According to the below excerpts from this article on MarketWatch, John Paulson is adjusting his investment strategy to take into account an improving housing market.
By Alistair Barr, MarketWatch
SAN FRANCISCO (MarketWatch) — John Paulson, the hedge-fund manager famous for betting against mortgage securities, is now bullish on the U.S. housing market and the economy.
During a conference call with investors Wednesday, Paulson said he was concerned earlier this year about a potential double-dip recession.
“I’m not concerned about that at all today,” he said. It’s more likely there could be a V-shaped recovery, Paulson elaborated.
House prices have stabilized and could climb 8% to 10% nationwide in 2011, he added.
Corporate earnings are coming in ahead of expectations, the stock market is stronger and there’s a “vibrant” credit market. With the “final leg” of a rising housing market, “the outlook for 2011 could be very strong,” Paulson said.
Paulson oversaw $32 billion in assets at the start of 2010, making it the third-largest hedge-fund firm in the world behind J.P. Morgan Chase & Co. and Bridgewater Associates.
The firm grew quickly after it made billions of dollars betting against mortgage-related securities before the housing market collapsed in 2007. One of those bets was against parts of a Goldman Sachs collateralized debt obligation called Abacus 2007-AC1.
Returns generated by Paulson’s main Advantage hedge funds lagged some rivals in the first quarter. Paulson said Wednesday that this was because the firm kept its net exposure to the market low. This means negative bets, known as short positions, were relatively high compared to positive, or long, positions.
Paulson added he was concerned about a potential double-dip recession and a possible default by a Southern European nation. “I’m currently much less concerned that either those two issues will happen.”
Greece’s problems are much better understood now and are being dealt with, he commented.
Paulson & Co. covered, or closed, many of its short positions recently and that showed up in stronger returns in April, the fund manager noted. The firm has been “much more aggressive” in positioning its Advantage funds to “participate in a stronger economic recovery,” Paulson said.
What are your thoughts?