John Paulson’s take on markets

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John Paulson, hedge fund billionaire of Paulson & Co that capitalized on the problems in mortgage backed securities, a few days ago addressed a Global Financial Services Conference hosted by UBS. The notes below are being circulated among traders. The original source is not known, but this version comes courtesy of Business Insider – Clusterstock.

In short, Paulson is bullish on financials and gold, confident about the recovery, and thinks housing will be stable by 2012.

The following are a few bullets on his talk:

  • Believes financials are under-followed at present whilst earnings are recovering.
  • Confident US recovery is going to continue. One weak segment impeding growth is housing. However transition rate of delinquencies has dropped, i.e pool of delinquent mortgages is declining.
  • Expect normal housing market by 2013.
  • Assuming 7% S&P earnings and a normalized market PE, there is 34% upside.
  • Financials’ earnings expected to recover strongly as provision expenses decline.
  • Sees 40–60% upside in bank stocks.
  • Sees US banks as better capitalized an over-reserved vs European once, hence only European holding is Lloyds.
  • Doesn’t see any good shorting opportunities in financials.
  • Expect to see pick-up in M&A in financials, particularly cross-border.
  • Doesn’t think gold is a crowded trade. Only a small portion of pension fund assets held in gold.

Source: Business Insider – Clusterstock, May 10, 2011.

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