Comments on: GURU OUTLOOK: PAOLO PELLEGRINI

By: vasra

vasra — Fri, 05 Mar 2010 16:34:21 +0000

Having a position doesn’t mean that he has it panned out to trigger tomorrow. For example, I remember many buying curve caps almost five years out.

Still, it’s true PP talks about “sooner than later” whatever that means in his 2010 horizon. Perhaps all is set for late Q1 reversal as he points out, but there’s a margin of safety in the bets.

It’d be so nice to get the all the data on the timing and instruments, one could actually learn how it’s done, once one has the conviction.

By: Ash

Ash — Thu, 04 Mar 2010 18:06:11 +0000

The summary is a little misleading regarding Pellegrini’s calls on US equities and the US dollar. If you read the full letter (courtesy of http://www.marketfolly.com/2010/02/paolo-pellegrinis-psqr-capital-annual.html), you’ll see that his calls are more conditional on government action.

From page 9, second paragraph:
“US monetary and fiscal policy in 2010 is still the big unknown. Although the Fed is currently on a path of ending its quantitative easing program by the end of March, we still see a significant chance the Fed will be forced to continue easing at some point. Similarly, the pressure is on the Obama administration to deliver another jobs stimulus package. The source of the pressure on both the Fed and the US government stems from the continued high rate of US unemployment”

…

“If we conclude, based on unemployment levels, other economic indicators and political conditions, that the US is indeed likely to extend or expand its quantitative easing and fiscal stimulus measures, we will short the US dollar aggressively. If we conclude otherwise, we will short US financial assets. The Massachusets senatorial election results suggest the risks are currently skewed toward the latter outcome”

And from page 5, under Short US dollar section:
“Watch out when the recovery falters and policymakers come back and tell us that the problem was not an ill-conceived strategy, in the form of the stimulus package; the problem was that we didn’t do enough of it and, therefore, should do more. If so, expect the dollar to plunge.”

By: Steve Davies

Steve Davies — Wed, 03 Mar 2010 07:01:35 +0000

Don’t agree. The USD is only a short if you believe that the problems in the US are markedly worse than anywhere else. As we’ve seen recently with Greece and the UK, they aren’t, and since currency pairs are the proverbial zero-sum game, the USD can be expected to behave accordingly (i.e. not as weak as the doomsayers have predicted – note that its up 15% against the EUR in the last 4 months alone).

on US Treasury yields, I accept that there’s a lot of new issuance due but with inflation low (deflation anyone) the likelihood of a yield boosting interest rate hike seems slim for this year at least. That said I do prefer emerging market debt to that of developed economy sovereigns.

The most recent US results season seems to have been at the upper end of expectations as has been the case out here in Asia, where I live.

I accept that ther are plenty of reasons to be cautious, but a lot of bears seems to be keen on talking their own book, with little success so far. They must be finding current markets rather painful.

By: GreenAB

GreenAB — Wed, 03 Mar 2010 06:53:16 +0000

thanks to both of you TPC and MF for bringing PP to our attention.

By: chris

chris — Wed, 03 Mar 2010 03:16:38 +0000

i don’t know, you can store your own gold like einhorn and pay retail for transtion costs, or buy gld and get economies of scale. are you saying etfs are only for the unwashed? i read PP’s piece and i find it not only illuminating, but also displaying an ego that was well under control. hubris is what gets most of these guys.

By: Keith Piccirillo

Keith Piccirillo — Wed, 03 Mar 2010 01:39:47 +0000

Nice summary and comments, thanks for sharing Edna.
I think a lot of gurus results are altered by changing of the supporting cast.
My 2 cents on Paulson says track record has to be a lot longer, but people are pulled like a magnet to get in on any applied field that shows positive polarity.

By: Edna R. Rider

Edna R. Rider — Wed, 03 Mar 2010 00:42:23 +0000

I worked with Paolo Pellegrini at Lazard. Very intellectual but unexceptional. Surrounded by a lot of big deal guys, Rattner, Jacobs, even Rohatyn was around. Lazard at the time had quirkly tastes in how they hired. I think the media has missed this wonderful story–a true rags to riches story–in focusing on the media hound Paulson. Pellegrini is quite brilliant but Paulson only has the risk gene. While the two together was a great match I am not sure I would put my money with Paulson going forward. His outsized GLD bet is very odd — not in what it expresses (money printing) but the instrument itself is a dud. It’s like buying USO to express a belief in oil going up. Yeah, it went from 34 to 85 but USO has been stuck in the 29-39 range. I also think his outsized bet on BAC is odd. Sure, the government could bail them out when things fall apart again. Or not. We could get a radical (Ron Paul) in office who thinks companies who make terrible decisions should fail (of all bizarre things).

By: Jay @marketfolly

Jay @marketfolly — Tue, 02 Mar 2010 22:09:25 +0000

Many will label him a one-hit wonder certainly. It would be intriguing if his anti-dollar bet pans out as well with his gold fund. More than anything I found it very intriguing that he randomly diverged from his strategy. The way I understand it is that Paolo and Paulson both shared the idea but Pellegrini did most of the analytical work with charting and data.

Irregardless of whether or not Paulson is a ho-hum manager from here on out, he’s already won big as his management fee on multi-billions is huge. Not to mention performance fee on top of that.

Maybe he was just employing the wrong strategy all along and has found something he’s much better at. Wouldn’t be the first time a major hedgie has done that. Hard to forecast and unfortunately only time will tell here.

By: ctm

ctm — Tue, 02 Mar 2010 21:29:30 +0000

“A key analyst alongside Paulson was Paolo Pellegrini. A failed Lazard banker with two divorces and zero net worth at the time he joined Paulson, Pellegrini had to make this last career chance work.
He lived in a one bedroom apartment up in Westchester and would arrive at work at 6:30 am in order to get the cheapest parking lot rate nearby. No one seemed to like him at first. He was a bit of a hot-head and talked too much. Yet, eventually he helped identify the housing bubble that Paulson would turn into a $16 billion winning trade for his firm and $4 billion for Paulson.”

http://breakoutperformance.blogspot.com/2009/11/lessons-of-john-paulson.html

By: TPC

TPC — Tue, 02 Mar 2010 19:57:44 +0000

It raises an interesting topic though – is Paulson the ultimate one hit wonder (albeit, a MIGHTY good one!)?

Paulson was a rather ho hum fund manager before this big bet. I wonder how much of it we can attribute to Pellegrini’s analysis? Now that Pellegrini is gone, does the one hit wonder return to his prior ho hum status or not?

Any thoughts Jay?