John Paulson $15b trade
Most will know the Michael buddy trade due to the movie and general media attention he got, however someone eclipsed him during the financial crisis
John Paulson had better connections than burry and put it to use to start betting on Credit default swaps
Most will know the Michael buddy trade due to the movie and general media attention he got, however someone eclipsed him during the financial crisis
John Paulson had better connections than burry and put it to use to start betting on Credit default swaps
Every $1,000,000 protected $150,000,000 worth of CDS at that point.
He first made the mistake to buy CDS covering mortgages on properties that had already increased in value enough that they could easily be refinanced.
Through refinancing, delinquencies did not rise at first.
He first made the mistake to buy CDS covering mortgages on properties that had already increased in value enough that they could easily be refinanced.
Through refinancing, delinquencies did not rise at first.
Instead they started focusing on more recent subprime mortgages that wouldn’t have the same opportunity to refinance.
The piece of research that gave them the green light to use bigger size was the following.
Housing prices detached from their long term growth into a bubble.
The piece of research that gave them the green light to use bigger size was the following.
Housing prices detached from their long term growth into a bubble.
They expected a 40% correction to happen to get back to the trend and they expected it soon.
They started buying up to $500mil worth of protection, for which they only paid 1% of the value as payments for the CDS.
In this case $5mil/y for $500mil protection.
They started buying up to $500mil worth of protection, for which they only paid 1% of the value as payments for the CDS.
In this case $5mil/y for $500mil protection.
By late 2006 his fund had gotten media attention and his small $147mil fund in early 2006 (including $30mil of his own money) grew to a staggering $700mil by the end of the year.
They used to buy even more CDS.
They used to buy even more CDS.
During the chaos, alone on a single morning in 2007, when sub-prime lender New Century announced it was in trouble, Paulson's fund clocked up gains of $1.25bn on that day.
The ABX Index is an index that represents 20 subprime residential mortgage-backed securities.
They were so big by the end of it that each single percentage point drop represented a $250mil windfall.
The profit for February alone equaled a 66% return for the fund.
They were so big by the end of it that each single percentage point drop represented a $250mil windfall.
The profit for February alone equaled a 66% return for the fund.
Not only did they make $15,000,000,000 on that specific trade but an additional $5b later during the crisis.
John Paulson went from a $147m hedge fund with $30mil invested to profiting in the order of $4,000,000,000 for himself.
An untold insane story of someone with vision.
John Paulson went from a $147m hedge fund with $30mil invested to profiting in the order of $4,000,000,000 for himself.
An untold insane story of someone with vision.
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