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Exclusive: The Paulson Portfolio Post-Mortem (In Which We Learn That The Maestro Himself Is Advising J.P. On Future Gold Prices)

Tyler Durden's picture


One of the most fabled funds of recent years, John Paulson's Paulson and Co., has not had a good first half to 2010: not only was Paulson  implicated in the biggest Goldman Sachs scandal in recent history (which took the 200 West firm a few hours worth of operating profits to settle with the SEC), but the firm has seen substantial outflows after a subpar performance in the first half of 2010, a time which has seen the firm's flagship Event Arbitrage ($16.6 Billion in AUM) fund lose just under 6% YTD and 6.6% in H2. Yet among the other Q2 losers, which have also included the firm's Merger Arb fund ($4.0 Billion, down 5.21% in Q2), and Credit Fund ($7.7 Billion, down 1.75% in Q2), nowhere was the pain as acute as for investors in the firm's reflation bet, better known as the $2 Billion Recovery Fund, which was down 12.6% in Q2. For the man who had rarely if ever tasted loss before, many are asking if the recent disappointing performance a sign that the multi-billionaire has peaked? And surely with a personal net wealth well in the billions, just how big is Paulson's motivation any more? If the fund is now nothing more than a levered bet on the broader market, surely there are other levered ETFs available that do not charge 2 and 20%, and may be better suited for the needs of the firm's LPs? Or is Paulson right, and once the market realizes the folly of its ways he will make his investors (in addition to himself) truly rich? Just what is the logic behind the investment choices? Read on to find out.

But first, here is a snapshot summary of the firm's various investment strategies, funds, along with strategy AUM and performance.

What is curious is that while the firm has recorded disappointing returns in dollar-denominated terms, its gold-share performance (which is basically the return for those investors who have invested in the fund in a gold-equivalent form - once again gold shows a better relative performance expressed against an infinitely dilutable currency).

Looking at the overarching strategy of the fund, it is in a nutshell: hook, line and sinker uber-bullish. All those who had hoped against hope that the fund manager may have a contrarian bet hidden somewhere deep down, in the form of undisclosed credit and equity shorts, or some humongous CDS book, we are sorry to disappoint you. In fact, recently, the firm's net equity exposure in its reflation and banking megabet, the Recovery Fund, was a whopping 139.7%. In other words, not only was Paulson not hedged at all, but his gross and net leverage were well above normal levels for what is usually considered a hedge fund. Only following the massive drubbing in the Recovery Fund in Q2, did Paulson reduce his exposure from 139.7% to 107.6%. This means that for all those hoping to see an expansion in the firm's financial holdings in Q3 when Paulson files its next 13-F in November, will be in for a big disappointment, as the firm has actually reduced exposure notably (whether by selling off positions or by pressing shorts).

As for where Paulson believes the economy is in the cycle, no surprise there. The graph below summarizes it best:

To be sure, Paulson's market timing track record so far has been nearly impeccable: he top ticked the market perfectly, and subsequently was buying up every form of credit when the market was dumping at the very trough. Here is how the fund summarizes its historical activities:

In 2006 and 2007, the primary focus of our funds was on buying credit protection on mispriced securities. As the credit markets corrected, this portfolio produced large gains for our funds primarily in 2007, but also in 2008... As financial companies realized their losses, their stock prices collapsed and our positions produced large gains for our funds in 2008.

Beginning in the 4Q of 2008 and through mid-2009, as high yield spreads reached all time highs, we shifted our focus to long distressed credit acquiring significant positions in mortgage backed securities, distressed bonds, levered loans, and defaulted securities. As spreads tightened in 2009, the value of our fixed income securities rose, producing high returns.

Indeed, there is nothing one can say about Paulson's past. He has certainly been impeccable in picking the two most crucial market inflection points over the past 5 years. The result is that Paulson & Co. is now the single largest (non quant) hedge fund in America, and has made Paulson a billionaire. The only question that remains now is whether Paulson is correct about the future.

And according to the firm's economic outlook, the future is truly very bright (even if a few dark clouds may be appearing on the horizon). There is nothing in the fund's general outlook that one would not find in a typical letter on any given Sunday from Goldman's Jim O'Neill, as it is merely the prevailing Wall Street consensus. Here it is in a nutshell:

Although greater uncertainty exists, the U.S. economy continues to expand although most economists have lowered growth estimates. While still fragile, the housing market is stabilizing, and certain hard hit regions are coming back. Retail sales have demonstrated resiliency and ISM manufacturing and non-manufacturing indices continue to report positive numbers.

On the positive side, corporate earnings of both European exporters and US companies have exceeded analyst estimates... The S&P 500 now trades at only 13.8x 2010 estimates, well below the 30 year average of 19.5x [TD: oddly enough, this matches precisely the entire period of the great credit moderation, in which bond yields collapsed from 15% to record lows. To say this is indicative of a fair value, absent constant Fed intervention, meddling and manipulation is shockingly naive - cutting to the chase, Paulson is basically betting on the continued and neverending existence of the Fed's yield-reduction scheme]. With 10 year Treasury yields at less than 3%, the earnings yield on equity compared to treasuries is the widest it's been in thrity years. The low relative valuation of the stock market combined with the strong earnings creates the potential for a stronger market which, in turn, could boost GDP growth [oddly enough this tail-wags-dog logic first appeared on the scene when anunciated by none other than the Maestro in a late July Meet The Press interview, when he said that "if the stock market continues higher it will do more to stimulate the economy than any other measure we have discussed here"... for a much more surprising connection between Paulson and the Maestro read on].... Externally, we believe European debt problems are manageable. The cheaper euro will prove to be a boost for European exporters, making Europe more competitive. Accordingly, we believe Europe will perform modestly better than consensus estimates.

Yet not all is rainbows and unicorns:

Despite a challenging second quarter, we believe the economic recovery will continue fueling corporate growth and the Funds' performance for the remained of 2010 and 2011. The Recovery Funds are exposed to general economic risks, such as a significant tightening of monetary policy, a double-dip recession or a sovereign debt crisis. While we are excited about our portfolio, in order to protect the portfolio from these economic risks, we decided to lower our net equity exposure from almost 140% to 107% currently.

Sorry Citi and Bank of America stockholders: soon there will be an announcement that Paulson has offloaded substantial portions of his C/BAC shares.

In terms of immediate products that the fund is currently focusing on, it appears that Paulson's sweet spot is in post-reorg equities. The thesis is that once previously impaired debt reaches par, the only continued upside is in the form of the post-emergency equity tranche. As these firms tend to have a (unfounded) bias against them due to their recent bankruptcy (the bankruptcy completely redoes the balance sheet), the prevailing opinion should provide an attractive entry point for those who are not worried about following a clean cash flow story. Of course, this was the premise behind ESL's investment in K-Mart, which Paulson highlights prominently as a case study, showing that the stock price surged by 13x from its emergence out of bankruptcy, all the way to its all time high in 2007 (that this exit valuation was predicated upon a horribly mangled post-reorg valuation model created by assorted permabullish bankruptcy advisors while the firm was in court apparently is irrelevant... as is the fact that post the peak K-Mart dropped to almost its all time lows at the end of 2008, nearly costing ESL his fund). Yet the point is, that as Paulson notes: "we are now at the point in the economic cycle where further upside in the enterprise is less in the credit but rather in the equities of companies which have or will undergo restructuring, recapitalization abd bankruptcy reorganization." More on the fund's focus on its preferred investment class for 2010-2012:

Historically, investments in restructuring equities have been the highest performing part of event arbitrage in this stag of the economic cycle following a recession [how about entering a Double Dip?]. We believe that over the next two years, they will appreciate more than the markets. This is the fourth distressed cycle since 1980 and each cycle has exhibited similar trends. [ah, our earlier warning that no technical patterns and historical analogies are any longer applicable to the current systemic paradigm goes unheeded... oh well]

Paulson summarizes his post-reorg equity theme with the following chart:

How will this investment theme play out for Paulson's various strategies, and which companies will benefit the most? The following chart summarizes the initial assumptions:

Yet when it comes to his extremely bullish outlook, what happens if Paulson and his echo chamber of sycophant Ph.D.'s (even Bill Gross prefers to surround himself with people who disagree with him) are wrong about the housing double dip? As Paulson admits "Banking represents our largest sector exposure." He continues: "Banks' earnings recovery continues to be driven by a decline in provisioning for bad loans as old loans are written off and new higher quality loans are made... As provision expense falls, we expect a corresponding rebound in earnings." Oddly enough, people seem to have seen right through this, and even Jamie Dimon recently argued that earning boosts based on provision reductions are not real earnings. Well, apparently they are good enough for Paulson. Yet what happens if the double dip (or Great Depression V2.1) is now here, and home prices plunge another 20-30% as many, among them Robert Shiller himself, have argued could happen? Well, kiss the beneficial provisioning trend goodbye for one, as banks will once again be forced to start increasing loan-loss assumptions (as Meredith Whitney has been warning recently), causing major EPS losses and earnings misses, resulting in a step down in stock prices. As we currently stand on the edge between the realization that the double dip has arrived, and the tenuous hope that the lack of any stimulus for at least another 3 months will prevent an economic collapse, the Recovery Fund PM must be chewing his nails, knowing full well that unless the investing public buys into this latest round of reponzification, the fund's $2 Bn in AUM are very much at risk.

