Thursday, April 19, 2012
John Paulson...another big hedgie proving that he was more lucky than right
John Paulson seems determined to give back all of his newly-earned billions. It's either that or he's trying his damndest to prove that he's more lucky than smart.
Paulson is of course the famed, hedge fund manager who made something like $20 bln shorting subprime debt back in 2008 and 2009. Shortly after that trade, it came to light that Paulson had gone to Goldman Sachs and asked the firm to help him devise a security stocked with the worst, most horrendous, subprime paper they could find so that it was a pretty sure thing that it would blow up. Then Paulson shorted it. (Brave of him, wasn't it?) Goldman happily constructed that time bomb and then pawned it off on bunch of unwitting European banks. (The ultimate exploding cigar.)
That's how Paulson went from being an obscure, largely unknown money manager with $100 million under management, to one of the largest hedge fund operators with tens of billions. He didn't guess the market right; he basically cheated.
Since the now-infamous subprime trade, Paulson has embarked on a series of disastrous plays. Back in 2010 he did a "Bill Gross" annd shorted Treasuries, justifying it at the time by spouting all the misinformed crap about high U.S. debt, inflation, money printing and imminent Chinese selling. Treasuries staged a huge rally, wiping out a sizeable chunk of Paulson's money under management.
Then he got really long gold because of those same, lame and incorrect arguments. That didn't work either, causing Paulson to lick his wounds once again.
Now Paulson is apparently looking to expand his philanthropic donations to the market. He is shroting European bonds. I guess he didn't learn about shorting sovereign bonds where there is a central bank prepared to keep rates low.
Look, maybe this time Paulson will be right...who knows? I mean, there is a distinction between U.S. Treasuries and the bonds of Greece, Spain, Italy, Portugal, Ireland and even Germany for that matter. I get that. But the thing is, I just don't see the ECB letting everythign go down the tubes. They're gonna keep buying these bonds, even if they do so grudgingly. They know that if they don't keep buying, the Eurozone would break apart. And if that happens there won't be any need for the ECB and they'd all be out of jobs. I just don't see them policymaking their way out of jobs.
All kidding aside, I think Paulson is selling these bonds for those very same, lame, misguided reasons that he sold Treasuries and the dollar and bought gold. That is, he believes the ECB will "run out of money." That the markets will "impose discipline" (despite the fac that the ECB has been "disciplining" guys like him reguarly for the past two years).
If John Paulson loses on this one, and I think there's a good chance he will, then I think he's basically done. We'll see him for what he really is: a small time money manager who hit the big time with the help of a notoriously shady Wall Street investment bank and a rigged bet. That's it. And unfortunately, that's mostly how Wall Street operates these days.
Granted, Paulson will never personally have to worry about money, but I have a feeling a lot of his investors will wish they hadn't placed theirs with him.