John Paulson’s Big New Bet on Gold

Friday, November 20th, 2009

Gold is getting a great deal of sponsorship, in general, but it is even more notable, when some of that sponsorship is coming from the likes of this era’s new contrarians. John Paulson, who personally made $4-billion betting against subprime mortgages in 2007, has shifted his focus to gold during the last 9 months, and now he is ramping it up yet another notch. On another note we’ve also covered in the recent past, David Einhorn’s now well-known accumulation of gold bullion, as well as S&P500 Puts.

Yesterday’s Wall Street Journal discusses Paulson’s latest plans:

John Paulson, who scored about $20 billion of profits between 2007 and early 2009 wagering against the housing market and financial companies, is launching a hedge fund dedicated to buying up shares of gold miners and other bullion-related investments, according to investors.

He is starting a new fund with his own money:

Mr. Paulson told his investors he personally would invest between $200 million and $250 million in the new fund, which he said will begin on Jan. 1, according to an investor at the meeting.

His theory on gold differs, in that Paulson seems to have recognized quite rapidly that central banks’ appetite has shifted in favour of the shiny stuff, and that their appetite is not strictly based on concerns of inflation. If you read between the lines, Paulson is suggesting that will be the gravy (when it indeed happens), and the real impetus is the constrained supply:

He noted that central banks around the globe have gone from sellers of gold to buyers, and that the global supply of gold is constrained.

While harmful inflation isn’t on the horizon, he said, Mr. Paulson argued that there is a risk of a burst of inflation down the road. That’s because in the past there’s been a lag between a surge in money supply and higher inflation. Gold often does well when inflation rises.

Mr. Paulson told investors that the Federal Reserve will prove reluctant to raise interest rates, given the weakness in the economy, which also could pave the way for higher inflation, at least at some point, another reason for his growing conviction about gold.

This is an interesting development for the stocks of gold producers. At the very least Paulson and other investors who are devoted to this theme will add key support to the market’s appetite for gold equities and bullion.

John Paulson Making Big New Bet on Gold

Tags: 9 Months, Central Banks, Contrarians, David Einhorn, Global Supply, Gold, Gold Bullion, Gold Gold, Gold Miners, Gravy, Hedge Fund, Housing Market, Impetus, inflation, John Paulson, Money Supply, New Bet, P500, Shiny Stuff, Subprime Mortgages, Wall Street Journal, Wea
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Treasury Bills - Is This The Low?

Tuesday, January 13th, 2009

This post is a guest contribution by Bennet Sedacca*, President of Atlantic Advisors Asset Management

In the chart below, please note the very simple channel in long bond futures going back to the beginning of the bull market. Prices seem to top every 5 years and, right on schedule, they’ve topped again.

Click here or on the chart below for a larger image.

The usual correction is in the 18-25% range if it revisits the lower end of the channel. From the top, at roughly 142, a 25% move would be to 106 or so, which is still a whopping 4.4%. I think is far too low considering a) what actually now sits in the Treasury and b) the sheer amount of global supply that is forthcoming. Even in a slow economy, I think foreigners will need to be sellers. I am finishing up my Mortgage Backed Securities program today and heading to more cash.

One more thing. The secular bull market in stocks, in my opinion, ran from 1974 to 2000. Twenty-six years. The bull market in bonds looks like it ran from 1982-2008, also twenty-six years and exactly the length of time I have been at this. With the “blow-off” move we just had, my guess is that the top is in, perhaps for a very long time … like a decade.

Using a Fibonacci analysis leads us to targets that are … well, nauseating and could be a 50% retracement of the whole move. So buyers of long bonds beware. And if you want to refinance, and can actually find a good program, I wouldn’t hesitate. That goes for individuals and corporations alike. Why the Treasury is BUYING bonds at these levels instead of selling long Treasuries is beyond me.

Click here or on the chart below for a larger image.

* President of Atlantic Advisors Asset Management, Bennet Sedacca brings with him more than 26 years of securities industry experience. From 1981 to 1997 he worked for several major investment banks, specializing in high-grade fixed-income securities marketing, trading and portfolio management. In 1997 he formed Sedacca Capital Management focusing on portfolio management for high-net worth individuals and small to mid-sized institutions.

Tags: Asset Management, Bond Futures, Buying Bonds, Fibonacci Analysis, Fixed Income, Foreigners, Global Supply, Income Securities, Industry Experience, Investment Banks, Length Of Time, Mortgage Backed Securities, Portfolio Management, Retracement, Secular Bull Market, Securities Industry, Slow Economy, Treasuries, Treasury Bills, Treasury Bonds
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