On the other hand, if he is proven correct, the fund stands to make huge gains, as will the key stocks that make up the fund's main holdings. As the chart below shows, Paulson has the following massive upside targets for the key banks as of FYE 2011: Citi - $6.10 (~25% upside), Bank of America - $26.59 (~50% upside), JPM - $71.18 (40% upside), and Wells Fargo - $40.52 (~25% upside).

The chart below summarizes the Fund's view on these top 4 bank positions (yet the footnoted Risk factors tell a probably even bigger story...)

Other notable bets for the fund include a massive legacy exposure in Distressed Debt, which accounts for $5.8 billion in AUM for the Advantage Fund ($9.2 billion in notional, which is also 30% of the AUM). "The distressed portfolio is comprised of a broad array of fixed0income securities, including high-yield bonds, levered loans, mortgage-backed securities and defaulted bonds." A comparable breakdown is also responsible for all of the AUM of the firm's Credit Funds, which had invested $7.7 billion, leveraged 126% into $8.982 billion of market value of bonds, equivalent to $12.3 billion in notional value. In other words, between Advantage and Credit, Paulson owned over $21 billion notional (almost $15 billion market, or roughly a 70 cents on the dollar blended price) in distressed names. To say that Paulson is to the distressed market as Pimco is to the UST/MBS market would certainly not be an overstatement.

(on the chart, Advantage credit exposure is on the left, while the Credit Fund's holdings are on the right)

More details on the Credit Fund's holdings:

The Current Pay portfolio is the largest portion of the firm's credit exposure, and amounts to roughly $7.7 billion in notional, or 68% of total. It has a duration of approximately three years.

Also notable is that Paulson bought $440 million of Hilton mezz debt at 73% (15% yield), and the hope is that the issues will be called. Good luck.

Some other curious tidbits: we discover that Paulson's price target on MGM is $60 based on a 12x 2015 EBITDA target. The fund's cost basis is $11.50, so unfortunately for the time being instead of the 39% 5yr IRR, Paulson has to be content with a nearly 20% loss on his $400MM MGM stake (MGM closed at $9.84).

Paulson, also anticipates a surge in Hartford, based on the simplistic catalyst that the P/B ratio should go up from the current 0.6x to the industry average of 1.0x and in line with its historical valuation of 1.5x. We truly hope there is more of a catalyst to this thesis.

Abroad, Paulson has made a material investment in Renault, where he has a €68 price target, about 100% higher than recent closing levels.

Also, Paulson has invested substantial capital in the stock of HeidelbergCement with a €37 cost basis, and the expectation that the stock will hit about €100 in the future, based on a 2012-2013 7X projected EBITDA.

To be sure, Paulson's fund is not purely a levered play on the Fed's attempt to reflate the economy: about $4 billion is invested in straightforward merger arb situations. Of course, as we saw a few days ago, even these "spread closing" strats are not risk free, when Mariner's stock price tumbled after the firm announced its platform fire, despite the ongoing Apache M&A, which is supposed to generate a 5.7% annualized spread when closed. This merely confirms that upside/downside analyses in relatively risk-free M&A can and will easily blow up in one's face (perhaps explaining the fund's -1.07% performance YTD through June). Among the other merger arbs on Paulson's books are Smith/Schlumberger, Qwest/Centurylink, Hewitt Associates/Aon, SSL/Reckitt Benckiser, Allegheny/First, NBTY/Calryle, Americredit/GM, and Psychiatric Solutions/Universal Health. All in all, more pennies before a black swanish rollercoaster. An aggresive swoon in the market could easily blow up the bulk of these pending acquisitions, leading to massive pain for the fund's LPs.

Yet focusing on Paulson's most curious bet, his Recovery Fund, yields the following observations: of the fund's $2 billion in AUM, "banks continue to be the leading long investment (75%), followed by hotels (15%), and insurance (9%).

As noted previously, the key catalyst on the bank side is the expectation that a decline in provisioning will boost EPS. Perhaps the Recovery Fund's LP should have some talks with Jamie Dimon and coordinate stories on just how much of a viable upside catalyst this is rather unremarkable accounting phenomenon is truly supposed to be.

In addition to the holdings mentioned above as making up the Advantage Fund, the Recovery Fund is also targetting such post-reorg situations as Delphi, Dex One, Education Media, Idearc, and Supermedia. In other words, pretty much everything in the space.

The chart below summarizes the Recovery Fund's holdings by investment thesis:

Also, as we suspected months ago, frontrunning the FDIC is now a full blown investment strategy, and works for Paulson the same way as frontrunning the Fed in general works for Pimco.

So up to here the theme is pretty consistent: reflation at all costs. Deflation will promptly lead to an evisceration of the bulk of Paulson's holdings. Indeed, the fate of Paulson & Co., and the Federal Reserve are very, very closely tied...

Which explains why Mr. Paulson has recently retained the services of a most prominent consultant: none other than former Fed Chairman Alan Greenspan.


Fast forwarding to the only fund of Paulson's that is truly outperforming (and oddly enough has the smallest AUM of all), the firm's Gold Fund, which is up 12.5% YTD as of June 30. The investment thesis here should be very clear to our regular readers. Before we get into the abovementioned tidbit, here is how the Gold fund is positioned in terms of the current portfolio:

Some of the notable outperformers in the fund include Osisko and Detour, which have outperformed the price of gold by 142% and 96%, respectively.

All in all, there is nothing negative one can say about the Gold Fund, which if the prevalent thesis about ongoing dislocation between gold as a commodity and as a currency is validated, Paulson should achieve material gains in this fund (which incidentally is open for further investment and currently have just $535 million in AUM: as Paulson observes, "we believe that liquidity in the gold market would allow the Funds to accommodate much higher levels of investment.").

All in all, this is a good barbell hedge to some of the other funds in the Paulson group of investment, as should ongoing currency debasement continue (and it will), while the impact on financials will most definitely be negative due to the inevitable even more dramatic flattening of the Yield Curve following QE2, 3, ... etc., gold should continue to appreciate as the market prices in ever more proximal (hyper)inflation. 

Yet, in discussing the gold research expertise that backs up the fund, we read this most curious disclosure:

Lastly, and perhaps most important, from a monetary policy perspective in developing an ability to forecast the timing and future price of gold we believe we have an unparalleled team. Former Federal Reserve Chairman Alan Greenspan has been extremely helpful to us in undestanding the relationship between the monetary base, the money supply, inflation and gold prices.

This is probably the single most important take home message in this entire post. Basically, Paulson confirms implicitly that the Fed itself (via the man who got us to this woeful economic state), is advocating the purchase of gold, as he is confident that the double whammy of the monetary base and supply will lead to a surge in gold. Whether this means inflation or hyperinflation, and the final playout of the "Gold to $36,000 scenario" is uncertain. But when the world's biggest hedge fund, and the world's greatest economic disaster have sat down, and decided that gold is a buy here, we will certainly not step in their way. Basically the Paulson-Greenspan JV have confirmed what everyone tacitly knows: the Fed has no option but to reflate. And it will stop at nothing, even if it means the forced conversion of gold from its legacy commodity status, to a full-accepted currency. Gold bears beware.

Lastly, for all those who are curious as to what the fund has been doing lately (since the most recent 13-F), here is the spoiler:

During the second quarter we had higher net equity exposure and correspondingly higher short-term market correlation. We attempted to reduce that correlation by having short positions against our long positions and by buying CDS protection on vulnerable credits. While spread widening produced gains to offset the losses. Going forward we intent to focus more on short event opportunities to reduce our net long exposure and to consider buying put protection or other forms of protection to reduce the volatility.

Translation: despite all the bluster to the contrary, Paulson is shorting the market (and himself). Cause at the end of the day, the only thing better than a zero hedge is a perfect hedge.


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Sun, 09/05/2010 - 23:53 | 565403 Calvin Jones an...
Calvin Jones and the 13th Apostle's picture

Sounds to me like Paulson is betting on Bernanke and Brian Sack to peddle that hamster wheel faster and faster.  How big of a bet is he making short wise?  Hmmm.

Mon, 09/06/2010 - 00:45 | 565455 Oracle of Kypseli
Oracle of Kypseli's picture

Paulson is now part of the oligarchy. There is no way he would go against the trend. Firstly because Bernanke will burn any heavy short sellers and secondly, he can not stay idle. Therefore, he has to go long in some way with the wind of the Fed behind him.

