In 2008, he accumulated a huge position against the CDOs (Collateralized Debt Obligation) that supported the subprime mortgage market. When the market crashed and the global economy fell into the worst depression since 1929, it returned estimated results of $ 20 billion. A strategy that was described as “the best trade in history” and that its author describes as something unique due to its asymmetry: the potential losses were very small, but the expected gains had stellar dimensions.
Today, the legendary John paulson he says he does not have in view a similar operation in terms of asymmetry between risks and benefits. But he does ensure that he sees signs of excessive speculation in the market again. In an interview with Bloomberg TV, the investor said that the rapid expansion in the money supply could drive inflation rates well above current expectations, he said, and gold, which he has been betting on for years, is poised to your moment.
In that regard, the experienced 65-year-old trader had very harsh words for the Bitcoin and cryptocurrency boom.
“I would not recommend anyone to invest in cryptocurrencies”
“I would not recommend anyone to invest in cryptocurrencies,” said Paulson, co-founder of the Carlyle Group.
“I would say that cryptocurrencies are a bubble. I would describe them as a limited supply of nothing. So to the extent that there is more demand than limited supply, the price will go up. But to the extent that demand falls, then the price will go down. There is no intrinsic value in any of the cryptocurrencies, except that there is a limited amount, “he added.
“Cryptocurrencies, regardless of their current price, will end up having no value. Once the exuberance wears off, or the liquidity runs out, they will go to zero. I would not recommend anyone to invest in cryptocurrencies, “he commented.
Still, Paulson admitted that he couldn’t bet against cryptocurrencies – go “short” – as he did against subprime mortgages.
“The reason we shorted subprimes in size was because it was asymmetric: shorting a duration-limited par bond that trades at a 1% spread on Treasuries. So you can’t lose more than the margin of the duration. In cryptocurrencies, the potential loss is unlimited. So even if he might be right in the long term, in the short term, he would be annihilated. In the case of Bitcoin, it went from $ 5,000 to $ 45,000. It’s too volatile to go short. “
Asked about his great trade from 14 years ago, the investor said that he has not seen anything similar in this entire period.
“Cryptocurrencies are a bubble. I would describe them as a limited offer of nothing “
“I have not found anything that is as asymmetrical as that particular operation. Asymmetrical means that you could lose a little at the bottom, but win essentially 100 times at the top. Most of the operations are symmetric. You can win a lot, but you risk a lot. And if you’re wrong, it hurts, “he replied.
All in all, he said that betting against US debt securities appears today as a great alternative. “The area that is most undervalued today is credit. Current inflation is much higher than long-term returns and there is a perception in the market that this is transitory. I think they have bought into the federal line that it is only temporary, due to the resumption of the economy and that it will eventually slow down. However, if it does not decline, or if it does so above the 2% level that the Federal Reserve is targeting, ultimately interest rates will catch up and bonds will fall. In that scenario, there are several option strategies related to bonds and interest rates that could offer very high returns, “he said.