Interesting article from John Paulson

John Alfred Paulson is the founder and president of Paulson & Co., a New York-based hedge fund.

Paulson & Co., Inc., is the manager of several hedge funds, which are loosely regulated investment funds. Paulson’s firm had assets under management (as of June 1, 2007) of $12.5 billion (95% from institutions), which leapt to $36 billion as of November 2008.[4] In 2007 alone he made $15 billion for his firm.[5] Under his direction, Paulson & Co has capitalized on the problems in the foreclosure and mortgage backed securities (MBS) markets. In 2008 he decided to start a new fund that would capitalize on Wall Street’s capital problems by lending money to investment banks and other hedge funds currently feeling the pressure of the more than $345 billion of write downs resulting from under-performing assets linked to the housing market. On May 15, 2008, Paulson & Co., which bought 50 million shares of Yahoo stock during the first quarter of 2008, said it is supporting Carl Icahn on a proxy fight to replace Yahoo’s board.[6] In early 2008, the firm hired former Federal Reserve Chairman Alan Greenspan.

In September 2008, Paulson bet against four of the five biggest British banks.[7] His positions included a £350m bet against shares in Barclays; £292m against Royal Bank of Scotland; and £260m against Lloyds TSB.[8] He eventually booked a profit of as much as £280m after reducing its short position in RBS in January 2009.[9] On August 12, 2009, Paulson purchased 2 million shares of Goldman Sachs as well as 35 million shares in Regions Financial.[10] Paulson has also purchased shares in Bank of America expecting the stock to double by 2011.[11] In November 2009 Paulson announced he was starting a gold fund focused on gold mining stocks and gold-related investments.[12]

In December 2009, the New York Times reported that Paulson had profited during the financial crisis of 2007 by betting against synthetic collateralized debt obligations (CDO’s). [13]

On February 22, 2010, Paulson’s fund was linked with the restructuring and recapitalization of the publisher Houghton Mifflin Harcourt.[14] Highlights of the agreement include, a reduction in the senior debt to $3 billion from the current $5 billion, with new equity issued to the senior debt holders (including Paulson & Co., Guggenheim Partners, and others),[15] conversion of the $2 billion mezzanine debt into equity and warrant, receipt of $650m of new cash from the sale of new equity.

http://www.gurufocus.com/news.php?id=108655 Oct. 04, 2010

· In light of pending inflation, Paulson stressed that investors do not want to own long-dated liabilities, but rather should issue them. One of the most efficient ways for people to take advantage of this is through mortgages on residential real estate, noting that now is the best time in 50 years to purchase a home.

Gregory Zuckerman of WSJ updated us on the performance of John Paulson’s hedge funds:
As stocks struggled during much of 2010, bullish hedge-fund managers like John Paulson looked like naive optimists.

They got their revenge in September. Mr. Paulson, who racked up losses during the first eight months of the year and was criticized for an upbeat view on markets, enjoyed gains of about 12.5% in his biggest fund in September, according to an investor. Those returns trounced the 8.8% gain for the Standard & Poor’s 500-stock index, its best September since 1939.

The truth is, despite the strong number for the month, the billionaire hedge fund had his moments of doubt, at least earlier on during the quarter. Read the reports we have had on him during the past two months:
FT: Paulson & Co takes a bearish turn - Aug 05, 2010
FT: Paulson & Co funds hit by US economy fears - Sep 08, 2010
When you manage $32 and run a leverage hedge fund, you will have reasons to be nervous too.

But nowadays, Paulson sounds once again more confident and more bullish. Speaking at the University Club in New York City recently, Paulson gave similar assessments across asset classes such as stocks, bonds, real estate, and gold recently. Here are the key points he made:

· Paulson reiterated his bullish call on stocks, noting the historically large discrepancy between the equity earnings yield of 7-8% and the 10-year note yield of 2.6%.

· Furthermore, because of his belief that the Federal Reserve will continue to implement quantitative easing measures, Paulson is expecting substantial inflation in the next several years. The noted hedge fund manager stated that low double-digit inflation is possible by 2012.

· Accordingly, Paulson is shorting longer-dated treasuries through 5 and 7 year calls on the 30-year Treasury bond.

· In light of pending inflation, Paulson stressed that investors do not want to own long-dated liabilities, but rather should issue them. One of the most efficient ways for people to take advantage of this is through mortgages on residential real estate, noting that now is the best time in 50 years to purchase a home.

· As for the gold price, Paulson remains very bullish on the yellow metal, noting that the price of gold has been highly correlated to the monetary base for as long as his firm, Paulson & Co., has tracked the data.

Yes Paulson is extremely bullish on Gold…I can only imagine his entry point,must be very low in price…I take aim at what he said about issuing debt on residential mortgages…In some areas it is the best time to buy a home…When you can buy real estate %50 below rebuild costs in some states its time to start buying (nibbling)…And if you are issuing debt (holding a mortgage) on a property that has already dropped %50-%70 in value and you are lending based on that reduced price at %50 LTV at a solid rate how can you lose?

I haven’t heard about this information. Thank you for an interesting post. The title totally corresponds to the content.

Good article, thanks.