Under the title "The Biggest Winner in Betting on the Global Financial Crisis Warns About These Assets!", the Al Arabiya website reported that since John Paulson bet against the US housing market over a decade ago, people have been asking him about his next big trade. After making $20 billion for himself and investors when high-risk mortgage bonds collapsed, triggering the worst financial crisis since the Great Depression, the billionaire has not found anything to rival that profitable trade.
Now, despite more than 14 years since the dominance of collateralized debt obligations and credit default swaps captured everyone's interest, Paulson once again sees signs of excessive speculation. The 65-year-old Paulson expressed increasing concern about rising prices, as he believes the rapid expansion of the money supply could drive inflation rates much higher than current expectations, and he indicated that gold is poised for a rise. He affirmed that cryptocurrencies represent a bubble "that will ultimately prove worthless." Paulson stated, "I do not recommend anyone invest in cryptocurrencies."
Last year, Paulson transformed his hedge fund company into a family office after the assets under management fell to about $9 billion in 2019 from a peak of $38 billion in 2011, and he found himself mostly managing his own money. When asked about finding another opportunity as significant as the one he observed during the mortgage crisis, Paulson replied he has not found anything "asymmetrical," in the sense that you could lose a little on the downside but gain 100 times on the upside, like betting against housing bonds in 2008, as he sees most trades as symmetrical. You can earn a lot, but you risk a lot.
However, he believes the most mispriced area today is credit. "You have current inflation that greatly exceeds long-term yields, and there is a perception in the market that this is temporary inflation. I believe they have bought the Federal Reserve's inflation target as temporary, due to the economic reboot and that it will ultimately calm down. However, if it does not calm down or drops at a higher level than the 2% targeted by the Federal Reserve, then interest rates will follow upward, and bonds will decline. In this scenario, there are many options strategies related to bonds and interest rates that could offer very high returns."
Paulson believes that gold performs well during inflationary times, especially as there is a very limited amount of investable gold. "It is in the range of several trillion dollars, while the total amount of financial assets is closer to $200 trillion." He said: "So with rising inflation, people try to exit fixed income and cash. The logical place to go is gold." "But since the amount of money trying to exit cash and fixed income dwarfs the amount of investable gold, the supply-demand imbalance leads to rising gold prices."
Unlike in 2009 when the Federal Reserve engaged in quantitative easing, primarily through printing money, and many believed this would lead to inflation, what actually happened was that while the Federal Reserve printed money, it simultaneously raised capital and reserve requirements at banks. Therefore, the amount of recycled money governs the existence of inflationary effects, as the Federal Reserve bought treasury bonds, created money, which ended up in banks and then was redeposited at the Federal Reserve. Hence, that money did not truly enter the money supply. So it was not inflationary.
However, this time it has entered the money supply, with the money supply increasing by about 25% last year, and the best indicator of inflation is the money supply. Therefore, I believe inflation will exceed current expectations.
### Best Investment Advice
In an interview with Bloomberg TV, which Al Arabiya.net accessed, Paulson stated that the best advice he received is to invest in areas you know well. Anyone can get lucky with a certain investment, but that is not a long-term strategy. If you invest in areas you do not know, you will not do well in the end. So the most important thing is to focus on specific areas that you know better than others. This gives you an advantage.
### Double Returns
When asked about the best investment a regular person can make with $100,000, he responded: "Buying their own home." He explained that if you take $100,000 and pay it as a 10% down payment on a property and obtain a mortgage of $900,000, you can buy a million-dollar house. Just in the past month alone, home prices have risen by 20%. Therefore, the return value on a million-dollar home would be $200,000 on a base investment of $100,000, which is double the investment amount, and the longer you wait, the more the home's value increases.
