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John Paulson Capitulates, Admits Was "Too Aggressive", Dumps Bank Of America, Lowers Net Exposure From 81% To Below 60%

Tyler Durden's picture




 

After two years of ridicule for his ludicrous bet that Bank of America (about which we will have much more to say shortly) would triple, John Paulson has finally capitulated on his rose-colored glasses call that there is nothing but smooth sailing ahead for US financials. Reuters reports that "he pseudo-mutual fund manager "told investors on Thursday he was "too aggressive" with some of the stock bets in his flagship funds and he is trimming back some of his riskiest holdings. The hedge fund manager told investors in a conference call that he is limiting his funds' riskier stocks by moving away from bank holdings with heavy mortgage exposure." Translation: goodbye Bank of America. For those wondering what caused the drop in BAC from $14 to $9.5 in the past several months, now you know: VWAPed selling of 100MM+ shares of BAC stock will do that to you.

And while BAC was unwound at a modest profit, the biggest loser was Sino-Forest: the firm exposed as a Fraud by two guys with none of the amenities that $35 billion in AUM can provide.

"The biggest loss was Sino Forest. We took a nasty hit on it, but there was also other losses," said Paulson during the investor call, which Reuters heard portions of.

The Advantage Funds oversee roughly $18 billion in assets, a big portion of Paulson & Co's roughly $38 billion in assets.

And the biggest concern for 13F copycats is that the slashing of holdings is just beginning:

Paulson said he cut the net long exposure from roughly 81 percent to about 60 percent, and plans to cut it more. "Eighty-one percent was way too high. We cannot operate the fund at level," he said. "I'd like to bring the risk down further to about 50 percent."

As a long-time owner of large financial companies such as Bank of America and Citigroup, Paulson called said the former -- his sixth largest position at the end of the first quarter -- was "somewhat of a disappointment."

Follows the funniest thing we have read today:

He said his team of analysts did not expect the magnitude of the mortgage problems to be so great.

Perhaps if Paulson had read some fringe blogs... Yet it seems he still has not learned his lesson:

To reposition the portfolio, Paulson said he diversified into financial companies with less exposure to mortgage loans, noting that he liked Capital One and Wells Fargo, two names he owned at the end of the first quarter.

Funny: it is only an hour ago that we wrote how credit card companies are about to be burried under a tsunami of bad debt and delinquencies. But Paulson will learn that with the traditional 2 year delay.

And the biggest concern to FX traders, which is everyone these days, is that the Pauslon mutual fund is now actively dabbling in FX:

He also said he increased his bet that the euro currency would fall as a hedge against further fallout from Europe's debt crisis.

i.e. Another massive daily P&L wipeout for JP. We may have to reevaluate our near-term bearish stance on the EUR. which is only matched by our near-term bearish stance on the USD.

As a reminder here are the shares that Paulson is dumping, per his latest 13F:

 

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Thu, 07/21/2011 - 14:47 | 1478079 Oh regional Indian
Oh regional Indian's picture

It's all downhill from here amigoes y amigas.

Everything is heading shitter-wards.

Shitter ward ho!

Cheers Terrance, You Ching!

ORI

http://aadivaahan.wordpress.com/2011/03/11/axis-trembles/

Thu, 07/21/2011 - 15:09 | 1478212 malikai
malikai's picture

I suspect QE3 will reverse this trend, at least temporarily.

Remember, bonus season is just around the corner.

Thu, 07/21/2011 - 16:28 | 1478587 mophead
mophead's picture

Not too long ago I said BofA was going to zero. This is more proof.

Thu, 07/21/2011 - 18:44 | 1478946 malikai
malikai's picture

It will never go to zero. TBTF?

It may become a wholly owned subsidiary of Goldman Sachs, JPM, or the United States Government. But it will not go to zero any time soon.

Thu, 07/21/2011 - 22:11 | 1479470 sun tzu
sun tzu's picture

GM

FNM

FRE

 

All too big to fail, but their stock prices failed

Thu, 07/21/2011 - 16:19 | 1478545 monkeyshine
monkeyshine's picture

This guy is funny. "Next time I will do some due diligence before I invest" LOL. 

Goes to show, money managers are probably no better, and perhaps even worse, than the average investor. The advantage they have is critical mass and collusion with other funds.  These guys all live in the same small state, eat in the same restaurants, attend the same parties and charity events... and invest in the same companies with their multi-billion dollar leveraged funds.  So if the stocks go up, it is often because they as a group are buying large amounts of the stock backed by lots of big money players.

Maybe 90% of the time it works anyway as the markets tend to go up, but when the market is flat for 3 months straight a couple if risky bets gone bad can make the whole fund look bad.  I'm sure next quarter their returns on AAPL and GOOG will make him look like a hero again to his investors.

Thu, 07/21/2011 - 23:20 | 1479584 Imminent Crucible
Imminent Crucible's picture

Paulson should just go back to cheating. That's the only thing he did well with. Maybe he can cook up another inside trade with Goldern Sacks.  He's the Hero Cheater.

