Paulson Dumps Gold to Buy...BAC?

Eddie Braverman's picture
Rank: The Pro | 21,104

Fuh...what???

It's no secret that hedge fund giant John Paulson has had a rough year so far. He took an absolute reaming on Sino-Forest, and his two largest funds are down 44% and 29% for the year, respectively. Maybe that's why his latest 13F (filed Monday) discloses what appears to be a massive year-end Hail Mary pass.

Paulson sold a staggering $2 billion worth of GLD, the gold ETF. This move in and of itself is not entirely surprising. After all, gold has been a huge winner for him, one of the only bright spots for him this year really, and he's getting out at the high. You'll never go broke taking a profit.

So what did he do with the proceeds? He bought BAC.

Yeah, you read that right.

He bought BAC.

I'm often fascinated by the strategic thinking of hedge fund managers. Some of their unorthodox plays (Kyle Bass buying pallets of nickels) really lend to the mystique of the profession. But sometimes I think they're just throwing shit against the wall to see how much of it will stick.

Yes, I get that he sold GLD at the high and bought BAC at the low. But c'mon. There's a reason gold was at the high, and there's a laundry list of reasons why BAC is in the dumper.

To his credit, he dumped over 8 million shares of Citigroup, so we can probably rule out a stroke. But I can't help wondering if Paulson is hoping BAC is good for a quick $1 pop to stem some of the bleeding by year end. Surely he can't be thinking long term, right?

The banking sector on the whole has been a miserable investment the past couple years, but B of A and Citi have been absolute disasters. If not for a bullshit penny stock reverse split, Citi would probably be a buck a share today.

So what gives? Is Paulson just hoping for a quick pop? Or does he see something the rest of the market is missing? In spite of the terrible year he's having (or perhaps because of it), his redemptions are running lower than usual at this point in the year. But how much longer will investors stick around if he doesn't show them something soon? And really, I'm being serious here, Bank of America? What the fuck is he thinking?

Comments (39)

Nov 17, 2011

BAC has been trading between around $5.5 and $6.5 for the past couple of months, I'd guess he's looking to (as you said) take something like $0.5 profit per share and make a quick ~10%.

Nov 17, 2011
Asatar:

BAC has been trading between around $5.5 and $6.5 for the past couple of months, I'd guess he's looking to (as you said) take something like $0.5 profit per share and make a quick ~10%.

This is something I've always thought about. Once a stock gets really low, like BofA, typical movement of the stocks have a greater effect and can give a quick jump in percentage gains (BofA moving .5 cents wouldn't turn any heads, but as Asatar mentioned it would generate a nice return of 10%. Pretty much a perspective from marginal effects). Maybe Paulson is betting that a short increase in BofA will generate quick returns? But the same can happen in the opposite direction I supposed...

Ed could you comment on this very uniformed opinion (just a thought)?

Nov 17, 2011
solb22:
Asatar:

BAC has been trading between around $5.5 and $6.5 for the past couple of months, I'd guess he's looking to (as you said) take something like $0.5 profit per share and make a quick ~10%.

This is something I've always thought about. Once a stock gets really low, like BofA, typical movement of the stocks have a greater effect and can give a quick jump in percentage gains (BofA moving .5 cents wouldn't turn any heads, but as Asatar mentioned it would generate a nice return of 10%. Pretty much a perspective from marginal effects). Maybe Paulson is betting that a short increase in BofA will generate quick returns? But the same can happen in the opposite direction I supposed...

Ed could you comment on this very uniformed opinion (just a thought)?

Tim Sykes would agree with you. What you just wrote is basically the only reason people deal in penny stocks.

If I had asked people what they wanted, they would have said faster horses - Henry Ford

Nov 17, 2011

Agreed. BAC is such a highly traded stock noawadays and a slight jump in the stock price will definitely boost his ROI significantly.

Nov 17, 2011

You're right about the end Hail Mary pass, Eddie. Is he nuts? I wouldn't personally do it, but if it was me I would definitely play it short-term as well to look for a quick spike before the selloff.

Metal. Music. Life. www.headofmetal.com

Nov 17, 2011

I was told by a finance professional (founder of one of the big name companies recently), whom I respect the most out of all people in the industry, that hedge funds have a chance of doing the right, low risk thing and taking a small return at low risk, but when their results are down, they go into the casino. Some will come out smiling, some will lose hte lot.

I think its fair to say that Paulson is not the guru he is portrayed as. It is a common thing for WB to put huge bets into companies and because he does it, the rest of the world does it and so it works out for him.

Perhaps Paulson is trying to salvage his name, becuase if he can be linked to actions that work, then any action he does will just generate money.

This could turn out either way for him. It's a cointoss for me. I can't see why BAC would go up or down without way more information.

To provoke more discussion/ reinforce my point, gold is often seen as a hedge against financial uncertainty. He is putting all his eggs in one basket here by selling gold and going long on a big american financial institution.

