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John Paulson Lecture: "Bonds Are Wrong, Stocks Are Right"

Tyler Durden's picture


John Paulson is now 'all in' that for the first time in history bonds are wrong and stocks are right... We'll take the other side of that bet. Of course, this also means that David Tepper is across the table as well. Oh well, we do like to live dangerously. Full notes from Paulson's lecture at the University Club, to a standing audience. Then again, if anyone suspected that JP was actually on the same side of the bet as us, it wouldn't really work now, would it...

Here is today's permabullish elixir from the man who has a $30 billion reflation bet on.

1.    What Happened – We all know what happened in 2006, 2007, and 2008. By end of 2008 they had completely covered their mortgage CDS and had started to buy high-yield Corporates into 2009.  They averaged in at under 55c on the dollar for most of those bonds and sold most over par. There is not much opportunity in high-yield at this point.

2.    Equities – They are now think one of the best places to be is equities, with a strong focus on distressed equities.  Paulson’s case for equities in general focused on the discrepancy between equity earnings yields of about 7% to 8% now compared to the 10-year yield at 3.6%.  This is one of the highest dislocations since they started tracking these numbers.  As such, some equities he owns offer superior returns to long-dated bonds: JNJ: 3.8% yield, 7% earnings growth; KO: 3% yield, 8% growth, PFE: 4% yield, 3% growth.  On distressed equities, they look at bankruptcies and major restructurings.  The most well known examples are his holdings in financials like C and BAC.  They also own STI and RF.  They follow every bankruptcy and will buy the debt in interested.  As the companies come out of bankruptcy, they’ll convert the debt to common stock.  He gave the example of K-Mart, which went into bankruptcy with billions in debt, emerged at $10 a share and debt-free, then eventually went to $190.  Paulson thinks he’ll find more of these over the next few years.

3.    Bonds – The purchase of long-dated bonds, either treasuries or Corporates, should turn out to be a horrible trade.  Rates are at record lows and the economy is turning should continue to churn higher.  Paulson expects roughly 2% GDP growth for both 2011 and 2012.  Quantitative easing should contribute to significant inflation over the next few years, with inflation possibly hitting low-double digits by 2012.  This is bad for the 10-  and 30-year and bad for the USD.  The USD should fall and the yields on long-dated US Treasuries should rise.  Paulson has been buying 5 and 7 year calls on the 30-year bond yield.

4.    Homes – This is the best time 50 years to buy a home.  This thesis is the exact opposite of his thoughts on bonds.  You don’t want to own long-dated debt, you want to issue it.  Buying a home (an asset) with a 30-year mortgage (issuing debt) is exactly that.  Home prices will rise with a better economy and with inflation.  Your debt and interest payments get locked in at record lows.  The price of your home will rise.

5.    Gold – The price of gold has moved in correlation to the monetary base for as long as they have tracked the two data items.  As the Fed prints more money, gold should rise.  If the Fed were to increase the monetary base by 100% over the next 3 years, Gold should increase by that same amount. Additionally, as inflation accelerates, investors tend to push gold higher than its correlation, like in 1980 when it increased an additional 100% above the correlation.  So if gold is at $1,200 now, it should hit $2,400 on the monetary expansion alone, then $4,000 as investors flee inflation. Additionally, he has offered his investors the ability to hold their investment in his fund in either US Dollars denominated or in gold denominated.  Paulson himself has 80% of his assets gold denominated.

Let the debate begin

h/t Mike


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Mon, 09/27/2010 - 14:19 | 607677 ZeroPower
ZeroPower's picture

When have bonds ever been wrong? The big boys control F.I.

Mon, 09/27/2010 - 14:27 | 607697 Dr. Engali
Dr. Engali's picture

With the markets as distorted as they are now it's hard to tell who is right. I just know it will all blow up in the end.

Mon, 09/27/2010 - 14:28 | 607701 Tarheel
Tarheel's picture

I was wondering why the market ramped up at 1pm on a non-POMO day

Mon, 09/27/2010 - 15:10 | 607848 MarketTruth
MarketTruth's picture

Bernanke came right out and said he will not let the market down whatever the costs. Yes, he directly said that in public, so you KNOW the Fed will support the market ramp. So yes, stocks and not bonds.

Better still, due to massive dollar printing to keep the market up, get physical gold/silver due to dollar devaluation.

Tue, 09/28/2010 - 00:57 | 609160 1984
1984's picture

What's this OR shit?  It's AND.  Both.  Everything goes up, until SHTF.


Mon, 09/27/2010 - 15:11 | 607849 tmftdoyle
tmftdoyle's picture

In a market where the technicals are manipulated by the PPT, today's ramp is simple; on friday, despite the huge move, transports "failed to confirm" dow move. PPT will not let that failure continue. So ramp market to get dow theory confirmation. Pathetically obvious.

Mon, 09/27/2010 - 15:10 | 607851 tmftdoyle
tmftdoyle's picture

In a market where the technicals are manipulated by the PPT, today's ramp is simple; on friday, despite the huge move, transports "failed to confirm" dow move. PPT will not let that failure continue. So ramp market to get dow theory confirmation. Pathetically obvious.

Mon, 09/27/2010 - 14:52 | 607776 Young
Young's picture

Agreed. His thesis is BS, sure bonds will get hammered in the inflation case, but hey J.P. if it wasn't for extreme availability of cheap money the past two decades, stocks wouldn't have gone anywhere (no credit fueled consumption - nothing!). Now he's ramping stocks in an inflationary environment... Zzz

Equities are dead, who even cares about them anymore. When QE2 is finally announced there will be very little upside left. 'Til then feel free to ride the AAPL and BIDU hockeysticks...

