Paulson Zigs While Others Zag For $5 Billion Score


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At the peak of the housing bubble when borrowers with undocumented income and little capacity to make loan payments were being approved for mortgages on McMansions, little-known hedge fund manager John Paulson was busy laying bearish bets that would ultimately make him a billionaire.

The biggest score of the young century was detailed by the Wall Street Journal’s Gregory Zuckerman in his book “The Greatest Trade Ever”, and in Friday morning’s paper he reports that Paulson netted personal profits in excess of $5 billion in 2010, driven by his big bets on gold and bank stocks.

One thing that appears to be driving Paulson’s stunning success through the crisis and into the recovery is his willingness to shift gears. After his wildly successful bet against the mortgage machine – including the controversial Abacus deal put together by Goldman Sachs — the 55-year-old hedge fund manager turned bullish on many of the financial firms that were at the heart of the meltdown. None have been more successful than Citigroup, which generated a 43% return in 2010, according to Forbes colleague Halah Touryalai, for gains better than $1 billion. (The U.S. Treasury didn’t do so badly on its Citigroup investment either: profiting $12 billion before a recent warrant sale.)

Paulson’s gold bet also paid off big in 2010, the WSJ reports:

Mr. Paulson amped up profits for himself and many of his investors in a novel way. He was worried about long-term weakness of the dollar and other major currencies, so he devised a way to embed a bet on gold into each of his funds—for those investors who opted for that approach. Mr. Paulson has placed the bulk of his own wealth in these gold-denominated funds and a separate gold-focused fund. Because gold rose sharply in value last year, the gold-denominated versions of his funds rose as much as 45%.

via Trader Racks Up a Second Epic Gain –

With gold off to a shaky start in 2011 and bubble talk proliferating, Paulson-watchers will be scouring the hedge fund’s quarterly disclosures for any signals that the firm is pulling back on its 31.5 million share stake in the SPDR Gold Trust ETF. (See “Ten Stocks Billionaires Are Playing.”)

More on Paulson from Forbes

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