Keith McCullough Rips The Roof Off John Paulson For Staying Net Long and My Response

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Keith McCullough Rips The Roof Off John Paulson For Staying Net Long and My Response

The title is not mine, so do not accuse me of sensationalist headlines to garner traffic (although, I am far from perfect in this regard).

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Keith McCullough, who used to run a hedge fund and now runs HedgeEye Risk Management made some of the following points, which I will refute one by one:

 

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Keith says John Paulson’s latest move from 80% to 60% net long is “not running a hedge fund”

What on earth does he mean? Since when does a hedge fund need to be net long or short at all. As long as Paulson’s fund is legally allowed to have no limits he can do whatever he wants. There are hedge funds that are 100% long and ones that are 100% short, it has nothing to do with hedge fund structure. True it makes little sense to be 100% long as a hedge fund, but it gives the manager much more flexibility (and money) so it might make sense in certain cases. Regardless, Paulson is still only 80% long not 100%.

“Running a levered long fund is not a hedge fund”

Why not?

“He does not manage macro picture well”

Did John Paulson ever claim to be a macro trader? He made spectacular trades against subprime but he bought cheap so it can be easily argued it was a value play and not a macro play.

“He is not Soros, who is 75% cash?”

George Soros claims that he made most of his money on value plays not macro as Keith tries to portray. Furthermore, who says Soros is right by holding 75% cash now only time will tell.

Pertending he is bearish on the euro while bullish on banks”

What correlation at all is there between the Euro (not the European banks) and US banks. A bank like Bank of America which Paulson owns can go up while the Euro goes down. If Paulson was long European banks and short the Euro the criticism would make more sense. But the US banks seem to be far better capitalized nowadays, and have little exposure to European sovereign or bank debt as opposed to European banks.

Although, Keith’s prior record seems to be stellar; including a stint at Carlyle’s Blue Wave hedge fund  (where he was let off for his bearish views in 2007), his success pales in comparison to John Paulson’s.

 

 

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8 COMMENTS

  1. You spot on the 15 mins.. 

    The easiest and cost effective way of marketing himself and his firm is taking a cheap shot. And here we go, everybody is talking, writing about it :-)

  2. You spot on the 15 mins.. 

    The easiest and cost effective way of marketing himself and his firm is taking a cheap shot. And here we go, everybody is talking, writing about it :-)

  3. You spot on the 15 mins.. 

    The easiest and cost effective way of marketing himself and his firm is taking a cheap shot. And here we go, everybody is talking, writing about it :-)

  4. I know 100% levered long would be for example using margin. I dont know what this guy is saying, or what his point is. Maybe just trying to get his 15 minutes. Not sure mfs can take leverage.

  5. First of all, unless my math is way off, 100% long is not levered long; >100% long is.  80% long is a strong bullish bias, but I can imagine how certain fund accounting (swaps, otc derivatives, etc) could possibly alter that #.  Besides, mutual (and too many hedge) funds are basically levered long funds, where’s the criticism there?  For a stock picking type fund like Paulson % long/short really is irrelevant in and of itself, too.

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