DayTradeShow, 2013 January 23, Wednesday – Words like “best” and “now” are meant to capture attention. “Best” as in, “nothing better than,” and “now,” as in “this is your last chance.”
When you see a “news headline” with the words “best” and “now” in it you are usually treated to hyperbole without substance (at least that’s my experience.)So, today, when I saw the headline, “What John Paulson Says Is the Best Investment Now,” and read the associated article, I did so with a heightened-level of skeptical thought.
First paragraph began with a retelling of the “financial crisis” with the word “after” precedant-to “the financial crisis.” Then, a general comment on how bullish John Paulson is on the “U.S. economy.”
And, then, the “best” investment idea is described.
I think it’s important to look at who John Paulson is before we look at what his “best” investment idea is.
“John Alfred Paulson (born December 14, 1955) is an American hedge fund manager. He is the founder and President of Paulson & Co., a New York-based hedge fund.
Paulson became a billionaire by short-selling subprime mortgages in 2007, and made $3.7 billion that year. In 2010, he beat a hedge-fund record by making nearly $5 billion. His fortune was made largely from the collapse of mortgage backed securities market.
In 2011, he made bad trades in Bank of America, Citigroup and the fraud-suspected China-based Canadian-listed company; Sino-Forest Corporation. His flagship fund, Paulson Advantage Fund, was down over 40% as of September 2011. During that same time, Paulson had invested most of his personal fortune in gold and it had grown by $3.1 billion from September 2010 to September 2011.” – Source: Wikipedia
John Paulson is not just a billionaire. He is not just a wall street billionaire. Mr. Paulson is a hard-asset guy. He’s probably the biggest “gold bug” on wall street outside Jim Rogers. He invested “most of his PERSONAL fortune” (emphasis mine) in gold.
And, he was burned by phony-baloney “paper” stocks to the tune of 40%
When you understand who John Paulson is, you can appreciate more his “best” investment “now.”Katy Kelly at CNBC reports, “Paulson said that for an individual investor, his best piece of advice was to buy a home.”
Paulson explained, “This is probably the best time in our lifetime to consider buying a house,” According to the CNBC article, Paulson feels the combination of low mortgage rates and tax deductions on housing means that “affordability…has never been higher.” And, Paulson added he was bullish on the stock market and on the U.S. energy sector, whose growth could buoy related industries like chemicals and petrochemicals.
When you consider Paulson made billions as a short-seller of mortgages in 2007 (when rates at 5% were unfathomably-higher than they are now), I believe it is more credible that he likes real-estate now.
Paulson may be right. I believe he is absolutely right about ownership. It is always a good idea to own. Own, not have mortgage. Own.
But, is “now” the time to take out a loan? Is “now” the time to dust-off the “no money down” books and start to speculate on real estate? Is it really time to trudge down to the local mortgage company (the few that remain) to go through the application process to find out if you “qualify” to get hooked-up to 30 or 40 years of payments?
No. Not, it is not time for any of that. “Four years” “after” the “financial crisis” it is not time to bury your future deeper into debt.
For a billionaire like John Paulson it is probably the best time to pick up real estate. John Paulson has cash to buy outright, whole neighborhoods. Houses vacated by people who “bought” them before the “financial” crisis.
In what is the ultimate dump-then-pump, it is not too ironic to suggest Paulson will be able to buy houses for whom he shorted the mortgages pre-2007.
Maybe even a house you had to walk away from.
I agree with John Paulson, though. It is a good time to buy. Maybe not the “best,” and maybe not “now,” but maybe not “too bad” or “too early,” either.
I do not agree it’s time for Americans, though, to head back to the trough to speculate with money they don’t have.
What do YOU think? Is “now” the “best” time to “buy” real estate?