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It was reported last night by various news outlets that star hedge fund manager John Paulson was now shorting European bonds.OK, that’s not a huge surprise. Lots of folks are betting against Europe.
But what IS interesting is how Paulson is doing it.
According to Sam Jones at FT, Paulson told his investors last night that he’s doing it via credit default swaps on German bunds!
As Germany is considered to be among the ultimate safe havens, this is gutsy!
But a strong case can be made that German is an imperfect safe haven.
The fact of the matter is that unlike the US, UK, and Japan, Germany dos not print its own currency. Sure, it’s the dominant force in the ECB, and the ECB would almost certainly do a lot more if things got really hairy for Germany, but still technically Germany has structural flaws not seen elsewhere.
And although German CDS are up a lot over the last year, if you’re going the CDS route to bet against Europe, it’s presumably hard to find value in the traditional peripheral basket cases that people have been getting against quite a bit.
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