Quote of the Day: John Paulson on Financials

Star Fund manager John Paulson isn’t buying the worst-is-over stuff so common amongst the data-free punditry:

"Although financial stocks rallied sharply during mid July, we believe the gains will be short-lived. We expect that the negative effects of continued home price declines and contracting credit will lead to a decline in consumer spending and, in turn, a decline in U.S. GDP.

"As the economy weakens, we expect credit costs will continue to rise,
resulting in weaker financial earnings, the need for additional capital
and lower stock prices for financials."

That quote comes directly from Paulson’s second-quarter report to investors…

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Source:
Bottom-Fishing Among Financials
Robert Lenzner
Forbes, 08.04.08, 6:00 AM ET
http://www.forbes.com/opinions/2008/08/01/stock-market-bottom-oped-cz_rl_0804croesus.html

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What's been said:

Discussions found on the web:
  1. Paul Kedrosky commented on Aug 6

    Gawd I love when I agree with Paulson on something useful. Makes me feel warm all over.

  2. Bruce commented on Aug 6

    OK…I posted on the last entry, so forgive me for this one, but this is more reporting today on the FirstFed Financial numbers yesterday…

    Think the worst is over for financials?

    http://biz.yahoo.com/bw/080806/20080806005326.html?.v=1

    “The Bank’s non-performing assets to total assets ratio increased to 8.20% at June 30, 2008 from 6.20% at March 31, 2008 and 2.79% at December 31, 2007 compared to .85% at June 30, 2007.”

    And keep in mind, most analysts thought these were some of the brighter bankers who would avoid much of what is crushing the banking industry now.

    In one year, non-performing asset ratio has increased 10 times….!!

    Uh, that is a 1000% INCREASE.

    …just wonderin’

    Bruce in Tennessee

  3. Stuart commented on Aug 6

    Good comments from John Paulson, but he cropped them off too soon. He should’ve kept on adding ” therefore public debt, more BS and more spin from banks and from that other Paulson fellow all directed at trying to maintain consumer confidence, especially in themselves”.

  4. Peter commented on Aug 6

    Of course the worst is over, the stock market is saying that everything is just dandy. Nothing to worry us. Buy buy buy. Borrow borrow borrow. Spend spend spend.

  5. Mark E Hoffer commented on Aug 6

    BR,

    could you run a list, open-source if need be, enumerating the population of “data-free punditry”-stan?

    these water-carriers irrigate no edible crop..
    or, for no other Reason than its helpful to allow them to understand that they can’t be understood..

  6. malabar commented on Aug 6

    Although I agree with John Paulson it pays to be skeptical. Everyone talks their book.

    Look at Bill Gross and his bovine metaphor. Talking his book which requires a taxpayer backstop of agency bonds. What’s his prescription – getting house prices back to bubble era levels even if that means saddling generations with even more debt. Great!

    The problem is that houses among other things are too expensive relative to stagnant real incomes for the majority of Americans that don’t live in the same circle as Bill Gross. We need homes that are affordable which means even lower prices, fewer casinos on Wall Street and banks that behave as banks and not roulette wheels. Then we need real jobs – not pushing electrons that create fictitious money out of thin air. Of course that means ending crony capitalism!

  7. Clay commented on Aug 6

    With possible add’l massive losses on loans from residential, commercial and industrial, home equity and personal debt(revolving/cr.card) and bringing off-balance sheet debt garbage onto their balance sheets, I think it may take some of these financial institutions 3 to 5 yrs or longer to recover somewhat from recent and future losses/asset writedowns.

    A recent FASB rule requiring disclosure of off-balance sheet assets after Nov, 15, 2008 was deferred until January 2010 due to fear that banks would be forced to raise large amounts of new capital quickly.
    http://www.ft.com/cms/s/0/71f44a4a-5e7c-11dd-b354-000077b07658.html

    I would not be surprised if another deferral of this disclosure is requested in latter 2009.

  8. leftback commented on Aug 6

    Bottom fishing SKF was a better idea this week…….

    The write-downs keep on coming. The Alt-A loans are living up to their full potential, and just down the road a bit, here come the prime jumbo loans. Wave after wave…

    Paulson is no fool. Neither of them, but this one is on your side – if you’re willing to listen……

  9. Walt French commented on Aug 7

    Yes, Paulson is talking his book.

    No, that does NOT mean that he is wrong. We all do that.

    Better to have a lightning rod than pretend that putting one’s head in the sand, and tail in the air, works. And if it induces others to put up their own lightning rods so that his own portfolio is less exposed to risk, all the better (yes, horribly mixed metaphors) !

  10. AJ commented on Aug 7

    If and when the bottom is in a lot more sectors should be beaten down severely than is the case nowadays. The bottom callers live under the assumption that this is a crises contained to the financial sector. Nothing mystical about that.

  11. Philippe commented on Aug 7

    Banks are only a reflection of their economies,some have tried to outbeat them with a known outcome as of now.
    It is a premature proposition for a commun investor,but I maintain it is a time for professionals of the industry.

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