Mon, 09/27/2010 - 15:09 | 607840 Hephasteus
Hephasteus's picture

Do you guys hear yourself. POMO buy stocks POMO buy stocks. The bond market is the stock market and the stock market is the bond market. Microsoft sells 4 billion in bonds to pay stock dividends to avoid repatriating cash that it would have to pay taxes on.

So my dear friends. The stock market crashes the bond market crashes, the bond market crashes the stock market crashes. Now let's move on to the lightening round. Where there is death without ressurection.


Mon, 09/27/2010 - 15:14 | 607866 AccreditedEYE
AccreditedEYE's picture


Mon, 09/27/2010 - 17:32 | 608283 kathy.chamberli...'s picture

that was a pretty powerful video, gave me goosebumps. never seen it before but knew the song. WOW.

Mon, 09/27/2010 - 18:49 | 608454 Conrad Murray
Conrad Murray's picture

You should definitely take the time to watch that movie.  The Wall is a classic.

Mon, 09/27/2010 - 20:35 | 608643 kathy.chamberli...'s picture

ok, thanks a lot. i guess i get christmas every day now.

Mon, 09/27/2010 - 14:23 | 607681 What_Me_Worry
What_Me_Worry's picture

Well, at least he batted 1-for-5.  Almost good enough for the majors.

Edit: Take that back, he invests in GLD for a bulk of his gold holdings(I believe).

Mon, 09/27/2010 - 14:55 | 607787 Divided States ...
Divided States of America's picture

The Hinderberg Omen headline was used to get the shorts on board while cronies like Tepper and Paulson were buying like a shopping spree. Now these guys are saying stocks are the way to go because they are up to their chins with them and wants to take them off the table. THey need to round up the suckers to pile in and what better way than to show your face on the farce known as CNBC. If these guys are telling you to buy, I am sure they are doing the opposite, or else how could they always end up making money and staying in this rigged game.

Mon, 09/27/2010 - 16:18 | 608074 Zeilschip
Zeilschip's picture

Exactly what I'm thinking.. Even when Tepper on CNBC basically said that it was a no-brainer in early 2009 to buy financial stocks/bonds, in fact I can vividly remember that most people at the time were thinking armageddon. Now with the POMO's and anticipated QE2, it does feel like you can simply front-run the Fed and make an easy buck. Which makes me think, gotta sell this market. There is no such thing as a free lunch. Period.

Mon, 09/27/2010 - 14:22 | 607686 deliciousirony
deliciousirony's picture

well, yeah, if inflation is expected to be in the low double digits (!) then bonds are wrong.

But, I think Ber-spank-me is aiming for more like 3 or 4% inflation.


Mon, 09/27/2010 - 14:22 | 607687 Clark_Griswold ...
Clark_Griswold Hedge Mnger's picture

"Paulson himself has 80% of his assets gold denominated."


what does that tell you.

Mon, 09/27/2010 - 14:37 | 607726 Steaming_Wookie_Doo
Steaming_Wookie_Doo's picture

He spent 80% of the article talking about 20% of his assets.

I'll go for the gold part. Given a very inflationary environment, I'd also suggest silver, liquor, tampons and weaponry.

Mon, 09/27/2010 - 14:55 | 607783 ssp2s
ssp2s's picture


Mon, 09/27/2010 - 15:07 | 607799 Clark_Griswold ...
Clark_Griswold Hedge Mnger's picture

"...liquor, tampons and weaponry..."

Is there an ETF for that????????

I bet the perspectus is an interesting read

Mon, 09/27/2010 - 15:21 | 607896 DosZap
DosZap's picture

There is,soak the Tampoons in liquor,tie onto and pull thru the fouled bore........most excellent idea Ted!.

Mon, 09/27/2010 - 15:47 | 607900 homersimpson
homersimpson's picture

I believe part of the perspectus states: "The variance in equity risk can be dramatically compounded during specific (and unstated) time periods in a given month. Also investor returns or losses can potentially be highly leveraged and volatile."

The ETF tickers for the fund you seek are WMYN, WSKY, and GUNZ.

Mon, 09/27/2010 - 17:19 | 608248 Blano
Blano's picture

At least during the given month time periods the ETF's won't rip you a new asshole when you say "how was your day?"

Tue, 09/28/2010 - 00:37 | 609132 slvrizgold
slvrizgold's picture

Do I have the right to take delivery of my GUNZ or WSKY?   Would I want to?  Different kinds of whiskey and guns are not what I call fungible.

Mon, 09/27/2010 - 14:22 | 607688 HedgeFun
HedgeFun's picture

I don't understand how all these hedge fund managers are super long gold due to coming (double digit?) inflation and super long equities.  High inflation = higher input costs, lower relative disposable income and ultimately a compression of corporate earnings.  Why does noone talk about this?

Mon, 09/27/2010 - 14:28 | 607705 hack3434
hack3434's picture

Because he's probably betting that "investors" will pile into equities since the mantra is that stocks outperform inflation. All the 7% blah...blah...sounds like bs from a salesman. 

