Paulson Announces Firm's Losses On Sino-Forest Are $468 Million In June; $574 Million In 2011

Tyler Durden's picture

Whereas Paulson has been scrambling recently to put out PR flames now that it has been made clear that the hedge fund skimps on due diligence when it comes to Chinese fraudcaps (and who knows what else now that the ability to reverse engineer the creation of "made to explode" CDOs is taken away), and his latest attempt at mitigating investors is to use cost basis accounting to account for massive investment failures, the sad truth for investors is that just as Zero Hedge predicted, the firm just announced that its has lost $468 million on the Chinese investment in June and $574 million in 2011 (we are unclear if this is only for the Advantage Plus equity exposure or also for the fund's credit position in Sino as well). But not to worry, "net realized losses were C$105 million" claims Paulson. Too bad that fact is completely irrelevant when observing daily and YTD P&L (a loss of over 20% YTD), which Paulson knows all too well is the only metric that is relevant for a hedge fund (unless of course Paulson cares about his tax basis as well for investor pitches, and/or plans on becoming a private equity fund now that his stint as a mutual fund is over). Perhaps Paulson also needs a reminder that some other far more critical concepts to a hedge fund are the high water mark and terminal redemption requests. So what is next for up for Paulson's remaining LPs: maybe they can look forward to letters explaining how the fund's $450 million YTD loss in Bank of America (and we won't even touch Citigroup), is really an unrealized profit of $75 million since inception.

The WSJ reports on all the complexities associated with Paulson's decision to build his massive(ly wortheless) stake in the Chinese lumber company.

Mr. Paulson, in the letter, told investors that his firm had done ample due diligence on Sino-Forest, including reviews of public filings, participating in conference calls, and following up privately with management on specific questions. He noted that a member of his team went to China to visit Sino-Forest's operations.

He wrote that the investment first came to the firm's attention in January 2007, after news reports about investors considering making an offer for the company. Paulson & Co. began researching the company, and when Sino-Forest said publicly that it wouldn't have an offer, the stock fell—and the hedge-fund firm began building a position, the letter said. He wrote that the bet was based on the theory that the company could be acquired or that it could possibly be relisted from the Toronto Stock Exchange to a local exchange.

He also wrote that his firm decided to invest, in part, because the company reported "outstanding financial results" and "consistently traded at a significant discount to its global forest company peers."

The decision to sell, Mr. Paulson said, was based on the belief that Sino-Forest's stock may "remain depressed for an extended period of time, even if the investigation clears management." He said his team looked at another example where a company's stock never recovered from similar allegations.

We for one, can't wait for the excuses that will accompany Paulson's disposition of Bank of America shares sometime after the company has done its upcoming 1 for 10 reverse stock split and is back to trading at $10/share, after it is made all too clear that the Company's woefully inadequate litigation, put back and fraudclosure reserves will have needed a forward 100 for 1 dollar split.

Then again, the good thing to come from all of this is that should LPs truly pick up their redemption requests, and the unwind of the gold denominated share class be inevitable, the ability to buy paper and physical gold back in the $1200 range will be a reality.

And as a reminder, here is a pie chart distribution of Paulson's total equity holdings:

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Drag Racer's picture

someone should have caught the joke... 'See, No Forest'

Atomizer's picture

Hank: I, I, I, I, em, em, em, I'm, F, F, F, F, F, F, Fuuuuckkkked. Sa, Sa, Sa, Sa, Sell, na, na, na, na, na, na NOW! G, G, G G G mi, mi, mi , da, da, da, da, F, F, F, F, F Phone.

 

russki standart's picture

One thing is certain, despites Paulson's losses, his personal earnings will be in the 99.999 percentile. Even if the fund loses, he wins. Such is the life of a predatory financier, somewho  creates nothing but takes everything from the rest of us. We do not need Paulson but he sure as hell needs us.

ZeroPower's picture

Yes... retarded seeing he only lost $107MM but indeed, oldest trick in the book... show clients the cost basis and then its not really a $900MM REALIZED loss!

lol @ Paulson, big fat lol. I hope his clients read this from ZH and not his letter or elsewhere.

jdrose1985's picture

Sounds like Paulson has been "gifting" some friends of his.

Wonder what was in it for him..maybe a favor owed was called upon?

Ned Zeppelin's picture

Interesting idea, and would explain the otherwise completely inexplicable and moronic trade sans elementary due diligence that Paulson took on.  gives you an alternative to the conclusion that Paulson is a moron. 

buzzsaw99's picture

it takes real skill to lose money with the bernank put in place. kudos to paulson.

Stuck on Zero's picture

Question ... if 100 monkeys are assigned to push buttons to pick stocks and over the course of a year one of the monkeys produces an annual ROI three standard deviations beyond the others is he a brilliant investor?

