John Paulson: all his personal assets in gold

From Neon Tommy Blog (My Friend’s Breakfast With Hedge Fund Manager John Paulson).  The full article is reproduced below.  Interesting to see that Paulson’s personally has all his own assets in gold (bold emphasis below mine).

Behold, a Pale Horse, and His Name That Sat On Him Was Inflation

(Or: My Friend’s Breakfast With Hedge Fund Manager John Paulson)

Inflation! Is it coming? Is it here? If so, then how come I just bought a dozen eggs for 99 cents? If not now, when?

A friend of mine had breakfast with multi-Billionaire Hedge Fund Manager John Paulson, no relation to Hank Paulson. John was trying to get my friend and a bunch of other people to invest with him, so this breakfast was a sort of sales pitch. But Paulson also gave his opinion on where our economy is going, namely, toward inflation. Here’s my friend’s e-mail:

Breakfast with John Paulson was quite nice. Eggs, couple sausages and some water melon. The guy did take home around 2.8 billion last year personally, never mind what the fund did, so you had to expect bottomless coffee and we got it.

The talk was mostly about why you should be in Paulson’s funds and what amazing returns this guy has had in the last 15 years, but he did discuss the economy as well.

Here’s what Hedge Fund Maverick John Paulson had to say about the banks, the Fed, and INFLATION:

Ben Bernanke and The Fed did the right thing – without the unprecedented monetary stimulus (that means the printing of money for all you liberal arts grads) the banks would have failed and we would be in a full blown depression right now.

However, Fed Money Printing has has increased the US monetary base by a whopping 120%. That’s right – there is more than twice as much money around today then there was before the collapse of Lehman Brothers last year.

So why hasn’t all that money chasing the same amount of goods caused monster inflation – or even mild inflation?

It hasn’t caused inflation because that money is not really sloshing around in the system. At all. In fact, it went mostly into recapitalizing the banks – and as many people know, those banks aren’t lending. They’re basically taking the money and putting it back with the Fed.
So, without lending to consumers and businesses, there is no increase in actual transactions or what economists call “the velocity of money.” In fact, the velocity of money has actually fallen.

NOW, this is not a permanent condition. Eventually, if the economy does continue to recover and normal lending conditions resume then you WILL have inflation.

The question becomes WHEN: here is where Paulson points to the 1970’s. We increased the Money Supply about 13% a year 70’s for two years but we didn’t have any meaningful inflation until 2 years after the money printing started. His conclusion: inflation lags money supply growth by 1 or 2 years.

When inflation did come, by the way, it came at 12%. Meaning, if you had money in a CD earning 1% your real rate of return would be -11%. This is why everyone is so concerned about inflation.

The last time around, to break the back of Inflation, Paul Volcker, then Fed Chairman, raised rates to 20%!  Paulson’s bet is that in 6 to 24 Months regular lending resumes and that in 2 to 3 years after that you could get inflation in the double digits. So, roughly he’s looking at 12% Inflation in the US in about 4 years.

His conclusion – not a shocker here – there will be a rush into Gold. Paulson personally has all his own assets in Gold and his funds own 5 different Gold Mining Stocks. By the way, Paulson notes, of the 200 Trillion dollars of investible assets in the world, only 800 Billion of that is Gold. Apparently, 200 billion is Cheeseburgers and McFlurry’s.

My question was, where does he get 12 percent inflation from? Seems like a random number.

And so, what is the effect on the average Joe? Well, presumably, prices go way up, but so do wages. In fact, some inflation is good, especially for people in debt. The bad news is that investment goes down, less jobs are created, and less money trickles down. And then there’s hyperinflation, which leads to Adolf Hitler.

Update: Someone asked for a clarification on Paulson’s personal investments- wasn’t all his money invested in his own hedge fund? My friend’s reply:

[Paulson] is 100 percent invested in his own firm’s funds. But they have an option whereby you can invest in the fund using gold. As I understand it, you buy into the fund by first converting your dollar investment to gold and when you cash out I guess you are paid out in gold at the value it is worth that day. This is how Paulson invested in his own funds.

In other words, you change your money into gold, and invest the gold into one of Paulson’s funds, which are invested in all sorts of crap, including Gold Mining Stocks (using gold to invest in gold! how meta!).

He also said that the 12% may have been his own figure, but Paulson did say double-digit inflation.