Mon, 09/27/2010 - 14:24 | 607689 MrTrader
MrTrader's picture

Earnings yield 7 / 8 % ? Buahahahahahahahahahaha. You must be kidding me, John ! Guys, do yourself a favor and get out of the stock market. There is only one interpretation possible for this humbug : Paulson is trying to liquidate his portfolio. STRONG SELL.

Mon, 09/27/2010 - 21:33 | 608763 The Real Fake E...
The Real Fake Economy's picture

exactly my thoughts.  I read somewhere recently (probably DB) that his funds were down for the year.  He's probably making an end of year effort to get his performance up, because if he doesn't after incredible returns in '08 and '09, investors may question who was pulling the strings at Paulson (considering Pelligrini left last year to set up his own shop only to realize correlations amongst asset classes were too much in line to really make money for his investors)  So this is Paulson's shot at telling investors, "I was responsible for '08 and '09, not mr. psqr."  Of course if he finishes down next year, do we begin to see redemptions?  old clients may stick around, newer clients may bail.   Either way, if you have a guy like Paulson trying to exit equities and insiders selling shares at ridiculous rates vs buying, that should be all the lack of confidence in the market you need.  (and btw L ellison probably thought, i get $1 a year in salary and there's just no way my shares are going any higher bc this is just too rough of a business environment, so let me cash out right now before it's too late)

Mon, 09/27/2010 - 14:25 | 607692 Millivanilli
Millivanilli's picture

The whole notion of some rich asshole giving a lecture on how to be a fat cat like me is patently stupid.   Guys like Soros, Buffet, and Paulson are so full of shit it makes my colon envious.    Buy gold, silver.   Take delivery.  These fuckers are at the end of their ropes.


From the Financial Times: Brazil warns of ‘currency war’

Guido Mantega, Brazil’s finance minister, said on Monday the world was in an “international currency war” ... Mr Mantega, who has made increasingly aggressive comments recently about the need to control Brazil’s currency, said governments around the world were trying to weaken their currencies to promote competitiveness.

"We’re in the midst of an international currency war, a general weakening of currency. This threatens us because it takes away our competitiveness,” he said ...
excerpt with permission

It seems everyone wants to devalue to export more.

Mon, 09/27/2010 - 16:30 | 608128 bronzie
bronzie's picture

"so full of shit it makes my colon envious"


Mon, 09/27/2010 - 17:37 | 608292 kathy.chamberli...'s picture

colon bitch

Mon, 09/27/2010 - 14:30 | 607702 hedgeless_horseman
hedgeless_horseman's picture

bonds are wrong and stocks are right

What was the question?  If it is, "Which is broke, the equity markets or the USA?"  Then the answer is, "Yes," and both bonds and stocks are wrong.

Mon, 09/27/2010 - 14:30 | 607708 TheMonetaryRed
TheMonetaryRed's picture

"The price of gold has moved in correlation to the monetary base for as long as they have tracked the two data items."

Proof for this? Chart?


Mon, 09/27/2010 - 14:50 | 607771 Dr. Richard Head
Mon, 09/27/2010 - 15:06 | 607828 TheMonetaryRed
TheMonetaryRed's picture

Um, I don't see anything that seems like correlation between the monetary base and the price of gold on that site.

Is there some evidence of a correlation some place else?

Mon, 09/27/2010 - 15:45 | 607984 TheMonetaryRed
TheMonetaryRed's picture

Sorry, that has nothing to do with it.

I'm just looking for a chart of the gold price against a measure of the monetary base that shows correlation. I'm not trying to make an argument get into an argument. I'm looking for data. 

Mon, 09/27/2010 - 16:11 | 608052 Dr. Richard Head
Dr. Richard Head's picture

I understand, no argument sought.  i am trying to find anything remotely close to such a chart.  Would be worthy along with the fridge art collection from my kiddos. 

Mon, 09/27/2010 - 22:41 | 608893 snowball777
snowball777's picture

Total credit bubble size from 1915 to now (note the flattish area from 1970 to now):

Inflation-adjusted gold price (note the sharp peak during high inflation in the late 70s):

I think you can make much better arguments for the gold price tracking inflation (since that's when people buy it as a hedge against same) than any correlation to M1-M3 per se.


Mon, 09/27/2010 - 14:31 | 607713 RobD
RobD's picture

Um, I thought that if interest rates rise, home prices would really tank. What am I missing?

Mon, 09/27/2010 - 16:17 | 608072 bulldung
bulldung's picture

If you are in the market for a home there is no time pressure as long as rates remain low.As soon as rates begin to rise the buyer becomes motivated to "lock in" before borrowing costs go up. This is the only way I can see rising sales and is dependent on how many are in the market and the rate of increase.It will certainly have a diminishing effect,and then prices tank.

Mon, 09/27/2010 - 14:33 | 607718 99er
99er's picture

Chart: DX

Stocks or bonds? Let the USD decide.

Mon, 09/27/2010 - 14:38 | 607731 truont
truont's picture

"for the first time in history bonds are wrong and stocks are right... We'll take the other side of that bet."

Tyler, we aren't comparing apples to apples here.

Historically, bond and equity pricing were not nearly as manipulated by PPT-HFT-POMO-Shitsorm as it is today.

So, all the market's signals are wrong--we are flying blind since both bonds and equities are artificial constructs of our politburo.

In other words, "ya pays your money, and ya takes your chances."  "Step right on up, folks!  Take your chances on the market from hell!

Mon, 09/27/2010 - 14:40 | 607739 Sudden Debt
Sudden Debt's picture

Right or wrong, the DOW is green and if it holds this week at this rate, we are heading into shortsqueezes all around the board.

