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Thursday, September 30, 2010

John Paulson Market Outlook

Paulson Says Sell Bonds then Buy Homes and Stocks because double digit inflation is on the way.
John Paulson, the multibillionaire hedge fund operator who correctly called and profited from the collapse of the real estate bubble by shorting subprime mortgage debt, expects double digit inflation by 2012.  His advice is to sell bonds and buy stocks, gold (Gold Quote and Charts) and real estate.  Reports from all over the net including Forbes include these excerpts:
  • Paulson  likes equities with earnings yields of 7%-8% compared to the  2.6% pittance available on 10-year Treasuries. 
  • Favorite blue-chip stocks; JNJ (Johnson& Johnson) at a 3.8% yield; KO(Coca Cola);PFE, 4% yield., as well as C (Citigroup Charts & Quote), BAC (BankofAmerica)  and STI (Suntrust Banks)  and RF (Regions Financial).
  • Recommends distressed bonds of bankrupt companies, and then converting  the debt to equity in reorganization and benefiting  from the potential run up. He mentioned one of his greatest plays — K-Mart, which emerged from bankruptcy at $10 a share and then skyrocketed to $190 a share.
  • His crystal ball is for 2% GDP growth for 2011 and 2012 and he warns that the Fed’s promise of quantitative easing should contribute to double-digit inflation over the next few years.
  • As this is the best time in 50 years to buy homes, Paulson advised his listeners, crowded into 3 separate dining rooms, to issue 30 year mortgages to buy a home as “your debt and interest payments get locked in at record lows, while the price of your home will rise.”
  • If you don’t own a home buy one,” Paulson recommended; ” if you  own one home, buy another one, and if you own two homes buy a third and lend your relatives the money to buy a home.
Paulson has his money where his mouth is.  As of the end of Q2, he was the largest institutional holder of the Gold ETF GLD with a total position greater than the sum of the next three positions ( two through four.)
SPDR Gold Trust (GLD Charts and Current Quote
Owner Name
Date Shares Held Value
PAULSON & CO INC 6/30/2010 31,500,000 $4,030,425
NORTHERN TRUST CORP 6/30/2010 11,638,263 $1,489,116
BANK OF AMERICA CORP... 6/30/2010 8,917,351 $1,140,975
MORGAN STANLEY 6/30/2010 8,485,486 $1,085,718
BLACKROCK ADVISOR 6/30/2010 6,876,673   $879,870

Gold has soared in the past two months to new all time highs.

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