Fri, 07/22/2011 - 03:11 | 1479775 Spitzer
Spitzer's picture

He actually sold some Kinross. Kinross has been a dog but it is groping for a bottom now. Considering Paulsons record of late, I bet Kinross jumps going into the strong gold season.

Thu, 07/21/2011 - 16:30 | 1478593 mr_fro2000
mr_fro2000's picture

HP, B of A, SinoForest...

*slow clap*

Thu, 07/21/2011 - 17:41 | 1478814 rocker
rocker's picture

Is *slow clap* a new disease or just a Paulson problem.

Thu, 07/21/2011 - 14:49 | 1478096 lolmao500
lolmao500's picture

Just saw on FOX that Standard and Poor's will make an announcement at 3 o'clock.

Also... about 100 house republicans have signed/will sign a pledge saying : PASS WHAT WE WANT OR DEFAULT.

http://www.dailykos.com/story/2011/07/21/996727/-Boehner-will-need-subst...

Some eighty House Republicans have now signed a letter calling on GOP leaders not to even let the McConnell plan get to the floor for a vote, a GOP aide tells me.

I bet a lot of these people who signed that pledge will coward when the time comes.

Thu, 07/21/2011 - 22:26 | 1479497 sun tzu
sun tzu's picture

The funny thing is all these fucking talking heads on TV and bozos in DC keep saying we're going to default if the debt ceiling is not raised. That is an outright lie. Treasury takes in more than enough tax revenues each month to pay interest on the debt. 

Thu, 07/21/2011 - 14:49 | 1478098 Careless Whisper
Careless Whisper's picture

Apparently it's a lot easier to package a bunch of bullshit mortgages and call them Abacus Securities and then have GoldmanSack unload them on the suckers, aka clients, and then go all-in on the short.

So maybe the genius isn't really a genius afterall.

 

Thu, 07/21/2011 - 14:49 | 1478099 GeneMarchbanks
GeneMarchbanks's picture

Gasping for air here...

Thu, 07/21/2011 - 14:51 | 1478104 lolmao500
lolmao500's picture

35hres or so till kaboooooooooooooooooom.

Thu, 07/21/2011 - 14:54 | 1478127 Eireann go Brach
Eireann go Brach's picture

He was perceived to be the genius that called the housing crash, or was it Fab Fabian and Goldman who advised him of this and he rode their coat tails! Either way I still think the guy is a fucking cocksucker!

Thu, 07/21/2011 - 14:55 | 1478139 cosmictrainwreck
cosmictrainwreck's picture

"too aggresive" was he? good spin, Mr. P...I hear there are opening at .gov

Thu, 07/21/2011 - 14:58 | 1478158 Doyle Hargraves
Doyle Hargraves's picture

Just replace one f*cking genius (timmay) with another...sheesh!

Thu, 07/21/2011 - 16:01 | 1478440 Zero Govt
Zero Govt's picture

good switch afterall Timmays budgets are "over-aggressive" too ...and over-cooked, over-indebted and over-stretched!!!

..but then Paulson hasn't the luxury of robbing peoples pensions when your financial planning *cough*splutter* has come up $2 Trillion short ..nor can Paulson have the luxury of replacing invested money with interest bearing debt as Timmay can (another nice 'switch' you can only get away with in Govt)

Thu, 07/21/2011 - 16:22 | 1478562 cosmictrainwreck
cosmictrainwreck's picture

yesh.... it seems .gov is allowed "a little more latitude" <snark>

Thu, 07/21/2011 - 14:56 | 1478144 Robslob
Robslob's picture

Buying everything highlighted in green now! Signed, RoboTrader

Thu, 07/21/2011 - 15:02 | 1478183 Aunty Christ
Aunty Christ's picture

Thu, 07/21/2011 - 15:15 | 1478259 cosmictrainwreck
cosmictrainwreck's picture

agreed

Thu, 07/21/2011 - 15:04 | 1478190 Aunty Christ
Aunty Christ's picture

Thu, 07/21/2011 - 15:16 | 1478266 cosmictrainwreck
cosmictrainwreck's picture

no doubt about it

Thu, 07/21/2011 - 15:04 | 1478191 Stoploss
Stoploss's picture

I just saw where he came out today and is shorting the euro!!!  This poor bastard can't win.

 

 

Thu, 07/21/2011 - 15:05 | 1478193 Aunty Christ
Aunty Christ's picture

JP likes financial companies with less exposure to real estate...like Wells Fargo? wow.

Thu, 07/21/2011 - 16:07 | 1478506 WellingtonDowd
WellingtonDowd's picture

Seriously...I'm glad I'm not the only one who caught that.  For a second I thought I needed to lay off my BHO-brand Hopium.

Thu, 07/21/2011 - 15:11 | 1478230 RobotTrader
RobotTrader's picture

Looks like he had to dump some Anglo Gold and Agnico Eagle as well.  Tremendous selling pressure lately.

Proof that many "institutional" gold stock investors have no conviction or discipline whatsoever.  Always margined to the hilt, then forced out of their positions at the worst possible time.

They are gambling junkies with outsized positions in specific stocks or sectors, just like all the other over-leveraged financial speculators which they eschew.

