JOHN PAULSON’S HUGE REFLATION BET

We previously mentioned that John Paulson, hedge fund manager extraordinaire, was betting big on reflation via various gold instruments and a real estate recovery fund, but this evening we find out that Paulson is betting big on the reflation of all reflation bets: a money center bank.

Yahoo Finance reports:

NEW YORK (AP) — The hedge fund run by John Paulson, who foresaw the distress in subprime mortgages and reaped billions by betting against the related securities, has bought about 168 million shares of Bank of America Corp., according to a regulatory filing Wednesday.

That makes Paulson & Co. the Charlotte, North Carolina-based bank’s fourth-largest shareholder, according to data from investor Web site LionShares. State Street Global Advisors is bank’s top holder, with about 357.2 million shares, and Barclays Global Investors NA and Vanguard Group each own more than 200 million shares of the bank.

In a regular quarterly filing with the Securities and Exchange Commission required by hedge funds managing large sums, Paulson & Co. disclosed it bought nearly 168 million shares in the bank in the quarter ended June 30. Based on Bank of America’s closing price of $15.93 on Wednesday, that implies a stake worth about $2.67 billion.

Bank of America, along with Citigroup Inc. and insurance giant American International Group Inc., is among the largest recipients of government aid. It has received $45 billion from the federal government’s $700 billion bank rescue program.

Paulson also purchased sizable stakes last quarter in gold producers such as Anglogold Ashanti, Kinross Gold Corp. and Gold Fields Ltd., drugmakers Boston Scientific Corp., Schering-Plough and Wyeth, and server and software maker Sun Microsystems Inc.

It’s very interesting to note that the equity portion of the Paulson portfolio is heavily weighted towards three sectors: gold, financials and healthcare.  He is making three heavy bets here on very different macro themes.The gold and healthcare plays appear to be a form of cautious optimism in the reflation trade. The gold trade also has an element of inflation and/or caution.   The banks, however, are a pure & speculative play on recovery.   The entire Paulson & Co.  13-f is attached:

Paulson

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