- John Paulson said crypto is a bubble, SPACs are overpriced, and inflation is here to stay.
- The billionaire investor outlined why interest rates could jump and the gold price might soar.
- Paulson shot to fame after making a fortune betting on the US housing market to collapse.
- See more stories on Insider’s business page.
John Paulson dismissed cryptocurrencies as worthless, warned the SPAC market is overvalued, and sounded the inflation alarm in the latest episode of “Bloomberg Wealth with David Rubenstein.”
The billionaire investor is best known for betting against the housing bubble and making upwards of $US15 ($AU20) billion for himself and his clients – a wager chronicled in the book “The Greatest Trade Ever.”
Paulson reflected on his big short, explained why he’s excited about gold and credit, and offered advice to novice investors in the Bloomberg interview.
Here are Paulson’s 14 best quotes, lightly edited and condensed for clarity:
1. “Mortgage-backed securities were viewed as the safest securities next to Treasuries, and that was essentially true up until that point. What they missed was the underwriting quality had never been as poor, so the fact that they hadn’t defaulted in the past had nothing to do with whether they would default in the future.” – explaining why other investors didn’t emulate his bet against the housing market.
2. “One of our investors called me. He said, ‘Uh, John, I just got the monthly results. I think there was a mistake, it said 66%, you meant 6.6%,’ and I said, ‘ No, it was 66%.’ He goes, ‘That’s impossible, I’ve invested with Soros, with Tudor Jones, with everyone. No one’s been up 66% in a year. How can you be up 66% in a month?’ I said, ‘Well, that’s what happened.'” – Paulson’s funds ended up returning close to 800% for the year in 2007.
3. “There’s a perception in the market that this inflation is transitory. Investors bought the Fed line that it’s just temporary due to the restart of the economy and it’s eventually gonna subside. Our viewpoint is the markets are currently too complacent regarding inflation. We have inflation coming well in excess of what the current expectations are.”
4. “The area that’s most mispriced today is credit. If inflation doesn’t subside, interest rates will catch up and bonds will fall, and various options strategies could offer very high returns.”
5. “As inflation picks up, people try and get out of fixed income, try and get out cash. The logical place to go is gold, especially if it starts to rise in inflationary times. But because the amount of money trying to move out of cash and fixed income dwarfs the amount of investable gold, the supply-and-demand imbalance causes gold to rise, and the more it rises – it sort of feeds on itself. It has the potential to go parabolic.”
6. “If inflation does prove to be higher than expectations, that will result in both higher gold prices and higher interest rates. If you get those two happening at the same time, we could set up positions that could return 25- or 50-to-1.”
7. “We went through probably the worst financial crisis imaginable with COVID, in which the entire economy shut down. If it wasn’t for the very aggressive policies of the Fed and the Treasury, we could have dove into a deep recession. But by providing all the monetary and fiscal stimulus that they did, they really minimized the downturn, resulting in a very rapid recovery.”
8. “The SPAC market is overvalued. It’s not quite a bubble but it clearly shows elements of a frothy market, there’s just too much liquidity. Investing in SPACS, on average, will be a losing proposition.” – discussing the outlook for special-purpose acquisition companies.
9. “I wouldn’t recommend anyone invest in cryptocurrencies. They’re a bubble, a limited supply of nothing. There’s no intrinsic value to any of the cryptocurrencies except that there’s a limited amount. They will eventually prove to be worthless. Once the exuberance wears off or liquidity dries up, they will go to zero.”
10. “There’s unlimited downside in crypto. It’s just too volatile to short. Even though I could be right over the long term, in the short term, bitcoin went from $US5,000 ($AU6,786) to $US45,000 ($AU61,077) – I would be wiped out on the short side.”
11. “Invest in areas that you know well. Anyone can be lucky in a particular investment, but that’s not a long-term strategy. If you invest in areas that you don’t know, ultimately you’re not going to do well. Concentrate on particular areas that you know better than other people, and that’s what gives you an advantage to succeed in investing.”
12. “They look for get-rich-quick schemes and they buy based on stories. They chase investments that are going up, but ultimately those investments deflate and they lose money.” – highlighting a common mistake among newbie investors.
13. “The best investment for an average individual is to buy their own home.” – Paulson emphasized that homeowners generally see their properties grow in value over time, boosting their return on investment.
14. “Do what you’re passionate about. You can be successful in music, dance, medicine, physics, math – the important thing is you pursue a career in what you’re naturally passionate about. That will improve your odds of achieving success.”