Money managers under the microscope
Subprime master Paulson’s Midas touch
Hedge fund managers may get a lot of stick in these troubled times, but there are some that more traditional investors may want to listen to.
The 53 year-old American, no relation of Hank, is having a good financial crisis. In 2007 he pulled off one of the most lucrative gambles in investment history — amassing a personal fortune of nearly $4 billion betting against the sub-prime mortgage sector.
We all know what happened next. Millions of small homeowners defaulted on their mortgages, and the world was plunged into financial near-meltdown. Paulson, on the other hand, has bought a $41 million 10 acre luxury estate in billionaires’ playground the Hamptons.
So what is the guru doing now? Well, earlier in the week it was announced that funds controlled by his company Paulson & Co had paid $1.3 billion for a stake in a firm called AngloGold Ashanti.
Ashanti sounds like a chart-topping R&B singer, but is actually a South African gold miner. This move speaks volumes for where we are in the current cycle, from someone who can legitimately stand up and say that he saw the crisis coming.
Gold is widely seen as an investment that will always have intrinsic value. When times are troubled, investors buy into it as a safe haven — a port in a storm. Unsurprisingly, gold hit all time highs of over $1000 an ounce last year, and could well reach four figure heights again soon.
Two days after Paulson’s interest in Ashanti was announced to the market, gold spiked to a near three week high after the U.S. Federal Reserve revealed plans to spend $300 billion on long-dated Treasuries — a sign there are still serious problems across the Atlantic.
If gold is rising in value, then it’s likely that everything else is struggling. And if John Paulson thinks the crisis still has some way to run, there’s a good chance it does.
Where John Paulson goes, others are likely to follow.