Mon, 09/27/2010 - 14:45 | 607755 MrTrader
Mon, 09/27/2010 - 14:48 | 607763 Sudden Debt
Sudden Debt's picture

I'll repeat what I said: Right or Wrong, if green for this week, major shortsqueezes around the board


Mon, 09/27/2010 - 14:40 | 607741 RobotTrader
RobotTrader's picture

I guess there remains an acute shortage of shopping malls, office buildlings, retail centers, etc.

Yet another new high for Jones Lang LaSalle.

Mon, 09/27/2010 - 14:59 | 607801 goldmiddelfinger
goldmiddelfinger's picture

Not in Florida there isn't. Half of em are closed weed factories, You know what an eyesore is?

Mon, 09/27/2010 - 16:46 | 608175 Hephasteus
Hephasteus's picture

Weeds are good for florida. The weeds that grow there process silica. They are slowly converting sandy soil. I think flordians will learn that sea grapes are edible just not very tasty.

Mon, 09/27/2010 - 21:36 | 608768 The Real Fake E...
The Real Fake Economy's picture

I can tell you these guys stay awfully active and busy in China  ;)

Mon, 09/27/2010 - 14:42 | 607745 RobotTrader
RobotTrader's picture

Gambling Fever is running amok.

No amount of economic distress can keep Joe Six from the gambling dens.

Mon, 09/27/2010 - 15:02 | 607806 goldmiddelfinger
goldmiddelfinger's picture

heavy volume too

Mon, 09/27/2010 - 15:06 | 607830 goldmiddelfinger
goldmiddelfinger's picture

Maybe the NY can do 600mm today including HFT.

Tue, 09/28/2010 - 00:08 | 609072 The Real Fake E...
The Real Fake Economy's picture

LVS has become the bellweather of this economy.

Mon, 09/27/2010 - 14:43 | 607750 SilverIsKing
SilverIsKing's picture

Cramer just pumped Gold and Silver...more toward Silver.

Look out below!

Mon, 09/27/2010 - 14:45 | 607757 truont
truont's picture

Let's hope it is a short mini-correction, then.  Corrections are healthy in the context of a long-term bull market.


Mon, 09/27/2010 - 14:50 | 607772 Sudden Debt
Sudden Debt's picture

Gold will go down a bit to correct, maybe back to 1250 but after that straight up again. Nothing goes up in a straight line.

Mon, 09/27/2010 - 14:54 | 607782 SilverIsKing
SilverIsKing's picture

I want gold back to $1,200 and silver to $19.50.  Then the upward movement can begin again.  What the past few weeks has shown is what is possible.  In other words, we've now seen that gold and silver can continue to go up regardless of whatever else is happening in the markets.  The next time that happens, hopefully after a pullback, I want to be fully loaded.  Right now, I'm not fully there.

Mon, 09/27/2010 - 14:59 | 607791 truont
truont's picture

I'm curious to see how Au/Ag hold up today on op-ex and tomorrow on comex futures expiry.

That will give you a hint if you are EVER going to see your $1200 Au / $19.50 Ag in your lifetime...

Mon, 09/27/2010 - 15:08 | 607837 SilverIsKing
SilverIsKing's picture

I've read a couple of the "experts" are expecting a pull back, i.e. Clive Maund, Bob Hoye, but it wouldn't surprise me to see the upward trajectory continue unabated given what's going on.

Mon, 09/27/2010 - 15:26 | 607915 DosZap
DosZap's picture

John Williams is proposing a Politburo slam down on Gold.

Basically he's saying they are going to throw the kitchen sink at this, anything they have to do to keep it afloat.............

Go ahead,slam down.What a buying  spree worldwide that will be..........

Mon, 09/27/2010 - 15:35 | 607946 TheMonetaryRed
TheMonetaryRed's picture

I doubt Gold will go much below $1275, if that. I think a push through $1300 this week is more likely. 

But I'd still like to see a chart to back up this claim for a correlation between the gold price and the monetary base. 

Mon, 09/27/2010 - 15:41 | 607969 traderjoe
traderjoe's picture

Given the on-going currency war, and the desire to dump the dollar from all of the other CB's, I don't think they would venture to try to tamp down gold. That train has left the station, and I'm guessing we could see a massive breakout on gold prices as the liquidity crisis begins anew. IMHO, there is a large bid under the gold market from the CB's, large investors, etc. Pullbacks will be shallow and well bid. 

Mon, 09/27/2010 - 15:22 | 607903 RobD
RobD's picture

What time is the close for op-ex and tomorrow for comex?

Mon, 09/27/2010 - 16:25 | 608102 truont
truont's picture

Dunno what time:  prolly 1:30pm EDT or so.

Per Ed Steer:  There's options expiry in the OTC market in both gold and silver on Monday... and options expiry on the Comex on Tuesday... last notice day for delivery into the September silver contract on Wednesday... and first day notice for delivery in the October gold contract on Thursday the 30th.

Mon, 09/27/2010 - 15:05 | 607826 Clark_Griswold ...
Clark_Griswold Hedge Mnger's picture

Great if Cramer is pumping Gold and Silver we can expect a pull back in the days to come, guess I can add to my position then.

I can't stand the guy.