He and other elite hedge funds, bond pedlers and quasi-banks are on quid pro quo with the Fed.

They have to be. It is a survival symbiosis.

Either they all go down with the ship, or the fed survives and they make tons of money.

Fight back. Get out of stocks and bonds and stay 70% cash 30% PM's.

Okay you want the action for your daily dose of adrenaline. Yes? Then take 5% of your assets and gamble. 


Mon, 09/06/2010 - 01:47 | 565484 Spalding_Smailes
Spalding_Smailes's picture

This market is oversold.

Bonds & PM are going to tank over the next 3 months.


Oil at $120.00 by 4th quarter 2011

Exxon Mobil is a steal at $61



Mon, 09/06/2010 - 08:32 | 565602 Monkey Craig
Monkey Craig's picture

+1 on the XOM call. However, there is a bull case for gold/lead/silver. I'm sure if you spend enough time on this site, it will be crystal clear. My suggestion is to read Turd Ferguson and Cognitive Dissonance.


Mon, 09/06/2010 - 08:56 | 565612 done with them all
done with them all's picture

I agree, all metals are becoming more important including lead

TD & CD are spot on

Mon, 09/06/2010 - 12:12 | 565815 FranSix
FranSix's picture

The 5-year lead chart shows lead down significantly off its peak at the start of 2008 from ~$1.75/lb.

If lead were to rally past ~$1.85 today, then it would merely have kept up with inflation from that time.  That means an 85% rally from friday's close.  Considering that there is no debt bubble being inflated any longer, and that commercial banks are off-loading their proprietary trading monopolies on commodities futures, I would say that likelihood of that happening is pretty slim.

(using Tom's Inflation Calculator )

Mon, 09/06/2010 - 12:32 | 565849 Spalding_Smailes
Spalding_Smailes's picture

Inflation, what inflation ...



Wal-Mart Quietly Raises Prices
August 10, 2010

Wal-Mart Stores (WMT), which for years has touted its prowess at lowering prices, has been doing the opposite as it tries to bolster its bottom line amid stagnating sales.

A JPMorgan Chase (JPM) study of a Walmart Supercenter in Virginia found that the world's largest retailer has raised prices by nearly 6% on average over the past six weeks, according to the New York Post. Reuters says it was the biggest sequential increase since JPMorgan started the study in January 2009.

Some Prices Hiked Over 60%

Some of the price hikes were considerably larger. For instance, the price of a 32-ounce bottle of Windex household cleaner jumped 50%, a 12-ounce box of Quaker Oats instant grits climbed 65% and a 50-ounce container of Tide detergent rose by more than 50%.

Mon, 09/06/2010 - 13:01 | 565900 FranSix
FranSix's picture

You can get some inflation in a depression, though I presume its comes through the formerly subsidized retailer/airline operator/food distributer as all of these have been backed up with either municipal or state subsidies.

As long as the discount rate remains stubbornly  below 0.5% because of overwhelming demand for short term treasuries, then any notion of reflating debt and thus prices in commodities has to take a back burner, simply because the same rate of lending to game the commodities is completely gone.

TIPS yields are going lower, which means inflation is very muted.

Mon, 09/06/2010 - 13:26 | 565951 Spalding_Smailes
Spalding_Smailes's picture

High energy import prices, rising capacity utilization and velocity of money, all will push inflation going forward. As oil moves higher this will also have an influence ...


Consumer purchasing power fell hard in the early 70's just before inflation came home to roost' ... same thing is playing out now.

Mon, 09/06/2010 - 13:38 | 565969 FranSix
FranSix's picture

Its a difficult call to make, for sure, since Merril Lynch lost money betting on rises in interest rates.

By my book, I would say not all equities will rise, but only those expected to see improved fundamentals, which so far has not occurred.

And, as an addendum, currency swings will catch most by surprise, such as a Yen melt-up, as has the Swiss Franc  melt-up, or possibly a modest Loonie meltup.

Mon, 09/06/2010 - 13:21 | 565942 apberusdisvet
apberusdisvet's picture

Inflation at the grocery store is at least 20% YOY; check out your receipts.  Many manufacturers are downsizing containers but keeping the prices the same.

Mon, 09/06/2010 - 13:32 | 565954 Spalding_Smailes
Spalding_Smailes's picture

Stealth inflation ... harbinger of things to come.


Mon, 09/06/2010 - 13:56 | 565999 Cruel Aid
Cruel Aid's picture

The products have been downsizing for a while (deodorant, TP, soap) and they can no longer go that route and if our most efficient discount retailer is stagnating, what does that say about the consumer at U6=20%. They are at, what, 1/3 of their work income.

Can they pull this off without consumers? How is inflation going to make it better by itself? By making the homeowner feel richer. This route is going to take forever or end abruptly.

High speed train/brick wall of gold... coming to a Qtr near you.


Mon, 09/06/2010 - 12:41 | 565861 goldsaver
goldsaver's picture

I think he meant copper clad, expanding gas propelled kind, not the monfilament launched, underwater kind

Mon, 09/06/2010 - 12:42 | 565865 amusedobserver
amusedobserver's picture

I suspect they weren't talking about investing in lead in commodity form...

Mon, 09/06/2010 - 18:58 | 566343 robobbob
robobbob's picture

I think the type of lead most people on this site are referencing comes prepackaged in 138gr and comes with an attractive brass display stand. Cost varies but $390/case is in there.

It is usually purchased as an insurance product for your Au and Ag holdings than as a straight play itself. While subject to violent price upswings on the slightest negative rumor, it is virtually impossible to get anyone to part with holdings except in the most dire circumstances.

Mon, 09/06/2010 - 21:14 | 566445 Seer
Seer's picture

And for further clarification, not all projectile-based lead is copper and brass adorned.  I'm old time, and don't need that fancy, expensive stuff.

Mon, 09/06/2010 - 08:47 | 565607 taraxias
taraxias's picture

It sounds like you're in for some major hurt the next few quarters, but good luck to you anyways.

Mon, 09/06/2010 - 10:09 | 565660 NoBull1994
NoBull1994's picture

Be careful with XOM.  While I agree with you that oil is likely to inflate, and probably hyperinflate, XOM may not perform as expected due to gov't regulation, taxation, etc.  Better to own the commodity itself.

Mon, 09/06/2010 - 13:06 | 565912 pitz
pitz's picture

Yup, the real gains will be in the upstream part of the O&G industry, one in which ExxonMobil doesn't participate in heavily, relative to the downstream (ie: main street) part of the business, in which, XOM is fairly dominant and recognizable.

The best gains will be in those who own physically producing assets.  Not refineries (which, as oil depletes, will suffer increasingly low profit margins and decreasing utilization!), not retailling/marketing.

Mon, 09/06/2010 - 13:47 | 565985 amusedobserver
amusedobserver's picture

Exactly.  XOM supplies only 60% of the oil it refines internally.  The other 40% is bought on the world market at high prices.

Mon, 09/06/2010 - 18:31 | 566091 Spalding_Smailes
Spalding_Smailes's picture

XOM has some great qualities ... China's voracious appetite for black gold will help drive oil....

Minimal use of corporate debt

ExxonMobil’s second quarter 2010 earnings were $7.6 billion, an increase of $3.6 billion from the second quarter of 2009

ExxonMobil completed the merger with XTO Energy Inc. Through this transaction, we have acquired a resource base in excess of 45 trillion cubic feet of gas equivalent at a cost well under $1 per kcf equivalent.During the second half of 2010, we plan to further increase activity in Haynesville, Fayetteville, Marcellus, Eagle Ford, and Bakken shale plays.

ExxonMobil reached a significant milestone in the expansion of our integrated chemical and refining complex in Singapore, with the arrival of seven world-scale furnace modules.

Combined with ExxonMobil's state-of-the-art proprietary technology, these furnaces are part of a feed-flexible steam cracker that will have an ethylene production capacity of 1 million metric tons per year. In addition, the expanded complex will produce a range of premium products to capture demand growth in Asia. The anticipated mechanical completion and startup activities will be phased in beginning later this year and continuing through 2011.

Mon, 09/06/2010 - 12:38 | 565857 Johnny Bravo
Johnny Bravo's picture

Oversold based on what?

We've already had a rally that has taken the Slow STO on the monthly chart to nearly overbought territory.

STO on weekly and daily, and lesser charts is already showing a topping motion.

I think we can run higher, but not that much higher.

Mon, 09/06/2010 - 16:20 | 565980 Spalding_Smailes
Spalding_Smailes's picture

Oversold ...

Long term for high quality stocks. XOM, NO, GOOG, Infosys the list goes on ...

I just think you can invest in some great companies now and at the end of 2011 people will have wished they had bought at today's prices...JMHO


Mon, 09/06/2010 - 23:21 | 566522 pitz
pitz's picture

GOOG a high quality stock??  LMAO!