TempFlashback's picture

Thought that BAC was going to do a 1-for-30 reverse split. That way, Paulson would eventually be correct in his call on $30/share. Granted, this split must occur prior to CY end.

DormRoom's picture

how the fuck did Paulson get powned by Carson Block and Muddy Waters?

MW was wrong about ONP (Orient Paper), and they may be wrong about Sino-Forest.

Carson Block isn't even a certified financial/investor analyst. Dude was a lawyer, then a Chinese entrepreneur, then decided to be a short-sell researcher. Dude was short Sino-Forest. His credibility is questionable.  Moreover, he was right about those other Chinese companies being frauds, but for the wrong reason.  Dude just threw darts, and was lucky.  His analysis was shit.  Fucing onion day.

 

 

I am a Man I am Forty's picture

oh, he's not certified???   ohhhhh nooooo, he's not certified at being a financial analyst

 

gimme a fucking break, who gives a shit

DormRoom's picture

If he's not certified, how is he gonna understand the financial transactions of a company as complex as Sino-Forest?

 

You can learn so much by reading, "Financial Analysis for Dummies."

 

But I will admit, he's done good shorting Chinese RTOs.. If he shorted Sino-Forest he's made bags of money  The stock has gone down 85%.  He should write a book: "How to Engineer a Black Swan: The Carson Block Story".

FischerBlack's picture

You need to study for the CFA exam learning a whole lot of stuff that had absolutely nothing to do with seeing through a Chinese reverse merger fraud, in order to see through a Chinese reverse merger fraud? Dude, you need to get out the dorm room.

DormRoom's picture

One would assume that if Carson Block was competent, he'd be consistent.  He was wrong about Orient Paper.  A four month audit cleared the company.

 

I bet certified financial analysts are more consistent on average than an average joe, who wake up with a hard on, so they think they are the biggest swingin dicks in the room.

 

Milstar's picture

Show me where the auditors cleared that company.  Even their ex-auditor from 08 wants to redo their books.

Miles Kendig's picture

The only thing certifiable about you is that your paper can't even wipe the shit away from the corners of your mouth let alone off the end of your nose (Been dining on the SSS special at Chez Shalom I see).  Hell, most certified anythings pay $200+ for a blow job the brothas and sistas off South Main Street get for free, even when they're morbidly obese Irish.  Perhaps you are upset about your place at the end of the trickle down paradigm...  It's time to call in the Doc -- and a word from the wise to you, dorm room rookie -- don't forget the Colgate.

http://youtu.be/U6K7dB3T6ho

Don't feel too terribly bad, this is the same action the pols, regulators, accountants & federal judges get from Paulson & Co and his associates anyway.  Fact is those sorry excuses for public servants aren't certified at much more than using your money for their blow jobs.  That is after they take their bib off, just like you.

The sad fact is that if the so called experts were in fact expert then the whole issue of made to blow CDO's, reverse's, off balance sheet crap a la Enron and the rest would be made moot as would the need for a Greenspan/Bernanke put, or certified fucks that can't even find fresh air.

Smiddywesson's picture

You are right DormRoom, I have no standing to think anything at all without doing all the Gaussian bullshit that is required to be a CFA.  My life has been so unrewarding, and I finally put my finger on it.  I need to apply mathematics to my everyday life and I will be ok.  Yup, if I just jumped aboard the program everything would be ok.  It is irrelevant that all the people who teach this baloney are always wrong, I just need to follow you down the toilet bowl.  LOL, enjoy where that leads you.

DormRoom's picture

He was a laywer, then a Chinese Entrepreneur, then became a short sell researcher.  He didn't spend years of his life, and x dollars, getting a CFA.  So he doesn't have a huge investment in time, and money, if he's shown to be wrong. He only loses credibility in an adopted career.

Assuming he made money on the Sino-Forest short, and loses all credibility, he can easily switch careers.

Do you let your doctor file your taxes?  Or get legal councel from a dentist?

 

 

 

Smiddywesson's picture

"I bet certified financial analysts are more consistent on average than an average joe, who wake up with a hard on, so they think they are the biggest swingin dicks in the room.""One would assume that if Carson Block was competent, he'd be consistent.  He was wrong about Orient Paper.  A four month audit cleared the company."


 

Consistent????  Did you really write "consistent" in a comment about the markets???  This is my point.  Your CFA background has brainwashed you into thinking math and consistency has anything at all to do with the markets.  You are hopelessly lost in the Matrix.

 

 

 


 

Bay of Pigs's picture

I guess you forgot about the reporter who brought down Enron by simply asking questions about how they made money? Give it a rest. Why do you have to be an expert to figure something out?

