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Writer's pictureCharles Miller

Paulson & Burry – beware of ulterior motives

Updated: Sep 16, 2021

Since there is so much on today… I won’t bore you with a long article. Or, to steal a quote from a 15th century King Henry VIII when he spoke to his wives: “I won’t keep you long”


Yesterday, John Paulson recently come out stating that Crypto is a worthless bubble. John Paulson, for those who have never heard the name, came into mainstream fame from the Michael Lewis book The Big Short after making $20bn from betting against the subprime housing market in the 2008 financial crisis.


Whether you share his sentiment on cryptocurrencies or not, he made a very important point during his interview with Rubenstein


I am not short Crypto because my potential losses could be infinite (as the price rises). When I shorted the housing debt market that was different because my losses were capped at the par value of the debt *.


So what relevance does this have to me?


There are four things everyday punters should learn from this interview

  1. For the hedge fund managers that make money by shorting… shorter-term debt markets are the “safest” market to attack. Obviously, funds do short equities/crypto, however, as Paulson mentioned there are greater chances of infinite losses

  2. No hedge fund manager can single-handedly break a market. This is a widely debated point, however, I generally subscribe to the idea “hedge funds help collapse things that are weak, they cannot break something in their own right”

  3. If you are a big hedge fund manager and you know something is weak… there is plenty of incentive to go on mainstream media and weaken sentiment for it. Ackman even made a Netflix show on his Herbalife fail!

  4. Finally, given the huge payouts when you are right… these hedge fund guys get it wrong a lot. Michael Burry is lauded as one of the best of all of them and his track record is mixed at best


*Adjusting for the spread/duration of the debt

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