Mon, 09/06/2010 - 13:17 | 565930 Hephasteus
Hephasteus's picture

Computer industry, household goods, maytag etc will be a smoking pile or rubble by the end of the year. Bonds are going to tank, pm's aren't. Oil will yo-yo.

Mon, 09/06/2010 - 21:20 | 566450 Seer
Seer's picture

Oil will plummet in the short-term, driven down by a further contraction in the credit markets.  Once the financial sector lay in smoldering ruins Then oil will shoot up; but, most people won't be able to affort it, in which case it'll be the rich making the big bids for falling production (and rising production costs due to reduced economies of scale and political instability).

Food prices will go up to their more historical norm.  Disposable income items will drop off a cliff.

Tue, 09/07/2010 - 00:24 | 566672 Hephasteus
Hephasteus's picture

Makes good sense. Majority of oil usage is in construction and destruction. I can see it tanking back to 30 or 40 but they would shut down production so hard and fast it would make your head spin.

Mon, 09/06/2010 - 08:41 | 565605 russki standart
russki standart's picture

I agree with most of your portfolio positioning. I beg to differ, however, on motivation. At the level of game played by Paulson and the Maestro, they are representing the true controllers of the economic system.  Hence, they are motivated by power and control, not by money since they can print billions at will. If it serves them, they will destroy the system to keep control. Since I see this as a good possibility, I am positioned in gold and certain non monetary assets.

Sun, 09/05/2010 - 23:54 | 565407 Calvin Jones an...
Calvin Jones and the 13th Apostle's picture

Is that a good or bad sign that Paulson hired Greenspan?  Wouldn't Kudlow have come cheaper?

Mon, 09/06/2010 - 00:05 | 565427 RockyRacoon
RockyRacoon's picture

Kudlow on has one hammer:  The supply side tax cut.  He'd remove every tax (except yours and mine) tomorrow.  Dangerous man!

Mon, 09/06/2010 - 12:41 | 565860 Johnny Bravo
Johnny Bravo's picture

Cutting taxes worked SO well at creating jobs and preventing the recession, that there's no denying he is right!


Meanwhile, the most jobs created in the last 30 years came after raising taxes.  (which GHWB did, which led to the Clinton boom)

Mon, 09/06/2010 - 13:01 | 565897 Spalding_Smailes
Spalding_Smailes's picture

Clinton boom was driven by the stock market (14 trillion increase in stock holdings over the last decade) , Telecommunications Act of 1996, and NAFTA ..... plus racking up a record, economically unsustainable trade deficit for the United States.

Mon, 09/06/2010 - 13:49 | 565988 Johnny Bravo
Johnny Bravo's picture

And then we cut taxes for the rich, much like Reagan did in the early 1980's, and the economy = fail.

If there's one lesson we should learn from the last 30 years it's that tax cuts for the rich and bank deregulation lead to real estate bubbles.

This happened in 1987, and again in 2007.

Both policies were resolved with bank bailouts, stock market crashes, and recessions!

Bush's was just on a much larger scale though.

Mon, 09/06/2010 - 14:51 | 566087 fxrxexexdxoxmx
fxrxexexdxoxmx's picture

and bank deregulation lead to

Rubin under Bill , is a blow job from my daughter incest?, Clinton allowed the bank deregulation to happen that brought us the GFC.

Mon, 09/06/2010 - 14:58 | 566105 SWRichmond
SWRichmond's picture

How about tax cuts for everybody?  Would you be in favor of that?

Mon, 09/06/2010 - 15:29 | 566139 fxrxexexdxoxmx
fxrxexexdxoxmx's picture

Where do you trade? I would like to invest in you and your ideas. Would you please post information about your business?If you do not have these resources please go the  Democratic Underground and troll for Obama bj's.

Mon, 09/06/2010 - 11:45 | 565782 thesapein
thesapein's picture

But Paulson hired Greenspan, like, over a year ago, at least. Why are we just now talking about it? I suppose we had to wait to see what kind of returns they could produce together with twice the insider knowledge.

It's a good sign for goldbugs when insiders show their hand and it looks like they're going for a royal flush, if you know what I mean.

Sun, 09/05/2010 - 23:55 | 565408 Conrad Murray
Conrad Murray's picture

This reinforces my suspicion that the Maestro set out to destroy the fiat system on purpose.  That is one sly dog.

Mon, 09/06/2010 - 00:34 | 565451 JLee2027
JLee2027's picture

An interesting thought.

Mon, 09/06/2010 - 00:58 | 565465 Conrad Murray
Conrad Murray's picture

I mentioned this in the comments of another article because I have always had trouble reconciling the man's actions with his thoughts in "Gold and Economic Freedom" -

Another reader replied and gave me this very interesting link:

Mon, 09/06/2010 - 01:45 | 565476 DavidPierre
DavidPierre's picture

Bix Wier and his Road to Roota series has been highlight by Bill Murphy on over the past years.

Bix has a very interesting take on the Fed and is well worth the time and effort necessary to understand his thesis.

It is only lately that he seems to be gaining some traction and getting his ideas out to a wider audience.

It would be a very educational read for our young friend {and all around pain in the ass}, JohnnyBravo, to read and understand.  After all it is based on a comic book.

Hey...Nothing wrong with comics!

Maybe Paulson hired GreenScam for a very good reason. 

I am sure Bix will have lots to say on this.

GO GATA !!! 

Mon, 09/06/2010 - 07:16 | 565578 Treeplanter
Treeplanter's picture

Go GATA!  But Road to Roota is a mix of excellent conspiracies with a great deal of BS tossed in.  The lizard people from Sumeria is more plausible.

Mon, 09/06/2010 - 11:29 | 565759 zaknick
zaknick's picture

Reptilian BS? Think again:


How the hell do u explain that????

Mon, 09/06/2010 - 11:57 | 565799 thesapein
thesapein's picture

Explain what? Am I supposed to drop acid before watching it or something?

Mon, 09/06/2010 - 13:04 | 565905 zaknick
zaknick's picture

Dude, watch his eyes!!!

Mon, 09/06/2010 - 15:16 | 566124 Dismal Scientist
Dismal Scientist's picture

I suggest you climb back into your bed, pull the covers up and cower before the Lizard People chill your blood permanently.

Mon, 09/06/2010 - 18:17 | 566303 knukles
knukles's picture

So whadda we supposed to do?  Buy gold and eat reptile sausage?  These people are fucling crazy.  Give Gold Bugs a bad name for Keerist's Sake.
Take some Valium and have the Implant Pried Out.

Mon, 09/06/2010 - 16:12 | 566189 Treeplanter
Treeplanter's picture

HQ of the Lizard People is the Orleans Casino on Tropicana, a few blocks west of the Strip. You can tell by the many alligators roaming the place.  Everywhere you look.    However, it has the best food for the price in LV, big truck parking, and the crap tables are always busy.  The place is crawling with Templars, Masons, Illuminati, Council on Foreign Relations wonks.  The tell?  NO REPTILES ARE SERVED ON ANY MENUS IN THE CASINO.  I checked.

Mon, 09/06/2010 - 18:27 | 566310 thesapein
thesapein's picture

Might I suggest that blaming lizard people is overlooking our own human faults and nature? Why would lizard people be any worse than ape people?

Edit: I'm also not in favor of giving credit to aliens for humankind's ancient technology. 

Mon, 09/06/2010 - 16:49 | 566222 Treeplanter
Treeplanter's picture

Daddy Bush blinks a lot in bright light.  Whodathunk?

Mon, 09/06/2010 - 10:25 | 565674 fiftybagger
fiftybagger's picture

I believe Bix is correct.  Melt the witch!

Mon, 09/06/2010 - 12:54 | 565889 Johnny Bravo
Johnny Bravo's picture

I tried clicking on it, but it wants you to join.

Hey, the one time I actually click on a link from a poster here, it's a gold shill site that wants you to buy a subscription.

You don't think that a site that says "Where gold investors come for crucial market insight" could be biased in favor of gold, do you?


Next time, tell me to read an article about why Macs are great from Apple's website.
I'm sure it'd be less biased.

Mon, 09/06/2010 - 21:50 | 566057 DavidPierre
DavidPierre's picture

C'mon JB !?

Bill Murphy offers a free two week trial.


Click the "Free Trial" Button at the top of the page to receive a FREE TWO WEEK TRIAL SUBSCRIPTION !




In those two weeks you, being such a smart guy, could expand your consciousness and broaden your horizon at the knee of a wise elder in the world of markets, politics and PMs. 

But you must learn to shut your mouth so that you can open your mind.

Listen son!... about your style ... try some humility more often!!!

 Tone it down! ... there are many here willing to listen and teach.

 "Your inner peace is much to loud."


Mon, 09/06/2010 - 16:15 | 566191 Treeplanter
Treeplanter's picture

Biased?  Not at all.  Lemetropolecafe is gold bug central.  

