The Pragmatic Capitalist blog points out to the recent SEC filings of John Paulson — the hedge fund manager who raked in nearly $4 billions shorting the US housing market ahead of its collapse — makes it clear he is betting big on the reflation trade.
From TPC: Paulson’s latest 13-F filing shows large positions in Anglogold, Kinross Gold, Gold Fields, market vectors gold ETF and the S&P gold ETF. More interesting is a recent filing by Paulson to start raising money for a hundred million dollar “real estate recovery” fund.
At first, the news of large gold purchases early last month were seen as potential armageddon plays based on Paulson’s big bets on the collapse of the economy last year, but it’s now clear that Paulson is betting big on inflation in the coming years.
The bursting of the housing bubble combined with deflationary risks have prompted the Fed in last few q’s toward a super-accommodative monetary policy to avoid economic stagnation/contraction. A cheap money policy from the Fed usually allows hard assets like commodities and precious metals to become the ultimate hedge against deflation in the near-term and inflation in the long-term. This logic perhaps explains Paulson’s heavy betting on gold recently. Having said that however, the final chapter on this highly unusual period of economic uncertainlty and policy mix has yet to be written.