARE NOW. I WANT TO STRESS ONE THING, A COMPANY LIKE CONTINENTAL AND COMPANIES LIKE CHESAPEAKE AND OTHERS, EVERYBODY WATCHES WTI, BUT CONTINENTAL ' S CASE, ALMOST HALF, 40% OF THE COMPANY IS NATURAL GAS. A LOT OF THESE COMPANIES ARE TIED TO NATURAL GAS AND THE NATURAL GAS PRICE IS NEAR ITS LOWS. YOU HAVE TO LOOK AT THE COMBINED ASPECT OF THEIR ENERGY OUTPUT. THE CRUX OF THE STORY IS THAT THE WELLS TO PLEASE FASTER THAN THEY ARE TELLING INVESTORS THEY ARE DEPRECIATING THEM ON THE INCOME STATEMENTS AND EARNINGS ARE OVERSTATED. JOE: YOU MENTIONED AS A CASUAL ASIDE THAT FINANCIAL CONDITIONS WERE TIGHTENING AT CENTRAL BANKS AROUND THE WORLD ARE MORE OF A TIGHTENING MODE AND NOT PAYING ENOUGH ATTENTION TO THAT ARE PEOPLE. IS THIS THE KIND OF AREA, BECAUSE THEY ARE CREATURES OF THE FINANCIAL MARKET, THAT COULD BE COLLATERAL DAMAGE AND A CENTRAL BANK? > > THEY ARE GETTING READY TO TIGHTEN. I MEAN BY THAT WOULD USE THE BALANCE SHEET. WE HAVE A FED THAT IS ABOUT TO GO INTO NEGATIVE, IN OTHER WORDS START SELLING. IN THE CASE OF ECB AND THE BANK OF JAPAN, THE TWO BIG PROVIDERS OF LIQUIDITY , SOME OBSERVERS SAY THEY WILL BE MOVING 40 43 AND 2018 -- TOWARDS ZERO AT THE END OF 2018. NO MORE STIMULUS IN TERMS OF BOND AND EQUITY BUYING BY CENTRAL BANKS. THAT IS A BIG CHANGE, THAT NUMBER WAS $120 BILLION A MONTH OR MORE. TO GO TO ZERO. WHILE THE STOCK OF THE GLOBAL STOCK AND BOND MARKETS WAS ABOUT $180 TRILLION, THESE ARE STILL RELATIVELY SMALL NUMBERS BASED ON THE SIZE OF THE MARKETS. I THINK THEY HAD A DISPROPORTIONATE SIGNALING EFFECT, PEOPLE FELT THEY HAD TO PUT, COURTESY OF THE CENTRAL BANK, THAT IS GOING AWAY. JULIA: IF THESE GUYS DO NOT STOP AT THE SITUATION BY THE BACK END OF THIS YEAR, PEOPLE WILL PAY INTEREST AGAIN. HOW IS THE SITUATION BASED ON WHAT YOU HAVE SAID, OVERSTATING THE EARNINGS, GOING TO IMPROVE? JIM: WHAT I REALLY SAID I THAT WAS, THE SO-CALLED EVEN BIDTA, IS OVERSTATING THINGS BECAUSE OF THE DEPRECIATION AND AMORTIZATION ISRAEL. IN THE CASE OF CONTINENTAL THAT ISRAEL. CONTINENTAL HOPES TO HAVE IT OVER $2 BILLION THIS YEAR BUT THE CAPITAL SPENDING IS SUPPOSED TO BE ABOUT 1,000,000,009 -- ONE BILLION PLUS, THAT DOES NOT LEAVE A LOT OF EXTRA MONEY TO SERVICE THEIR DEBT LOAD. THIS IS THE PROBLEM. NOT THAT THEY WILL MISS A COUPON PAYMENT BUT THAT IT UNDERSCORES THE STRUCTURE OF THE LEVERAGE FRACKERS. THAT CAPITAL SPENDING IS A REAL EXPENSE. YOU CANNOT JUST LOOK AT THE GROSS CASH FLOW NUMBERS. IF YOU DO NOT INVEST, YOUR

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Why Jim Chanos Is Shorting Harold Hamm's Continental

Legendary short-seller Jim Chanos, Kynikos Associates founder, explains why he is shorting Continental Resources. He speaks with Bloomberg's Julia Chatterley, Joe Weisenthal and Scarlet Fu on "What'd You Miss?" (Source: Bloomberg)

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