Mon, 09/06/2010 - 09:39 | 565637 Hansel
Hansel's picture

The last two paragraphs from Greenspan's 1966 paper:

"In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. If there were, the government would have to make its holding illegal, as was done in the case of gold. If everyone decided, for example, to convert all his bank deposits to silver or copper or any other good, and thereafter declined to accept checks as payment for goods, bank deposits would lose their purchasing power and government-created bank credit would be worthless as a claim on goods. The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves.

This is the shabby secret of the welfare statists' tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists' antagonism toward the gold standard."  -Alan Greenspan

Mon, 09/06/2010 - 12:42 | 565864 Johnny Bravo
Johnny Bravo's picture

So did the gold standard prevent inflation and/or the devaluation of currency?


Did the dollar devalue due to inflation from 1913-1973?

You betcha!

Mon, 09/06/2010 - 13:31 | 565957 Monkey Craig
Monkey Craig's picture

JB - you think we had a gold standard after FDR siezed gold in '33?

don't think so

Mon, 09/06/2010 - 13:34 | 565965 Johnny Bravo
Johnny Bravo's picture

If you mean that the United States dollar was backed by gold, and could routinely be traded by gold, then YES!

Tue, 09/07/2010 - 00:04 | 566639 mamba-mamba
mamba-mamba's picture

I think it is kind of bogus to claim we were on a gold standard when owning gold was illegal.



Mon, 09/06/2010 - 12:56 | 565894 Johnny Bravo
Johnny Bravo's picture

Not to mention, in addition to the very relevant argument I made about gold and inflation... 

You're quoting GREENSPAN?!?!  GREENSPAN?!?!

The man whose monetary policies did more to devalue the dollar, create inflation, and led to this recession more than anybody else?


Dude, that's rich.
People talking about monetary freedom are quoting the person that's done more to hurt the dollar and the economy of the United States than anybody else!!!

Mon, 09/06/2010 - 13:04 | 565906 Conrad Murray
Conrad Murray's picture

Not to overstate the obvious, but that's the whole theme/point of this section of comments.  Greenspan knew exactly what consequences his policies would have; he desired them.  He suicide bombed the fiat system from the inside.  Greenspan...a martyr? Hmmmmm.

Mon, 09/06/2010 - 13:37 | 565968 Johnny Bravo
Johnny Bravo's picture

So you're saying that Greenspan is a gold bug who purposely devalued the dollar and wrecked the U.S. economy solely for the purpose of making money on gold investments?

Gold bugs are treasonous, and wish for the United States to fail so that they can reap investment returns?

I agree with that logic on its face...

Mon, 09/06/2010 - 15:40 | 566150 Conrad Murray
Conrad Murray's picture

I am aware of your status here on ZH, and I do not mean to incite you based on your disdain for other's views on gold.  However, you have come to, what is for me, the very crux of this issue. 

IF Greenspan really did set out to destroy the system(which is, admittedly, a wild ass speculation), what were his motivations?  I absolutely do not believe he would have done it to get rich on gold, that's just stupid to even consider.  The man was in charge of the Fed.  He could print himself up "wealth" beyond imagine.  Perhaps his goal was to destroy those in power who wished to rob the productive members of society in order to enrich the degenerates, the welfare statists as he called them.  Or, more to the point, his aim was to dismantle the system through which these cretins are able to operate, that of perpetual theft in disguise which we call fiat.

I don't think even you believe that we can go on priniting and borrowing and spending with reckless abandon as we are.  There will be disastorous consequences.  It's just a matter of time before the collapse.  Greenspan knew this as well.  So, instead of letting the rape of our country by the monied interests of this farce go on and on, he got behind the wheel, pushed the pedal down and headed straight for the wall.

Now, if that is what happened, is he a terrorist for doing so?  That depends on your view of the situation.  Red pill or blue pill shit.  To a paper bug, he's the devil incarnate.  To a gold bug, he's a martyr.  Did he devalue the dollar and wreck the US economy, or did he expose the lunacy of fiat and accelerate the necessary liquidation of malinvestment?  Were his actions intended to bring about the failure of the US economy?  He may have just been an idiot, but I doubt it.  Maybe he wanted to collapse the country so his globalist pals could institute a one world governance structure.  But it's just as possible he did it because he wanted us to get back to gold.

Mon, 09/06/2010 - 16:00 | 566167 Spalding_Smailes
Spalding_Smailes's picture

"I don't think even you believe that we can go on priniting and borrowing and spending with reckless abandon as we are."


I think this can go on for a very long time. Is 20-25 years to long,50.... ???

SEC Halts Short Selling of Financial Stocks to Protect Investors and Markets Commission Also Takes Steps to Increase Market Transparency and Liquidity FOR IMMEDIATE RELEASE

Washington, D.C., Sept. 19, 2008 — The Securities and Exchange Commission, acting in concert with the U.K. Financial Services Authority, took temporary emergency action to prohibit short selling in financial companies to protect the integrity and quality of the securities market and strengthen investor confidence. The U.K. FSA took similar action yesterday.

They will do everything it takes to keep things moving along ...

Mon, 09/06/2010 - 19:21 | 566370 robobbob
robobbob's picture

Alan Greenspan was part of the Ayn Rand inner circle.

Do not underestimate the implications of that.

Mon, 09/06/2010 - 20:21 | 566409 Yits and the Yimrum
Yits and the Yimrum's picture

the green man was a social climber and political operator, not an economist.

all his actions were to bring about financial tyranny, and then the jack boot supra-state

greenspan was a stage actor, much like our recent presidents but he knows alot about gold because his stage directors love the stuff


Mon, 09/06/2010 - 19:54 | 566386 Frank Owen
Frank Owen's picture

You still haven't read Greenspan's Gold and Economic Freedom? WTF.

It's a quick read and you don't have to sign-up.

Mon, 09/06/2010 - 21:31 | 566457 Seer
Seer's picture

You mean that there has to be a plan in order for fiat currencies to fail?  Hm... I'd always thought that by their very nature fiat currencies were set to fail from inception.

It's possible, however, that all these clowns are stepping up the pace in an attempt to control the collapse (to their favor, of course).

I'd mentioned this before, in that I wonder whether the Fed is being set up (cooperatively or not, doesn't matter) to take the fall.  If it holds all the bad debt and it's NOT actually part of the US govt, then maybe it's a brilliant plan in which it (Fed) goes bankrupt instead of the US govt?  Hey, the US govt can say, the Fed is independent, it screwed up, and it failed!  Game reset and the elites pick up the pieces and play again... foreigners can attack the bankrupt entity known as the Fed, but they won't be able to touch the US govt- the Fed has become the firewall...

Tue, 09/07/2010 - 07:59 | 566888 Pinky
Pinky's picture

I was waiting for someone to bring this up. Every time I suggest it folks tell me I'm crazy, Alice-in-Wonderland crazy.  But what if the NY Fed fully intends to play Cheshire Cat?  Take on all the debt and then . . . fade to black, grinning just like that. 

Mon, 09/06/2010 - 00:04 | 565423 RockyRacoon
RockyRacoon's picture

...ongoing dislocation between gold as a commodity and as a currency is validated, Paulson should achieve material gains...

Doesn't this remove the transition from a matter of faith to that of economics?

How much more will it take to sway the lesser beings?

Mon, 09/06/2010 - 00:08 | 565428 Hephasteus
Hephasteus's picture

Must suck to be net long equity and net long distressed equity when the recovery will never happen.

Mon, 09/06/2010 - 21:32 | 566458 Seer
Seer's picture

That's what you call "going down with the ship."  How heroic it'll be!

Mon, 09/06/2010 - 00:10 | 565431 Spitzer
Spitzer's picture

I find it hard to believe that John Paulson himself, thought there could be a meaningful recovery without the credit cycle going full circle.

Mon, 09/06/2010 - 00:14 | 565436 DoChenRollingBearing
DoChenRollingBearing's picture

Umm.  All of this is hard for a Bearing of round (= 0) intelligence to understand.

Long ago I realized that getting into stuff I did not understand only lead to woe.  Hedge funds.  Derivatives.  OK, I know a bit about these kinds of entities, but I want no part of them.  It is easy enough to lose money just on "normal" stock, bond and ETF speculations.

At this point, all I want is to preserve the capital I have for my kid and any she may have.  I am not interested in complicated investments.  Nice and easy to understand...

Like Gold!  Like some FRNs for a rainy day.  Like some diversity...

Mon, 09/06/2010 - 00:45 | 565456 DavidPierre
DavidPierre's picture

Doesn't matter if the Dollar is down, "SMASH GOLD" says Larry Summers from his vulture's perch above Wall St.

But wait, "what if" they can't smash it this time, what if the Asians step up and block the cartel?

Silver blows to the upside, joins all the rest of the metals and Gold is now only down $2! Has the "cabal's black magic" spell been broken?

The pattern has been broken, Silver made it through an option expiration with no blood and now the regularly scheduled monthly smashdown doesn't work?