If this report wasn't fairly accurate Paulson would never have sold his shares and would also have brought a sledgehammer down on Muddy Waters.

Here's heads up for you. SLV and GLD are frauds. Play that trade when the market finally wakes up and they are exposed to the light of day.

A Man without Qualities's picture

"If he's not certified, how is he gonna understand the financial transactions of a company as complex as Sino-Forest?"

This is such a dumb comment.  One thing I have noticed over the years with CFAs is their inability to spot frauds, by not asking simple questions you get when you stand back and look at the big picture.  

You don't need to be a certified anything to spot the risks in this structure.  

http://av.r.ftdata.co.uk/files/2011/06/SF_BVI.png

But, the big question that needs to be asked about Sino-Forest is why is the structure so complex and opaque?  

I remember an analyst (yes, CFA qualified) telling me all about how clever Enron's corporate structure was, but of course it turned out that the complexity was mainly about avoiding consolidation of subsidiaries, so they could more easily overstate asset values and understate liabilities.  I damn near lost my job for calling them a fraud, when all the qualified experts were effusive in their praise, so you'll forgive me for calling bullshit.

Smiddywesson's picture

What degree of expertise will yield a different result when reviewing FRAUDULENT FUNDAMENTAL INFORMATION?  If I only has a CFA, I would have somehow not been misled by fraud.  If I only could live my life over, I would have gotten a CFA by 2011.  HAHAHAHAHAHHA!

drom's picture

If MW is wrong about ONP why is the stock price still under $4 a share?  Since you know its not a fraud you should be buying a boatload of shares since it forward PE is at 2.

You don't need to be certified to investigate and figure out a fraud.  MW returns are killing Paulson and just about any certified talking head out there.  What a joke, you need to be certified to be legit, get real man.  The most successfull people in the world aren't certified in anything, they are entrepreneurs who skip all the BS in the books and get straight to the point.

Smiddywesson's picture

oops, my bad.  I guess I am an idiot for agreeing that China is the mother of all bubbles and these reverse merger stocks are dangerous.  I will therefore continue on, waiting for a certified stock analyst to tell me what to do. I have had this feeling of angst of late, and you hit the nail on the head.  What I really need is someone who is certified by a greater fool to tell me what to think.

 

Thanks!

djsmps's picture

How are his HPQ holdings doing?

cosmictrainwreck's picture

Isn't this the guy that made $gazillions on the Big Short? I guess it was on his own account, not the fund's?

ZeroPower's picture

No, that was a different guy out in Cali somewhere (assuming youre referring The Big Short)

FischerBlack's picture

Mean-fucking-reversion.

Ned Zeppelin's picture

I'll say it: Paulson is a fugging moron. That's it. His prior success? Accidental. It happens you know, that's where rock stars and movie actresses come from.  Chaos theory - Utter randomness, like chimps typing sonnets in the middle of gibberish. 

Ned Zeppelin's picture

And anyone who holds that much in financials right now with the 10 yr at 2.87 is a lunatic. 

Goldtoothchimp09's picture

sharing this with my ZH brethren -- stock market is ready to implode!  Based on my Elliott Wave setup.

 

http://jeffreygtc.blogspot.com/2011/06/friday-june-24th.html

Smiddywesson's picture

NO.  Sorry.  From Prechter's own mouth, EWT is based on the market being an especially good avatar to reflect human emotions.  Is that what we have today?  Real estate and jobs are at the worst levels in American history.  The currency and debt issue is the same.  How can you come here and say that the market reflects human emotion?  Are you high???   Prechter's method either works or doesn't work, but by his own admission, it doesn't work where the markets don't reflect human emotion.  Right now, they reflect the will of the Fed and the Treasury, so you can shove your Elliot Wave pablum.  It may be great in an academic environment, but today, it is worse than worthless.  (idiot)

zebra's picture

is he a bear?

Zero Govt's picture

Did Leo have skin in the game too, he likes green investments, another 'winner' for your pension from the Canadian crone/clown

Dr. Engali's picture

Maybe he can get a job with Cramer

YesWeKahn's picture

Why is he still so bulish on financials? Unbelievable.

WallStreetClassAction.com's picture

thank goodness this latest pyramid blew up sooner rather than later, could have been a larger fallout...

Yen Cross's picture

 Paulson is Legend, ( in his own mind)! The ball is rolling pAULSON!

Beancounter's picture

So Paulson's not TBTF but the banks are.  Ah, I see where the line is drawn.  I'm shocked no one has come to his aid to offer taxpayer money to cover his speculative, under researched investmen.. oh never mind.

Papasmurf's picture

So his fund lost money.  What was his personal position?  Was he short against his clients?

officeone's picture

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