Mon, 09/27/2010 - 16:27 | 608112 still kicking
still kicking's picture


Mon, 09/27/2010 - 14:46 | 607759 George Costanza
George Costanza's picture

for billionaires like Paulson, it is PATRIOTIC to be bullish.  They already made billions, so want to be good US citizens and pump stocks.  It is part of the propaganda machine. 

Mon, 09/27/2010 - 14:54 | 607780 Shameful
Shameful's picture

Yep, to do otherwise casts them in the role of villain.  Look at Steve Wynn, he is probably as bearish as I've heard from a billionaire and he was assaulted for his statements.  Well Steve Balmer too.  Made a statement a while back that Microsoft had to look at moving operations overseas because of regulations and taxes, not much was made of that though.

Mon, 09/27/2010 - 14:49 | 607766 goldmiddelfinger
goldmiddelfinger's picture

 This guy is parroting Grantham and laying low after his huge, once in a lifetime, Goldman designed score in 2008-09. 8pc earnings yield goes under 7 after tax with new divvy rates. Terribly incongrous concepts but perhaps he is hedging?

At least the (plate?) Spinners had 2 hits to the OJs one!

Mon, 09/27/2010 - 17:46 | 608319 kathy.chamberli...'s picture

that be an O J ,  they got away with it.

Mon, 09/27/2010 - 14:50 | 607770 williambanzai7
williambanzai7's picture

Why would anyone want to believe what this guy says publicly. He is the King of Schtups. Lean over my countrymen and letteth my Abacus penetrate thine backsides...

Mon, 09/27/2010 - 14:54 | 607785 goldmiddelfinger
goldmiddelfinger's picture

He's a schmendrik schmecklehead

Mon, 09/27/2010 - 17:47 | 608324 kathy.chamberli...'s picture

didn't Harley Davidson have a schmecklehead engine?

Mon, 09/27/2010 - 14:53 | 607777 curbyourrisk
curbyourrisk's picture

For all you inflation guys out there......let's get this straight.....  INFLATION IS A HEDGE AGAINST DEFLATION....  NOT INFLATION.  Gold is a store of value during infaltionary periods. many times do I really need to say this????

Mon, 09/27/2010 - 15:29 | 607926 DosZap
DosZap's picture

It's Both...............

Mon, 09/27/2010 - 21:09 | 608710 StychoKiller
StychoKiller's picture

Chevy Chase: "New Shimmer is both a floor wax AND a dessert topping!"

Dan Akroyd:  "Tastes great, honey!"

Gilda Radner:  "And just look at that shine!"

Still one of the best commercial parodies of all time!

Mon, 09/27/2010 - 21:22 | 608734 kathy.chamberli...'s picture

Gilda Radner:  "And just look at that shine!"

she was a true goddess of satire.

Mon, 09/27/2010 - 14:55 | 607781 AccreditedEYE
AccreditedEYE's picture

"I also like to live dangerously.." - A.P.

As if stocks aren't being propped up and only bonds are... Where would those dividend yields be WITHOUT POMO interference right now? Dividends aren't coupons my man. Top line earnings growth JP? How much of that is acquisition? Looking to rally the crowd so we can lighten up eh? Smashing baby!

Mon, 09/27/2010 - 14:55 | 607786 Hondo
Hondo's picture

JP fails to understand that QE is nothing more than an asset swap.  Exchanging interest bearing bonds for non-interest bearing cash deposits.....that's somewhat deflationary.

Mon, 09/27/2010 - 16:53 | 608193 jm
jm's picture

Very clever way to think about the matter, Hondo.

Mon, 09/27/2010 - 14:59 | 607796 milbank
milbank's picture

"The University Club."  Sounds like a pretty exclusive place.  I guess only those who went to a university can join. LOL!

Mon, 09/27/2010 - 14:58 | 607797 carbonmutant
carbonmutant's picture

Somebody betting on QE2 for november...??

Mon, 09/27/2010 - 15:05 | 607822 AccreditedEYE
AccreditedEYE's picture

Somebody praying for QE2...

Mon, 09/27/2010 - 14:59 | 607800 Glasgow Gary
Glasgow Gary's picture

The price of a home will surely not rise, but, the value of the debt you "issue" on it may very well crash. I can't live in Paulson's world where both sides of that equation are working for the homeowner though I do lean in favor of his idea that granting a mortgage is issuing debt that will be debased on your behalf. Let Ben do  the work.



Mon, 09/27/2010 - 15:01 | 607805 TradingJoe
TradingJoe's picture

yeah, old JP, solo now, trying to talk his book, ..ah trying to SELL HIS BOOK! It seems he run out of "strategies" this time around, hehehe, GS has to look out for themselves so dear JP you have to "short" all by yourself now, eh!

Mon, 09/27/2010 - 15:02 | 607807 UnRealized Reality
UnRealized Reality's picture

It would be really sweet to see these

wiseguys get caught holding the bag!!!!!

Mon, 09/27/2010 - 15:03 | 607814 goldmiddelfinger
goldmiddelfinger's picture

CNBC now busting the PGN trades!! LOL

Mon, 09/27/2010 - 15:04 | 607818 tmosley
tmosley's picture

Mr. Paulson is half right on his statement.

Neither stocks nor bonds are right.  Both are denominated and subject to the rapidly collapsing world of paper (you think a house of cards is unstable, try a whole PLANET).

Gold is right.  Most everything else is a broken clock.  One or the other might be "right" in the short term, but both look terrible at current prices.