Is "5:00pm Charlie" on vacation already?

The dynamics are changing bigtime!

Is it the CFTC rule proposals, lack of physical inventory, Asian and central bank buying, deep pockets or what?

What does matter is that buyers now have the courage to step up and take a few swings with the cabal!

The action speaks volumes and the game has changed.

We are very close to an upside explosion. Going back for years, the cabal made the Gold Longs lick their wounds over holiday weekends.

Not this time!

The seasonally Sept.-Dec. time frame will be unusually strong because the shorts games are no longer working and they appear to be running out of ammo. See this if you look across the board at the mining shares. They are waking up from a long slumber.

This Labor Day trading will make up for lost time spinning wheels and grinding teeth over the last 2+ years.

The horse has left the barn.

In this case, it is Silver that has left the barn. Silver has been trading differently for many weeks.

The odds are very good that The Gold Cartel has hit the wall: stayed at their selling party too long.

The lack of physical market deliveries on the Comex is a sign the market is very tight. Those who still have silver in inventory don’t want to part with it

Should the shorts fail to deliver, it will accelerate into a panic as BIG MONEY SPECS will go after silver like sharks going after a wounded seal.

Keep your fingers crossed and have a nice long weekend. 

Viva LeMet !!!

Mon, 09/06/2010 - 00:48 | 565460 Turd Ferguson
Turd Ferguson's picture

With this in mind, read Harvey Organ's comments from yesterday.

Mon, 09/06/2010 - 13:24 | 565946 SRV - ES339
SRV - ES339's picture

Welcome home Harvey!

Mon, 09/06/2010 - 13:30 | 565956 Uncle Remus
Uncle Remus's picture

Thanks for that link TF. Hadn't read him before.

Mon, 09/06/2010 - 09:56 | 565653 flacon
flacon's picture

[JP Morgan] Blythe Masters Says ‘Don’t Panic’ as Commodities Slip

Masters said. “Remember that you work for a business that is one of the boldest and gutsiest and ballsiest businesses that I’ve ever had the pleasure and privilege to work with.” Masters explained what happened like this: "We got squeezed. We made a *rookie error*, we made ourselve vulnerable to a squeeze." So JPMorgan's commodities unit is under a lot of pressure right now.


Read more:

Mon, 09/06/2010 - 00:18 | 565438 Disastra
Disastra's picture

Glad the folks over at PCo. can spell "International" correctly (Chart 1).



Mon, 09/06/2010 - 00:38 | 565452 Implicit simplicit
Implicit simplicit's picture

`The world  will make it difficult for the dollar to fall in relationship to their currencies. Plus, defationary recessionary economics will pump the dollar up. Thus the only way to lower the dollar will be to drive the price of gold up in relationship to the dollar. Perhaps this is the strategy.

Mon, 09/06/2010 - 01:34 | 565479 Snidley Whipsnae
Snidley Whipsnae's picture

Euro has a parallel relationship to gold. Dollar has a serial realationship to gold...similar to parallel and series circuits in electrical circuits.

The Euro was designed to allow gold appreciation to strengthen the currency...or, that was the plan.

The dollar is always in direct competition with, the dollar could be devalued against gold, imo.

The next few months might provide lots of fireworks in PMs.


Mon, 09/06/2010 - 03:13 | 565516 SHRAGS
SHRAGS's picture

Jim Rickards mentions this exact strategy - the Fed using open market operations for gold to devalue the dollar (14:10 minutes in)  in his latest interview on KWN.

Mon, 09/06/2010 - 13:13 | 565927 thesapein
thesapein's picture

Yes, caught that interview, too.

It is really starting to look like all sides will want to see gold rise; both the QE pushers and hard money goldbugs. We have two means to the same end. 

Mon, 09/06/2010 - 01:17 | 565473 Nihilarian
Nihilarian's picture

Cause at the end of the day, the only thing better than a zero hedge is a perfect hedge.

The only perfect hedge I have ever seen was in a Japanese garden.



Mon, 09/06/2010 - 01:35 | 565480 yabs
yabs's picture

so basically he believes that the FED wins

seeing as its the FEDS teet he is sucking on

he will not think any different

his timing is impecible as he is in the boys club

whether the boys club can prevent the collapse is

open to question

I think the market crashes again like 2008

gold will go down with it to say 950

and then will be the time to buy

Mon, 09/06/2010 - 02:03 | 565489 JLee2027
JLee2027's picture

950 Gold? You gonna be left at the train station man.

Market crash?  Yes.  But no chance of a 2008 repeat in Gold and Silver. Treasuries are the bubble that will pop, and that means a new safe haven will be needed. Hello Gold and Silver.

Mon, 09/06/2010 - 11:11 | 565735 ATM
ATM's picture

Treasuries will pop but not for a good long while. The Fed will have to buy Treasuries until the cows come home to support home prices and artificially keep rates as low as they can for as long as they can. That means printing money and buying every T-bond on the street from wherever it is.

I agree we won't see 950 gold but it is possible because I just don't think enough people have seen the light that the Fed has already embarked on a course of unlimited printing. If the next crash happens (possibly in the next month and a half) gold will get beat down too and we should all be glad because we just got a tremendous going out of business sale.

Mon, 09/06/2010 - 13:08 | 565896 Johnny Bravo
Johnny Bravo's picture

Gold is overbought, both over the long term, and the short term.

Friday's market action was very bearish.

MACD is rolling over on GLD.

I don't think we get much higher in the short term.

The good news for gold bugs is that it just may be forming an ascending triangle over the longer term, which is bullish for it.
Still, I think it'll correct pretty soon, and then it has a target around 1300.

Mon, 09/06/2010 - 15:19 | 566127 Dismal Scientist
Dismal Scientist's picture

Your TA analysis acknowledges upside and downside. Good effort. Timing is everything.

Mon, 09/06/2010 - 18:22 | 566308 akak
akak's picture

But, but, but, whatever happened to your "gold will top at $1220" thesis of the last few months?  How does that jibe with your self-declared "perfect", 100% accuracy in predicting market movements?

Mon, 09/06/2010 - 16:28 | 566202 Treeplanter
Treeplanter's picture

The price might fall that low, but that would be because of the Gold Funds and ETFs.  And it wouldn't last long.  One day soon it will be very hard to get your hands on real metal, although you can buy all the paper gold you want.  I buy miners on dips and sell on runs, I worry about flash crashes because they can zip by your stops.  But because metal is harder to find, the dips are getting more shallow.  I want silver to dip now, I'm in cash, but it may rise and leave me behind.  I expect the bullion bank cartel to smack it down but they have been thwarted by some big players.  There is a different attitude toward the metals now, 2008 may no longer be a guide.  The better miners climb even while the rest of equities dive.  I expect we will see more of that. 

Mon, 09/06/2010 - 01:48 | 565485 palmereldritch
palmereldritch's picture

Slight oversight.

He fails to include on the investment cycle chart a legend that explains that the dashed line following the trough of long distressed debt and representing recovery, means that the GDP data will then be reported as follows:


Mon, 09/06/2010 - 01:54 | 565486 soliton
soliton's picture

 Well, with these revelations, the 2% and 20% model seems to be rather dead. Why pay somebody to guess wildly when you can do it yourself for free ?

 I am starting to think that the predicted "collapse" may be rather farther away than any of the current doomsayers might think. If we are staring at 20+ years of Japan like experience, no way the guys who are making such bets now will win anything, except for the 2% fee.

 At present, dollars are serving quite a few of other economies out there, and thus will be in demand since a lot of times the dollar is the most stable liquid asset available in the 3rd world.

 And Greenspan, just another clueless dude, whose policies were anything but stellar. Why should he be correct now, did he suddenly see the light after all these years?

Mon, 09/06/2010 - 21:47 | 566466 Seer
Seer's picture

There's  a big difference in Japan's lost decades and the environment that we find ourselves in now.  For Japan the rest of the world was there to keep it propped up.  But today it's the US, the biggest tree to fall, there won't be the collective capacity to carry it.  It's a world-wide system now, it's in the interest of all actors to hold up any of the others that happen to stumble, but at some point the weight of those stumbling will be too great for the others to carry, and good night Irene!

Jared Diamond's Collapse explained how civizations can collapse due to the loss of a key trading partner.  Well, we've got so much interconnectedness, thanks to "globalization," that it's not a matter of IF, but WHEN. I doubt that things are going to hold together for even two years.

Mon, 09/06/2010 - 03:14 | 565525 Moonrajah
Moonrajah's picture

Well, Paulson's fund still has the last trump ace up it's sleeve - it could be nationalized into a quasi-government monstrosity in the likes of F and F so that he can retire in a somewhat noble fashion (academia, charity etc.).

After all the plutocrats watch after their own henchmen.