While I disagree with the statement, many people do believe that not selling something at a price is the same decision as buying it. If you wouldnt buy it, you should sell it. He clearly thinks the american economy will recover, just has a funny way of going all in on it (that or insider trading)

Nov 17, 2011

What's the shock over, bro? Buffett raped that GSE for $1.4B in one day and we already know Paulson's skill set is directly tied to emptying insider ball sacks. It's how he crushed Abacus, it's how he got crushed on Sino-Forest. If he's piling in, that likely means a predetermined volume rush.

Nov 17, 2011

How much does he own? Maybe he is trying to accumulate 105%. >:D

Nov 22, 2011
IlliniProgrammer:

How much does he own? Maybe he is trying to accumulate 105%. >:D

maybe i'm reading it wrong but he's only got ~500m in it according to the filing?

this is comforting i might buy more BAC to DCA my holding and make myself feel like less of a loser for holding BAC from $10 lol

Nov 17, 2011

This man just turned a 14 million dollar investment into 469 million which wipes out the sino forrest lost. Yes he may be doing some outlandish things but some of these banks are extremely oversold and at BAC's current price a dollar or two is a huge move. I wouldn't doubt this guy, He isn't doing great this year but he also manages 28 billion and last i read, that's way more then what i manage.....

Nov 17, 2011

One trick pony should retire before he looses all the money he made. He may be buying with the faith that the
bank will recover soon, but I'm not so sure I'm going to follow suit.

If I'm not mistaken, the gold market correction was a few months ago?

Nov 17, 2011

Never cut winners to fund losers. This guy is a chump and is definitely not one of the best. Everyone on here says that it was prudent because BAC moved higher by a couple of points, but the same people would be screaming bloody murder if BAC had to mark their Countrywide disaster to market and then it would be clear BAC is worth $0.00(00). BAC.PK anyone?

Nov 17, 2011

LOL @ BAC.PK and C.PK

Has a nice ring to it...

Nov 17, 2011

Him and Buffett are in on BAC? Hmmmmm we must not know something

I didn't say it was your fault, I said I was blaming you.

Nov 17, 2011

Ive been in and out of BAC for the past 2 years (for reasons described in other posts) and am now in for the long haul (been adding to my position for the past few weeks). You guys can disparage Paulson all you want but last I checked the guy is a billionaire and most of you are small time chumps who dont have the balls to take calculated risks. I wouldnt necessarily go all in on BAC but there is real value in holding a handful of the over-sold/under-valued depository institutions including BAC and JPM.

Nov 17, 2011

damn no need to call them small time chumps...that's just mean

Nov 17, 2011

Can someone in the know please comment on what motivates these guys to take outside money? I mean, why bother? Paulson is personally worth 16B (last I checked on Forbes). There isn't a single strategy that requires a bigger scale than that. Wouldn't it be worth it to return all outside money voluntarily and get rid of the headache of being accountable to some pension fund or endowment about his investment returns? I think Jim Simons had the right idea when he closed off medallion and returned all money.

Nov 17, 2011

I think Paulson is a mediocre manager at best. He is a product of survivorship bias. He was praised for the CDS/crushing Abacus play, which was Paolo Pellegrini's idea anyway.

Nov 17, 2011
RagnarDanneskjold:

I think Paulson is a mediocre manager at best. He is a product of survivorship bias. He was praised for the CDS/crushing Abacus play, which was Paolo Pellegrini's idea anyway.

comments like this when you are not worth a fraction of a billion....smh

Nov 17, 2011
Angelus99:
RagnarDanneskjold:

I think Paulson is a mediocre manager at best. He is a product of survivorship bias. He was praised for the CDS/crushing Abacus play, which was Paolo Pellegrini's idea anyway.

comments like this when you are not worth a fraction of a billion....smh

I knew this would get flak. Don't get your panties in a bunch. It's a well-informed opinion. I think you would be hard pressed to find a person who honestly believes that he'll be around in 10 years.

Nov 17, 2011

So I need a billion dead presidents to call Paulson a chump?

Do I need to be an engineer to see cracks in a bridge?

Do I need to be a plumber to know my toilet is clogged with shit?

Do I need to be an Eastern European real estate broker to know how to rip someone off?

Best Response
Nov 17, 2011
Jesse.Livermore:

Do I need to be an Eastern European [...] to know how to rip someone off?

Hey, we're not all crooked

Nov 17, 2011
UFOinsider:
Jesse.Livermore:

Do I need to be an Eastern European [...] to know how to rip someone off?

Hey, we're not all crooked

An addendum: Do I need to be an Eastern European 12 year old to know how to be a prostitute?

I can play this game all day.

Nov 17, 2011

Yeah, you just gave the sales pitch for every penny stock in the world. Small moves mean big percentage gains (and losses). Plus, this was a $50 stock in 2007, so if it just got back to there you'd be looking at a 10-bagger. That's the thinking, anyway.