Mon, 09/27/2010 - 15:10 | 607847 Shameful
Shameful's picture

Why is gold right?  I happen to think it's not, we have seen a lot of evidence on this very website to show it's manipulated.  The big boys have a full court press on (most if not all major markets) so why should we think that any one specific market will be right and forecast properly?

Mon, 09/27/2010 - 15:42 | 607972 AccreditedEYE
AccreditedEYE's picture

XAU is pulling back and getting ready for its next assault on the highs of 2008. ($210) should be very interesting to see how it turns out...

Mon, 09/27/2010 - 16:59 | 608203 tmosley
tmosley's picture

Ok, ok, it's pointing in the right direction.  Better?


Mon, 09/27/2010 - 15:09 | 607841 Minion
Minion's picture

I like how he compared stock earnings with bond yields in point # 2.  It seems everyone is focused on earnings and not dividend payouts to the shareholders.  I wonder why...

Mon, 09/27/2010 - 15:58 | 607922 HelluvaEngineer
HelluvaEngineer's picture


Mon, 09/27/2010 - 15:31 | 607933 DosZap
DosZap's picture

What I want to see, is how Once unleashed, Burnakae,keeps Inflation at 3-4%?.

My Arse.

Freight train...................^^^^^^^^^^^

Mon, 09/27/2010 - 15:43 | 607976 NotApplicable
NotApplicable's picture

In the shuffling madness
Of the locomotive breath,
Runs the all-time loser,
Headlong to his death.
He feels the piston scraping --
Steam breaking on his brow --
Thank God, he stole the handle and
The train won't stop going --
No way to slow down.

Mon, 09/27/2010 - 15:31 | 607935 carbonmutant
carbonmutant's picture

Killing 'em Softly...

Mon, 09/27/2010 - 15:34 | 607942 37FullHedge
37FullHedge's picture

This person looks spot on, His angle is inflation I agree and QE II will help stoke that, Just the hint has tanked the dollar, If or when inflation is above 5% or 10% bonds yielding 1% should be no more, Locking in home loans at todays levels for 30Years with ripping inflation looks smart over the longterm.

Regarding stocks hes recommending selective value stocks not the market per say sounds fair,

Clearly nothing is for sure including inflation and QE II But the Fed will do whatever it takes to stoke inflation and this guy is betting accordingly I think hes correct.

Mon, 09/27/2010 - 15:34 | 607943 CitizenPete
CitizenPete's picture


FDIC Board Proposes Rules on Temporary Unlimited Deposit Insurance Coverage for Noninterest- Bearing Transaction Accounts 


The Federal Deposit Insurance Corporation (FDIC) Board of Directors today approved the issuance of a proposed rule to implement provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act to provide depositors at all FDIC-insured institutions unlimited deposit insurance coverage on noninterest-bearing transaction accounts beginning December 31, 2010 through December 31, 2012.

"In October 2008, the FDIC instituted a program providing unlimited protection for noninterest- bearing transaction accounts at participating banks and found it to be highly successful in providing stability at those institutions during one of the most severe economic downturns in our history," said FDIC Chairman Sheila C. Bair. "The Dodd-Frank provision is different from the FDIC's program but continues the purpose of that program as we emerge from the economic crisis."

Under the proposal, the FDIC will create a new, temporary deposit insurance category for noninterest-bearing transaction accounts. These accounts are primarily checking accounts used by businesses for payrolls, accounts payable and other purposes.

Unlike the FDIC's voluntary Transaction Account Guarantee ("TAG") Program, which will expire at the end of this year, the Dodd-Frank provision will apply at all FDIC-insured institutions and it will cover only traditional checking accounts that do not pay interest. The proposed rule emphasizes that, starting January 1, 2011, low-interest consumer checking accounts and Interest on Lawyer Trust Accounts (IOLTAs) (currently protected under the TAG Program) will no longer be eligible for an unlimited guarantee.

The proposed rule requires insured depository institutions to provide notice and disclosure requirements to ensure that depositors are aware of and understand the types of accounts that will be covered by this temporary deposit insurance coverage. To comply with the disclosure and notification requirements, institutions must: post a notice in their main office, each branch and, if applicable, on their Website; notify customers currently covered by the FDIC's TAG Program that, beginning January 1, 2011, low-interest checking accounts and IOLTAs no longer will be eligible for unlimited guarantee; and notify customers individually of any action they take that will affect the deposit insurance coverage of funds held in noninterest-bearing transaction accounts.

The FDIC will be accepting comments on the proposed rule through October 15, 2010. The shorter than usual comment period is necessary to give insured institutions adequate time to implement the notice and disclosure requirements by December 31, 2010.


Mon, 09/27/2010 - 15:49 | 607999 What_Me_Worry
What_Me_Worry's picture

So I will have to forgo my current 0.01% interest rate on my checking account to receive unlimited coverage?  I don't know if I could part with the huge return I am getting.

Not that I care.  My checking account is just a conduit to buy gold/silver.

Mon, 09/27/2010 - 15:50 | 608004 Astute Investor
Astute Investor's picture

"Bonds are wrong, stocks are right"

Translation - "YOU are wrong and I am right"

Mon, 09/27/2010 - 15:54 | 608016 themosmitsos
themosmitsos's picture

Tyler, I'll take that trade too ... but

I gotta say, I only disagree w/#2 .... ok, and #4 because I expect RE to continue to collapse. As for #3,the problem w/our trade, is he's showing up to the table w/Ben and Guttenberg. It's just a little too early to short TSYs, for now.