Mon, 09/06/2010 - 06:46 | 565569 dantes1807
dantes1807's picture

I'm curious how John Paulson's investment in Mariner will work out. So far, it doesn't seem like Mariner will be a big deal. He dodged another bullet. Might be an arb play too.

Mon, 09/06/2010 - 07:08 | 565574 breezer1
breezer1's picture

the golden truth...

Mon, 09/06/2010 - 07:32 | 565582 Buttcathead
Buttcathead's picture

I aint buying nothing. Prices are too high. Short term traders and the Fed keep bidding. Once they own it all I dont know who is going to buy it. Dental Floss Tycoons?

Mon, 09/06/2010 - 13:44 | 565978 Uncle Remus
Uncle Remus's picture

Sooo, long dental floss then?

Mon, 09/06/2010 - 21:51 | 566469 Seer
Seer's picture

Ha!  I knew Zappa could see the future!

Mon, 09/06/2010 - 07:38 | 565586 anony
anony's picture

In matters of opinion, debate is useless.

I'm going fishing.

Mon, 09/06/2010 - 07:52 | 565589 Leo Kolivakis
Leo Kolivakis's picture

What no solars? Short Paulson, go long Citadel and SAC Capital. :)

Mon, 09/06/2010 - 10:05 | 565658 Tyler Durden
Tyler Durden's picture

You do realize of course that Citadel is under its high water mark for the second year in a row (and thus any "long" investment would return you absolutely nothing), while SAC turns its entire portfolio on average once every 3 days...

Mon, 09/06/2010 - 08:24 | 565598 mogul rider
mogul rider's picture



Mon, 09/06/2010 - 09:04 | 565617 Youri Carma
Youri Carma's picture

Greenspan - the Wizard of Bubble Land in 2004:
"Instead of trying to contain a putative bubble by drastic actions with largely unpredictable consequences, we chose, as we noted in our mid-1999 congressional testimony, to focus on policies to mitigate the fallout when it occurs and, hopefully, ease the transition to the next expansion."

Bill Zielinski on September 16th, 2009:
"The deleveraging process that we are now witnessing will not unwind 20 years of reckless credit expansion in one year. If Greenspan fears inflation, it’s a good bet that the real danger is the continuation of a deepening deflation."

Mon, 09/06/2010 - 09:10 | 565619 P-K4
P-K4's picture

Just checked out institutional ownership on WSJ and MSFT, Paulson & Co dumped all their shares of C and BAC as of 6-30. Only Yahoo still shows shares owned.


Mon, 09/06/2010 - 09:45 | 565640 Leo Kolivakis
Mon, 09/06/2010 - 09:13 | 565621 bugs_
bugs_'s picture

Could Greenspan be right this time?

Mon, 09/06/2010 - 09:17 | 565625 tom
tom's picture

Paulson seems mainly to be sticking to a strategy (though less aggressively) that he formed in early 2009, when his reputation was godlike and anybody and everybody wanted to give him money to manage, and he could foresee a rebound.

But the glimpse into his analyses here seems to indicate he thinks this is, or at least is trying to sell this as, a real, sustainable recovery from a balance sheet recession that the government solved with Tarp et al, rather than just a temporary, stimulus-induced surge in profits. Thinking like that is what crushed his recovery funds in the 2q and will continue to crush them as long as they stand by that model.

I suppose the research that his gold funds send out looks pretty different.

Mon, 09/06/2010 - 09:18 | 565626 cjbosk
cjbosk's picture

Since Peligrini masterminded the big short for Paulson and hence gave him his massive spread above any index known to man, it's not surprising to see Paulson struggle along since Peligrini left the firm.

Wonder if Finreg mentions hedge funds that are "too big to fail"?

Mon, 09/06/2010 - 09:29 | 565631 MrTrader
MrTrader's picture

Paulson, Cohen, Griffith, Leob ready to take off. Fasten your seatbelts. November will be a hammer of a month. GOP will win mide term elections. This is already a "fact". Good luck+good trading. MrTrader

Mon, 09/06/2010 - 15:34 | 566143 thesapein
thesapein's picture

At least you used scare quotes for your peculiar usage of fact.

Mon, 09/06/2010 - 09:33 | 565634 Keith Piccirillo
Keith Piccirillo's picture

Talk about wolves guarding the henhouse. If you believe in following the hot money, Berkowitz at Fairholme has gone into money centers as his primary focus. A few managers (Heebner) before him were just too early and couldn't ride it out.

Mon, 09/06/2010 - 09:37 | 565636 cjbosk
cjbosk's picture

Another thing, Jack Lee, hard to have a bubble top in Treasuries with looming crash coming (your words).  If markets crash, there's first a flight to safety, i.e. treasuries.  Only after a financial crash and later an economic crash can a currency crash present itself.  We're not through the economic crash yet, hasn't even started.  I guess if you're selling coins then I understand your attempt to tout metals as the end all be all. 

Gold going higher yes, parabolic...we shall see.


Mon, 09/06/2010 - 09:52 | 565648 Bruce Krasting
Bruce Krasting's picture

Great read. The idea that Greenspan is being paid big bucks as a consultant on gold is priceless.

Paulson likes gold and stocks. Can he be right on both sides of the equation? I think not.

P likes gold because he sees inflation. The same inflation will take stocks higher.

But actually what we are looking at is deflation. Gold is not rising because of inflationary expectations today. Look at the TIPS mkt. No inflation there. Gold is rising because people are afraid of financial assets. Quite different than fear of inflation. 17 weeks of stock outflows confirms this.

Should deflation be the outcome one would have to expect that both earnings and mulitples on those earnings will have to go down.



Mon, 09/06/2010 - 11:45 | 565781 Rainman
Rainman's picture

Agree, Bruce, on the gold fear hedge and its connection to current pricing. Considering the worldwide bad debt overhang, the fear hedge with gold is certainly not unreasonable. Personally, I suspect Greenspan's value to Paulson is to provide insight on the methods, timeline and prospects of central planning's success at reflation. Deflation is the #1 economic "conundrum", to borrow a Greenspanism.

Nobody is a more proficient expert at blowing bubbles than the Maestro. And his retirement timing is enviable, too.

Mon, 09/06/2010 - 12:29 | 565844 spekulatn
spekulatn's picture

Should deflation be the outcome one would have to expect that both earnings and mulitples on those earnings will have to go down.


When?  :)

Mon, 09/06/2010 - 13:30 | 565955 thesapein
thesapein's picture

Many do trade into gold over dollars because of fear, but there are also those of us who are simply picking one superior product over another. If I'm shopping for toilet paper, maybe then I would consider dollars.

Mon, 09/06/2010 - 14:10 | 566026 tom
tom's picture

Well, whether you're trading into gold and out of dollars, stocks, bonds or any other financial asset that you distrust, it's all trading into gold out of fear of financial assets.

Mon, 09/06/2010 - 15:55 | 566173 thesapein
thesapein's picture

That's like saying I only eat butter because I'm afraid of margarine. You're still so saturated with margarine that you can't understand why others would see butter as a better product.

Tue, 09/07/2010 - 00:26 | 566675 mamba-mamba
mamba-mamba's picture


Thanks for your many contributions.

Regarding TIPS, isn't it possible that nobody really trusts TIPS? Could that be the really trusts TIPS? I'm not any kind of financial guy so my opinion doesn't count, but I wouldn't trust TIPS because I think the government has been deliberately underestimating inflation, and may do so more agressively in the future if they need to.

Just my thoughts. Would love to hear yours.


Mon, 09/06/2010 - 10:33 | 565683 doolittlegeorge
doolittlegeorge's picture

gold rises because it's a hedge against currency risk--a monetary fact that allows trade to flow in actuality and your "perfect hedge" as it were.  great thread here btw.  of course the market has never recovered from the "shoot out at the not-OK corral" formerly known as Wall Street.  Prices are all over the place and government policy has concerned itself with "painting the Nazi flag on the eagle."  This strikes me as an interesting manifestation of public policy.  Who knows...maybe someone will actually do something!   In the meantime the "Leiter" trade is alive and well as wheat prices continue to surge.  You folks can call that whatever you want but I call it "bad policy period."  Insofar as this Paulson is concerned (the real man was Hank Paulson in my book) if you're going to short housing you're going to REALLY explore the government implications.  Obviously this doesn't make you part of any cabal!  The government wants to kill John Paulson!  He destroyed the myth that the government wasn't the market in housing and made a few billion in the process!  From what I see he "still hasn't taken his eye off the ball."  The ball of course is "goobermint" whose abilities to do "whatever the hell it wants" are beyond any of your comprehensions here.  Needless to say however in the words of an aide to a famous (dead) American Colonel "mistakes were made."  And that guy was just fighting "a few dead ender native types in the Far West."  Needless to say no one is calling the Taliban in Afghanistan that!  Indeed "they've already written off 10 million Paki's."  How's that for Jihad?  So what to say when your General appears as an American Napolean and his President appears as a classic Custer?  Well in my book "that makes for an interesting bid and ask."  Remember..."the market opens TUESDAY this week."

