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

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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).

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:


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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