Mon, 09/27/2010 - 15:57 | 608023 Pillage
Pillage's picture

FUCK PAULSON.........he wins via inside information and screwing investors.


Mon, 09/27/2010 - 16:00 | 608033 Sudden Debt
Sudden Debt's picture

Inside information? Last newyear, I bought CITI while he did... I got my ass creamed! He must have lost hundreds of millions on that trade.


Mon, 09/27/2010 - 16:10 | 608045 Pillage
Pillage's picture


Mon, 09/27/2010 - 17:55 | 608354 fiddler_on_the_roof
fiddler_on_the_roof's picture

Anyone following Pretcher would be left to be raped.

Mon, 09/27/2010 - 16:00 | 608029 Bankster T Cubed
Bankster T Cubed's picture

So he says buy distressed equities but don't buy junk KO JNJ PFE for yield but he thinks bonds are gonna get creamed?   So a tanking bond market/rocketing bond yields somehow is not gonna beat the shit out of stocks?   He thinks the yield curve is going to leap higher and C is a good equity to own?  best time in 50 yrs to buy a home?   WHAT?  Here on Long Island it was better just 8 years ago, and MUCH better 9 years ago, MUCH MUCH better 10 years ago, and HOLY MOLY SOOOOOO MUCH BETTER 18 years ago.   Same goes for NYC where he is.    Whatever...I smell smoke being blown up our asses.

Mon, 09/27/2010 - 16:04 | 608039 Bankster T Cubed
Bankster T Cubed's picture

the bottom line is that if bonds tank and yields go up, ASSET PRICES COLLAPSE

so there!

Mon, 09/27/2010 - 17:56 | 608357 Rainman
Rainman's picture

Spot on with very few words needed. I'm still amazed that many believe a yield getaway is anywhere on the menu at the Fed. A getaway means an economic mushroom cloud....transcontinental. End of game.

Mon, 09/27/2010 - 16:00 | 608032 kaiserhoff
kaiserhoff's picture

Bonds are right about what?  There is no inflation premium, but there is also no risk premium.  I hate to say this, because it's the last thing I want to see, but to the extent there is a legit bond market left, bonds are predicting a long nasty Japan style zombie period - no depression, but no growth either.  That's the only way these rates make sense. 

Mon, 09/27/2010 - 16:05 | 608043 TradingJoe
TradingJoe's picture

JP is now "Paulie" you know who, heheheh at least he does his business like one! he would be a great asset to the "boardwalk empire"...ya' know?!?!

Mon, 09/27/2010 - 16:12 | 608057 MrTrader
MrTrader's picture

Bank of America -2.65 % today. Who is one of the largest investors ? Yeah, John Paulson. There is more room for some nasty sell off.

Mon, 09/27/2010 - 16:16 | 608067 bruiserND
bruiserND's picture

I've been bullish stocks for perverse reasons since March of 2009 for
the record .

At that time I predicted 10,000 here on ZH and Seeking Alpha when it was 6,500 on the DJIN {CBOT neaest future}.
I am now predicting that the .618% fibonacci retracement at 11,280 {CBOT neaest future}.will be
destroyed and the 14,280 top of 10/12/07 will be matched or exceeded.

Technical analysis is my forte' and has been as a profession .
I'm the best on Earth.

Mon, 09/27/2010 - 16:30 | 608123 TraderTimm
TraderTimm's picture

Executive summary:

"Told ya so, Nyah, Nyah!"

We are glad you decided to share. We realize that in your globe-trotting adventures there isn't much time to share information with random people on the internet. Truly gracious gesture -- for a world-class douchelord.

Mon, 09/27/2010 - 18:35 | 608111 fiddler_on_the_roof
fiddler_on_the_roof's picture

Paulson is 100% right. I follow his logic. stocks I will get out in Jan 2011

Mon, 09/27/2010 - 16:32 | 608122 zero intelligence
zero intelligence's picture

There is no "thesis" here at all. It's just a marketing trick. Paulson has his investments "gold-denominated." This means that there's 1:1 gold futures "hedge" with the fund. In other words, if the fund goes up 10% (in dollars) and gold (in dollars) goes up 20%, the "gold-denominated investor" gets 30%. However, it is still not kosher for a fund like Paulson's to be involved in 50%+ gold bullion. That's why he has a separate gold fund. Because, what if gold went down? He would be crucified for being both weird and wrong. He has to put on the show of picking stocks, because that's what his investors want and expect. If you have a "gold bull outlook" but you have to choose between stocks and bonds, you choose stocks. If stocks go up and gold goes down, Paulson looks good. If stocks go down and gold goes down, then he simply made the same mistake as everyone else, and besides it seemed sensible at the time. If stocks go down and gold goes up, then he can publicly regret his bad luck while ringing the cash register on his person "gold denominated" hedges.

Mon, 09/27/2010 - 16:30 | 608124 Djirk
Djirk's picture

I like coke!

Mon, 09/27/2010 - 16:35 | 608143 Mineshaft
Mineshaft's picture

How does one go about buying 5-7 year calls on yields?

Mon, 09/27/2010 - 16:37 | 608145 rhyzimmer02
rhyzimmer02's picture

Bonds are always right? just like the Greek, Irish, Spanish and Portuguise bonds markets 6 months before they required ECB / IMF bailouts?

The Fed is all over the bond market both MBS and treasuries either directly or through the TBTF, fuck chart that, the charts are meaningless and the bonds are not telling you anything about the economy. 