Mon, 09/06/2010 - 10:39 | 565692 ATTILA THE WIMP

Price of gold on Sep. 10th, 2001, the day before the horrible terrible Osama bin Subcontractor attacked us because he hates our Freedom Fries: $271.50. Current price of gold: $1,248 - up 360%.

Price of S&P 500 on Sep. 10th, 2001: 1,093. Current S&P 500: 1,105 - Up 1%

This does not take into account the dividends that one would have gotten from owning the stocks but I doubt that it would make much difference. “Current” price as of 4:30 PM September 3, 2010)

Gold up 360% stocks up 1%

Comrade peasants, we have been at war with the horrible terrible Islamo-fascists for almost nine years. Show me one war in all history without an increase in commodity prices or without an increase in the desire for gold, just one.

PS: Paulson is a Bilderberger

Mon, 09/06/2010 - 11:35 | 565768 Dismal Scientist
Dismal Scientist's picture

Hank Paulson is a Bilderberger, this thread is about John Paulson...

Mon, 09/06/2010 - 11:38 | 565772 ATTILA THE WIMP

Thanks. My bad.

Mon, 09/06/2010 - 13:35 | 565966 thesapein
thesapein's picture

Happens all the time; thus, some articles start with the introduction: not to be confused with...

Mon, 09/06/2010 - 12:45 | 565867 Johnny Bravo
Johnny Bravo's picture

I can pick arbitrary dates to "prove" my argument too.

Gold in 1980 = 850 an ounce.  Gold in 2010 = 1250 an ounce.
30 year return = 40ish%

Dow in 1980 = 1000.  Dow in 2010 = 10400
30 year return = 1000%


Mon, 09/06/2010 - 16:38 | 566212 Treeplanter
Treeplanter's picture

We're fighting a holding action.  We're not even allowed to name the enemy. The Jihad is at war.  Hezbollah is the big player now, bin Laden is a has been, defeated in Iraq.  

Mon, 09/06/2010 - 10:41 | 565697 ZEITGEIST
ZEITGEIST's picture

I  see there is no post from Johhny Bravo..nor Robo Trader....interesting...when the kitchen gets too hot...the lil girls go runnin for them thar hills....

Mon, 09/06/2010 - 13:39 | 565970 Johnny Bravo
Johnny Bravo's picture

Wow!  My post got deleted!

I guess that you're only allowed to make personal attacks against people if your name is Zeitgeist!

And I guess that a 2.45% return over 10 months qualifies as "the kitchen getting too hot."

I'm SO jealous!  2.45%?  Why... that's almost as good as treasuries!
I could have made more money in a CD at a bank!

Mon, 09/06/2010 - 11:26 | 565755 the grateful un...
the grateful unemployed's picture

This is Kagemusha, the Shadow Warrior, (film by Akira Kurosawa). The Feudal Lord is killed in battle (the dollar) and his generals put his double up in his place (a common thief who looks just like him). Once their enemies know the real Lord is dead, it is game over for them. They have to keep fooling the enemy, that nothing has changed. It's a big challenge because the man is a common fool (or a high school principal promoted to the Oval Office).

Paulson's premise rests on the eternal business cycle. The economy is the warrior, and thusly a shadow warrior. Therefore he is betting on the shadow economy, which is debt. We are in a bear market for debt, but at the bottom you want to get long.

To follow than into energy, look at the spread between oil, and natural gas. Natural Gas is the shadow energy play, and while $200 oil is possible, if the shadow economy recovers, Gas will come off its bottom. Since debt is pretty abstract, Gas is a better play, unless you believe the shadow warriors in Washington can pul this off.

Mon, 09/06/2010 - 22:15 | 566477 Seer
Seer's picture

"but at the bottom you want to get long."

Sounds all so nice and bouncy... And if the bottom gets hit like a bunkerbuster hitting ground, then what?  Not very likely that there's go to be any bounce.  I doubt that standing next to that hole trying to sell really cheap US flags will look a little silly...

Mon, 09/06/2010 - 11:38 | 565773 AnonymousMonetarist
AnonymousMonetarist's picture

Well Paulson is pretty good at plaigarizing Jimmy G, who swung and missed on the V-shaped recovery ... for the same reason IMHO that he missed on the AIG call.

Fall is coming which means unfortuantely for Paulson the window is closing for those 5 mile jogs in Central Park.

Hope he has a good exercise bike. He's gonna need it.

And Paolo? A one-hit wonder that now finds the ex-theory randomwalkin' to be a bit too hard. Such the pity.




Mon, 09/06/2010 - 12:17 | 565824 Gordon Freeman
Gordon Freeman's picture

No man can beat the market

--Jesse Livermore

Mon, 09/06/2010 - 12:37 | 565853 AnonymousMonetarist
AnonymousMonetarist's picture

Well, the Boy Plunger ended up face down in a cloakroom...

An interesting quote from Jesse:

'All through time, people have basically acted and reacted the same way in the market as a result of: greed, fear, ignorance, and hope. That is why the numerical formations and patterns recur on a constant basis.'

He was on to it...

You can beat the market, but first you need to appreciate what the market is.

Hint, fractal patterns as of late aren't because of HFT. HFT is just takin' some of the emotion out of it cause we're all hard-wired to trade wrong.

Adherents of the ex-theory randomwalking need pay no heed to this post...

Vibrate at ya later.

Mon, 09/06/2010 - 16:34 | 566206 Spalding_Smailes
Spalding_Smailes's picture

"You can beat the market, but first you need to appreciate what the market is.

Hint, fractal patterns"


Can you elaborate on this.

Thankyou ahead of time AM, big fan ...

Wed, 09/08/2010 - 16:36 | 570381 Geoff-UK
Geoff-UK's picture

The markets are currently a sham.  Don't walk onto a basketball court where Ben Bernake is free to change jerseys at any moment.  Buy gold and sit this whole thing out.


Gordon Gekko: I don't throw darts at a board. I bet on sure things. Read Sun-tzu, The Art of War. Every battle is won before it is ever fought.


Mon, 09/06/2010 - 12:48 | 565878 Johnny Bravo
Johnny Bravo's picture

I can!

- Johnny Bravo

Mon, 09/06/2010 - 12:51 | 565883 mt paul
mt paul's picture

over ponzied

Mon, 09/06/2010 - 13:06 | 565911 Johnny Bravo
Johnny Bravo's picture

I'm going to come out and make a prediction here, based on technicals.

Gold will not breach the 1265 previous high before it corrects again!

If I'm wrong, 6 million people will tell me about it.

When I'm right, they'll be like "the market is manipulated!"

Mon, 09/06/2010 - 13:31 | 565958 AnonymousMonetarist
AnonymousMonetarist's picture

Well, for my part, would not have an opinion on quantum.

And, as I see it, any forecast beyond 3 trading days is a mug's game where the eye of the beholding squiggles and wiggles is just pontificating confirmation basis.

On a bar to bar basis though would suggest, at minimum, over 60% election per direction and over 80% win on election is there if only folks have the eyes to see and ears to hear.

Got fractals?


Mon, 09/06/2010 - 13:45 | 565979 Johnny Bravo
Johnny Bravo's picture

If gold is making higher lows, and meeting the same resistance again and again, it would appear to be a bullish move in the long term.

Whether the uptrend in gold is sustained depends on the next lows in the next correction.

Then again, if it goes slightly higher than 1265 (like to 1280) and then corrects to higher lows, it's bearish!

At any rate, the culmination of a technical pattern is about to happen.
It's difficult to tell which way it will go though.

One thing that is certain, there is divergence in the MACD of the GLD chart, and it is headed toward dropping below zero.
I would suspect a correction in the next 3 or so days, maybe sooner.

Then, it may either go to 1300, or a big, long, nasty crappy rising wedge is about to break down.

The peak that is coming up in the next few days will provide better insights to the long term direction.

Mon, 09/06/2010 - 16:20 | 566194 Hall 9000
Hall 9000's picture

I don't see any divergence in MACD for Gold, either daily or weekly. All the metrics look strong. Only buy on dips and no more than 5%-10% of your risk capital, assuming you plan to hold for a few years. My 2-cents.

Mon, 09/06/2010 - 13:45 | 565981 ZEITGEIST
ZEITGEIST's picture

i am going to make a prediction will own no gold and will live in a dark alley foraging for food with the rats ...if I am right 6 billion people wont give a rats ass about you....if I am will be living with your parents still breast feeding from mommy three times a day......and 6 billion people wont give a rats ass about go know nothing about waht is really going on in the premature Wall Street Goldan wanna be......

Mon, 09/06/2010 - 14:07 | 566019 Johnny Bravo
Johnny Bravo's picture

Why not cut some of the fat off your back and feed starving animals?

I won't own gold.  You're right.  I can make more money putting money into CDs.

As in "see deez", bitchez!

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