Nov 17, 2011

Looking for the outside chance of a huge gain. Just got down reading the Black Swan yesterday so I'm still in the mind set. I don't see much special in Paulson's strategy (or anyone for that matter). His deal with IKB was basically guaranteed to work. However, even a small move would be huge for his ROI. Also, Buffet's investment has to help his chances.

Then again, it could blow up in his face.

Nov 17, 2011

Looks like he's set to pocket $400 million on the Delphi deal:

http://www.finalternatives.com/node/18782
Bet he's hoping that happens by year end...

Nov 17, 2011

There's too much bashing going on this thread about Paulson. I mean, he may make mistakes, but like what some of the above posts mentioned, he's running one of the largest hedge funds on the Street and that takes skill and guts. All he needs are one or two mega-deal(s) and his return on funds will recover. Doubt it'll be a positive number though. CNBC was reporting last night that most of the big boys like Druckenmiller were badly hit by the European debt crisis. Even winners lose sometimes.

Nov 17, 2011
Gekko_KKR:

There's too much bashing going on this thread about Paulson. I mean, he may make mistakes, but like what some of the above posts mentioned, he's running one of the largest hedge funds on the Street and that takes skill and guts. All he needs are one or two mega-deal(s) and his return on funds will recover. Doubt it'll be a positive number though. CNBC was reporting last night that most of the big boys like Druckenmiller were badly hit by the European debt crisis. Even winners lose sometimes.

That's the problem though. These guys are made to look like oracles when in fact either their reputation is carrying them or they get lucky. Sure, a little skill is involved but there's a lot of things than can happen which are hard to prepare for. Also, anyone who says they can predict what will happen in the future is either crazy or lying.

Nov 18, 2011

Paulson is hardly a fund manager. Guy makes billions off of an infallible deal and now he is some sort of genius? Wish I worked with GS and had the info/systems that they were about to plummet the global economy with bad debt.

From Bloomberg: " The firm (paulson & co) employs merger arbitrage, long/short, and event-driven strategy to make its investments"

Pretty sure my grandma was using those strategies back in '73. It's sad

I am not surprised that a one trick pony is finding it a little hard to dance for that cash right now.

Nov 17, 2011
jktecon:

Paulson is hardly a fund manager. Guy makes billions off of an infallible deal and now he is some sort of genius? Wish I worked with GS and had the info/systems that they were about to plummet the global economy with bad debt.

From Bloomberg: " The firm (paulson & co) employs merger arbitrage, long/short, and event-driven strategy to make its investments"

Pretty sure my grandma was using those strategies back in '73. It's sad

I am not surprised that a one trick pony is finding it a little hard to dance for that cash right now.

I wouldn't say that he's a genius, but look here, he must have been sufficiently good to have amassed a significant AUM for his hedge funds to be able to leverage and profit 'the greatest trade ever'. Sure, he is not as good as what people originally thought about him as a wonder boy, but it takes a certain track record to be able to amass more than $1b in AUM from scratch. Yeah I'm sure that everyone wishes that they had the information and systems in place to profit off the subprime housing crash, but first you got to get to the major leagues before you get priority access to these reports/knowledge.

You talk as if you're some hotshot on Wall Street, why not go raise funds for your brand new hedge fund? Let me know if you can even raise $10m. Oh, and you do realize that most of the major hedge funds in the world are employing these strategies right?

Also, Paulson has an estimated net worth of US$15.5b. He's ranked 39 on the Forbes list. So I'm pretty sure that he'll do just fine even with the redemption by investors.

Haters gonna hate.

Nov 17, 2011
Gekko_KKR:

Haters gonna hate.

Haters gonna hate

Nov 18, 2011
jktecon:

Paulson is hardly a fund manager. Guy makes billions off of an infallible deal and now he is some sort of genius? Wish I worked with GS and had the info/systems that they were about to plummet the global economy with bad debt.

From Bloomberg: " The firm (paulson & co) employs merger arbitrage, long/short, and event-driven strategy to make its investments"

Pretty sure my grandma was using those strategies back in '73. It's sad

I am not surprised that a one trick pony is finding it a little hard to dance for that cash right now.

Are you knocking the primary hedge fund strategies?

Nov 17, 2011

Should I use my invisibility for good or for evil?

Nov 17, 2011

A few of you should save this thread and re-read it in 5 years after you have some actual work experience. I think you will be disappointed at how stupid and ignorant you sound in your posts regarding something you know nothing about.

Nov 17, 2011

damnnnnnnn.....he just sonned you yo!!!

Nov 18, 2011

I also think that it has sort of no downside, and penny stocks have a lot more potential than GLD.. I mean, between losing 45% and 55% you sort of don't really care, it's a very crappy year anyway. Whereas if he can get to 15%-20% it's a very different story.
What do you guys think? Does this make sense at all?

Nov 17, 2011
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Nov 19, 2011
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MKballer