Sure they could go a lot lower, like when the Fed announces QE2, bonds, stocks and commodities are all saying the same thing = THERE IS A SHIT LOAD OF LIQUDITY, THATS IT, NOTHING MORE NOTHING LESS


Mon, 09/27/2010 - 17:55 | 608355 gwar5
gwar5's picture

Ummm.... Why would I trust anything backed by the "full faith and credit" of the United States?  Sorry, Paulie, I'm trying to diversify away from money and other IOUs.


Mon, 09/27/2010 - 17:59 | 608356 GoldbugVariation
GoldbugVariation's picture

I don't understand the "investments denominated in gold" thing.

If the fund is long [some crappy stock] and the price rises due to POMO, I'm fairly sure that when the fund sells it it receives the gain in dollars.  Let's say it's up 10% on the year after fees, so like $1 million has become $1.1 million.  But if the fund is denominated in gold, and gold was $1000/oz at the year start and $1400/oz at the year end, then the fund denominated in gold has fallen from 1000oz to 785oz, that's a 21.5% fall.

Basically the fund is short gold due to the liability to repay investors in gold, unless the fund has a long gold holding (on top of all its 'regular' investments) to match that liability... in which case one wonders how that is funded, and whether it is holding real physical gold or whether it is some massive swap with some investment bank.

Incidentally - I think I read in FT recently that Paulson funds are down quite a few percent year to date.  Which seems odd if he's making 100%+ returns on all his investments...

Mon, 09/27/2010 - 19:34 | 608542 rawsienna
rawsienna's picture

Who is afraid of a little deflation? Inflation around zero is good if it is driven by productivity gains.  Fuck this fear of a little deflation - as long as we have positive population growth, it will not last long. It is just a pitiful excuse to drive up asset prices. With mild deflation, excess capacity will slowly go away and yes it will be painful for some but very beneficial others.  Fuck the Fed. They do not know what they are doing

Tue, 09/28/2010 - 01:37 | 609210 fresbee
fresbee's picture

all indications of S&P taking out 1200 this year before 1250 next year and then almighty crash. By then most bears would have have been dead or long asleep. 


Foolish bears never make money. 

Tue, 09/28/2010 - 01:38 | 609212 fresbee
fresbee's picture

and to add to that. Bulls will keep loading up be it 1100 or 1250. So bulls will lose anyways. Bulls never make any money. 

Tue, 09/28/2010 - 01:45 | 609222 Grand Supercycle
Grand Supercycle's picture

S&P 500 FINANCIALS INDEX - an important chart:

Tue, 09/28/2010 - 03:41 | 609349 boogey_bank
boogey_bank's picture

"4. Homes – This is the best time 50 years to buy a home."  


What has this man smocked, a rotten CMO joint?

So I ought to buy a house becouse cash is for free? And what if I had ten millions of $?  Lever it up and buy half of Detroit beaten down homes?


"You don’t want to own long-dated debt, you want to issue it."

Buying with mortgage is like issue trasuries? If the world is not yet fallen apart, it's because not all J6p have started issuing bonds.


"Home prices will rise with a better economy and with inflation. "


Better....what? when?

And what will do home prices with hyperinflation?

 Is he calling the bottom in real estate?


"Your debt and interest payments get locked in at record lows. "

Your wealth will be locked in your bank's hands. Mafia racket guys are rookies in comparison.


" The price of your home will rise."


What is this, the Goebbel's  way of thinking or is he serious?

Tue, 09/28/2010 - 05:07 | 609449 Kinkojiro
Kinkojiro's picture

Whatever you think of his equity call he is blatantly wrong on his housing call.

If you buy a house now (say for $1m) and finance it at 5% (CPI+4%) for 30 years then if inflation rates are 10% as he predicts the finance rate goes up to 14% and you try to sell your house, good luck finding a buyer who can afford to pay almost 3 times your interest rate at the same price.

Housing markets have gone up massively since 1980 as rates and inflation have fallen.  Somehow now Paulson expects that housing to go up and inflation and therefore rates - laws of economics in reverse.

This only works if wages go up massively more than inflation (impossible) or the Fed is still lending at a 5% discount to inflation (which is possible - but as the USD will be worth about as much as toilet paper, won't help housing much)

Tue, 09/28/2010 - 08:44 | 609620 primefool
primefool's picture

So cute and anachronistic to think in terms of Income versus House Prices. You should travel a bit - nowhere else in the world are house prices linked to average wages - because NOBODY buys houses with 90% mortgages ( That is a US phenomenon). In most of the world , most of the time , Good houses ( not crap cardboard mcmansios in the middle of a desert) - houses are a way to preserve wealth . You save up enough to buy for cash, or your ancestors give you one. Maybe thats what happens in the US. Good , long lasting, well built, well located property will probably do pretty well. Mc ,ansions in deserts will be torn down and be used for fuel or fertilizer.

Fri, 10/01/2010 - 06:01 | 617674 Blistering Barnacles
Blistering Barnacles's picture

Churchill’s pre-war poem adjusted

“Who is in charge of the clattering train?

The axles creak and the couplings strain,

and the pace is hot and the points are near,

and sleep hath deadened the driver's ear,

and the signals flash through the night in vain,

for DEBT is in charge of the clattering train.”

Tue, 11/16/2010 - 10:57 | 730696 daniel
daniel's picture

i love zerohedge policy cheap hosting

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