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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Comments

  1. Hi TBC, another bullish news. Financials will pop tomorrow. Feels like your outlook for late August and September is a minority view; everything is so bullish. Ready to change your outlook, just curious?

  2. similar holdings to Merger Fund MERFX, except for the financials exposure. I guess he knows that there will be no more capital raises to dilute his BAC position.

  3. What I think is odd is that financials popped AH after this news was published but I remember when BAC offered new equity, John Paulson bought like 100 million shares at around 10 dollars/share. And it was known that he did that, since it was published in the WSJ. So why is it such a surprise that he owns like 50 more million shares? At least enough to pop BAC up 4% AH…

  4. Hi TBC, Walmart reports today. Which company marks the end of retailer earnings? Any other catalyst to go higher? Tape very bullish… Thanks in advance.

  5. $2bn is for sure a lot of $. But $2bn in the context of a $30+bn fund ? Also nobody knows what the play is, you might only see part of the game plan in stock holdings. Could be hedge against calls sold, or even massive short credit position, nobody knows.

  6. Did any see to notice that Paulson also has a 2×1 short postion in financials hedging off his risks.

    Most of his ownership came from the conversion of BAC preferreds to common stock.

  7. TPC,

    What is it about retailer earnings that concerns you? Especially with the data out today of a weak consumer, I would imagine their earnings to be less than stellar. Wal-Mart has traditionally been the exception but even their SSS were down for the first time in over a year. Thanks.

  8. VCC,

    If these guys keep beating and raising (which is a sign of a bad analyst community and not a strong economy) based on cost cutting measures (as WMT did) we could see the market continue to rise with the assumption that retail sales are strong.

    Of course, today’s retail sales data should have slaughtered this market so I am really out to sleep on today’s action.

    The entire 10 o’clock hour looked like a rally chasing, speculative, bubble type trade….I think people are just chasing performance now no matter how high it goes. Where it stops nobody knows….

    And yes, reading into Paulson’s equity positions is pretty useless. He uses a lot of instruments that aren’t listed here so it’s impossible to know his allocation.