Thu, 07/21/2011 - 15:30 | 1478337 caerus
caerus's picture

what they're doing is selling their profitable positions to offset their losses

Thu, 07/21/2011 - 15:32 | 1478347 Careless Whisper
Careless Whisper's picture

Yes conviction is a good thing. I'm long K Swiss because they have the most un-corporate management of anyone and a great products. KSWS breakout to the upside today. I'm also long REV. Ron Perelman? pffft. EL breaking higher. The entire indusrty has the stars aligned. I missed the buy on BAC below 10. There's no way they're going to let it stay in single digits. Not going to happen. FNF p.o.s. answering criminal subpoenas. GS? I'm waiting for a good entry to short it. Off the grid MS is killin' them. Gold - been buying for three years and I will never sell.

Thu, 07/21/2011 - 16:07 | 1478504 rosiescenario
rosiescenario's picture

Right you are.....that quaterly yardstick creates a real problem for them....in my own experience it usually takes a year or two for a really good investment concept to work out.

Thu, 07/21/2011 - 18:59 | 1478977 oddjob
oddjob's picture

He kept the ITH. Tough to let the good stuff go.

Thu, 07/21/2011 - 15:12 | 1478239 Freddie
Freddie's picture

Some people are sh*tting in their pants in Greenwich and Westport, CT.

Thu, 07/21/2011 - 15:13 | 1478248 caerus
caerus's picture

"team of analysts" eh? I nearly spit out my Kwak

Thu, 07/21/2011 - 15:22 | 1478289 SovietCong
SovietCong's picture

Was it pseudo-mutual fund manager or mutual fund pseudo-manager? Both seem to kind of make sense as of recently.

Thu, 07/21/2011 - 15:32 | 1478340 spongeBOB
spongeBOB's picture

And BAC is up 4% two days in a row...

Thu, 07/21/2011 - 15:38 | 1478370 I am a Man I am...
I am a Man I am Forty's picture

what part of stay the fuck away from large financial institutions does he not understand??

anyone that knew anything about B of A knew that it was a shit company, what a rich dumbass

Thu, 07/21/2011 - 16:09 | 1478510 rosiescenario
rosiescenario's picture

It is pretty amazing especially when you consider where he scored big just a couple of years ago....how could he possibly think that they are out of the woods??????

Thu, 07/21/2011 - 15:41 | 1478382 Manzilla
Manzilla's picture

"And the biggest concern to FX traders, which is everyone these days, is that the Pauslon mutual fund is now actively dabbling in FX:"

 

You are full of shit and you know it. The only thing that matters to the true professionals is what Bernanke had for lunch! Possibly breakfast as well.

Thu, 07/21/2011 - 15:41 | 1478389 Seasmoke
Seasmoke's picture

should have retired after his inside information on the housing implosion paid off

Thu, 07/21/2011 - 16:41 | 1478629 PulauHantu29
PulauHantu29's picture

How can ANY realistic person think RE will stop plunging for another ten years. RE cycles are Econ 101...they run in 10-12 year cycles. Thi sone was ramped up higher b/c all the free money and fraud...but now the coorection will be just as...shall we say, "dramatic" on the way down. The Fed is flooding the economy with money prolongs the crisis and bailing out flippers and speculators who won several houses will only make things worse.

Paulson should have known this.

His best holdings are his gold, gold miners and RIG which was an outstanding addition imho. These all do very well as The Bernank expands the money supply and now we see the ECB about to embark on the same money expansion frenzy.

GL! Hope he hires better analysts next go round.

http://www.businessweek.com/magazine/the-housing-horror-show-is-worse-th...

Thu, 07/21/2011 - 19:04 | 1478987 I am a Man I am...
I am a Man I am Forty's picture

today you can get raw timberland for $850 an acre, a very nice 3 bedroom 3 bath condo in destin florida for $250k, so you're wrong

Thu, 07/21/2011 - 16:57 | 1478687 Sir Edge
Sir Edge's picture

Well JohnnyP ... Hmm ... Easy Come Easy Go...

Thu, 07/21/2011 - 18:44 | 1478954 ejhickey
ejhickey's picture

nice to know I am smarter that Paulson at least on this one.

 

Thu, 07/21/2011 - 20:42 | 1479280 YesWeKahn
YesWeKahn's picture

Good, he admitted his mistake.

Thu, 07/21/2011 - 21:09 | 1479364 halflink123
halflink123's picture

The man lives in the HAMPTONS FOR CRISSAKE!

 

How the heck is he supposed to know about the state of affairs for us plebs?

 

Anyone with kids, a job, or bills  knows things are really, really bad - but Paulson is neither, so all he knows is what the other overlords on Wall Street whisper.

 

How someone with a team of the "best and brightest" - an army of Harvard MBA's - could not see that Sino-Forest was a fraud.  I mean I am not the brighest guy, so I make my share of mistakes and then some, but these people are supposed to be the BEST (c).

 

Thu, 07/21/2011 - 22:45 | 1479531 Widowmaker
Widowmaker's picture

The money is not in the analysis, but in selling the lie.

Haa'vard MBA's are the best liars and thieves mommy and daddy's money can buy.

 

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