John Paulson is bracing for higher inflation, and he is anticipating a gold rush.
Billionaire investor John Paulson is best known for betting on the housing bubble to burst, a wager that generated more than $15 billion for his fund. His big short was immortalized in the book “The Greatest Trade Ever: The Behind-the-Scenes Story of How John Paulson Defied Wall Street and Made Financial History.”
Fast forward, and the most lucrative bear trader John Paulson is bracing for higher inflation
So, John Paulson is loading up on mining and energy companies that stand to be on the winning side as inflation rips higher.
“John Paulson is loading up on mining and energy companies that stand to be on the winning side as inflation rips higher”
WEALTH TRAINNG COMPANY
John Paulson is bracing for higher inflation, and he is not alone
Ray Dalio sees inflation spiraling, which is partly due to the supply shock of the century. Images of congested ports around the world are surfacing as households and businesses stock up, fearing shortages and higher prices in the future. Eventually, this leads to a wage-price spiral where higher labor demand, results in higher wages. Companies then pass on higher labor costs to consumers, and general price inflation, workers demand higher wages and the cycle continues.
Despite record inflation levels, the Fed and the other western aligned central banks have limited options available to fight inflation without causing a financial crisis worse than 2008.
Some economist like Peter Schiff believe the battle against inflation is already lost.
They argue that the Fed cannot fight inflation and any talk of tightening is a bluff.
“They will talk a good game so that they do not have to get in the boxing ring and risk getting knocked out,” said Peter Schiff.
John Paulson is bracing for higher inflation which some argue could be worse than the 1970s
We also believe that we could experience worse stagflation of the 1970s, bearing in mind inflation is starting worse this decade than the 1970s.
“Despite record inflation levels, the Fed and the other western aligned central banks have limited options available to fight inflation without causing a financial crisis worse than 2008”
WEALTH TRAINING COMPANY
But as Peter Schiff notes what happened in 1980, to break the back of inflation and restore confidence in a sinking dollar and break a gold bull market where the price of gold went from 35 USD an ounce to 850 USD was a combination of factors. For example, the Paul Volcker with 20% interest rates and Ronald Reagan’s mantra that the government is the problem, the free market is the solution.
“UBI, also knowns as Modern Monetary policy, will send the public deficit spiraling, which will result in the central banks creating even more currency” – Wealth Training Company
With so much debt in the system, any drastic rate hike would trigger a Great Depression and third world poverty in advanced economies.
Public finances, assets prices, highly leveraged businesses are being sustained, kept alive, suckling on the central bank’s money teat. Emergency monetary policy, QE to infinity, zero interest rate policy, and yield targeting have become the lifeblood of the system.
Moreover, long-term structural unemployment due to fourth revolution technologies is likely to lead to a further drain on public finances, as the electorate voted into power left learning governments that tout Universal Basic Income (UBI) as a solution to job insecurity and rising unemployment levels.
But UBI, also knowns as Modern Monetary policy, will send the public deficit spiraling, which will result in the central banks creating even more currency. If this scenario plays out, we believe sovereign debt monetization will increase going forward. Moreover, this will further debase the currency.
As we write this piece, US lawmakers are reaching a potential breakthrough on the US debt ceiling, which would extend the borrowing limit until December to finance a $1.2tn infrastructure bill and a $3.5tn social spending package.
But the US is in a unique and privileged position because of the dollar’s reserve currency status. The US dollar prevails as the dominant international trade currency, with a 51.9% share of the value of international currency usage in 2014. The euro is second, with a 30.5% share of the total value.
Then third place and far behind is GBP with a 5.4% share of global usage.
In a few words, USD is less vulnerable to currency debasement than say the Euro. But GDP is more vulnerable to currency debasement due to falling global demand for the currency as a result of Brexit. BoE talks about a rate hike could tip a stressed UK economy over the edge.
“Paulson’s outlook likely explains why there were a dozen mining companies, including Barrick Gold and Novagold Resources, among the 40 holdings in his stock portfolio at the end of June” – Wealth Training Company
Currency debasement, which means lowering the exchange value of the currency, could be another reason why John Paulson is bracing for higher inflation
John Paulson, who specializes in meltdown-proof portfolios is now preparing for a melt up.
If John Paulson is bracing for higher inflation how is that reflected in his investments?
The billionaire investor is loading up on mining and energy stocks in preparation.
He also trumpeted gold’s prospects in his interview.
John Paulson is expecting stubborn inflation to spur interest-rate hikes and spark an exodus from cash and bonds into gold. The combination of a demand surge and limited supply could supercharge the precious metal’s price, he added.
Paulson’s outlook likely explains why there were a dozen mining companies, including Barrick Gold and Novagold Resources, among the 40 holdings in his stock portfolio at the end of June. His mining positions were worth a combined $800 million, representing 20% of his portfolio’s total value.
John Paulson also bet on energy companies last quarter, likely in anticipation of higher commodity prices. His family office bought stakes in BP and Shell, and boosted its positions in Occidental Petroleum by 66% and Exxon Mobil by 50%, making them its 7th and 12th most valuable holdings, respectively.
John Paulson also shifted some of his capital to China as a diversification strategy revealed a $157 million stake in Didi, as well as $4 million stakes in both Alibaba and Baidu.
Paulson may have switched out several holdings in anticipation of higher inflation. But he did not change his two largest positions, a $760 million stake in Bausch Health and a $748 million stake in Horizon Therapeutics.
