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Writedowns May Reach $1.3 Trillion

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Solar Guy
User ID: 280175
6/18/2008 12:13 PM

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Writedowns May Reach $1.3 Trillion

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Paulson & Co. Says Writedowns May Reach $1.3 Trillion (Update3)

By Tom Cahill and Poppy Trowbridge

June 18 (Bloomberg) -- John Paulson, founder of the hedge fund company Paulson & Co., said global writedowns and losses from the credit crisis may reach $1.3 trillion, exceeding the International Monetary Fund's $945 billion estimate.

``We're only about a third of the way through the writedowns,'' Paulson, 52, told the GAIM International hedge fund conference in Monaco today. ``There are a lot of problems out there and it will continue to be felt through the year. We don't see any signs of stabilizing.''

Paulson, whose New York-based company manages about $33 billion, made bets last year that subprime-mortgage debt would fall after he noticed ``bubble like'' prices. His Paulson Partners fund rose 18 percent a year since it started in 1994, and his main subprime-debt fund rose 591 percent last year. Banks and securities firm worldwide posted more than $395 billion in losses and writedowns since the subprime crisis started last year.

The U.S. is heading into a recession as falling home prices weigh on consumer spending, Paulson said. The second half of this year will be worse than the first as the economic slowdown spills into 2009. Signs of stress are ``accelerating'' in the housing market, and he's betting on falling securities prices, he said.

``I don't consider myself a bull or a bear,'' he told the audience at Monaco's Grimaldi Forum. ``I'm a realist.''

A Royal Bank of Scotland Group Plc strategist agrees that stock and credit markets still face the worst in a slump that started almost eight months ago.

`Most Bearish Period'

``Mid-July through to October is likely to be the most bearish period we will experience in the bear market that began in the fourth quarter of last year,'' Bob Janjuah, a credit strategist at the bank in London, wrote in a report dated June 11.

The MSCI World Index has lost 13 percent since a reaching a record in October. The index is down 4.1 percent this month after the Federal Reserve and the European Central Bank policy makers indicated interest rates may need to increase as the threat of inflation intensifies.

The economic slowdown and inflation have put central bankers ``into a dangerous corner'' where the chance of a ``major policy error has just super-spiked,'' Janjuah wrote.

Ambac Financial Group Inc., the second-biggest bond insurer, is ``the most leveraged, troubled company out there,'' Paulson said. It's at risk of being downgraded to non-investment grade, he said. Ambac spokeswoman Vandana Sharma declined to comment.

Ambac shares have lost 92 percent of their value this year after losses on subprime mortgage securities caused the company to lose its AAA credit rating at Fitch Ratings.

`Deteriorate Significantly'

The housing and credit-market slump pushed Ambac to three straight quarterly losses after more than a decade of profit. It has written down $5.2 billion since the collapse of the U.S. subprime mortgage market last year.

Paulson's outlook is consistent with the view of hedge funds meeting in Monaco this week. More than 80 percent of the 1,300 fund managers, investors and service providers gathered in Monaco for the annual conference said they expect the credit crisis will continue, according to a GAIM survey. About 23 percent said the situation ``will deteriorate significantly.''

Bill Browder, founder and head of Hermitage Capital Management, said securities firms have a ``vested interest'' in claiming an early end to the crunch. ``If we're in the seventh or eighth inning, this is a 100-inning game,'' he said.

`$10 Trillion Opportunity'

Paulson's speech was the biggest draw at the event, which comes as the hedge fund industry endures some of its worst performance in nearly two decades, rising just 0.13 percent through May, according to Chicago-based Hedge Fund Research Inc.

``John Paulson has of course been very successful by making the right trade last year,'' said Manuel Echeverria, chief investment officer of Optimal Investment Services SA, a Geneva based investor with about $10 billion under management. ``We'll have to see what he's going to do now that the trade has run out of juice.''

Paulson said he's preparing to buy distressed securities such as bank loans, call them a ``potentially $10 trillion opportunity.'' While it is still ``premature'' to invest in many of them, he sees ``opportunities this year'' to buy mortgage backed debt, he said.

He hired employees this year to research securities firms such as Citigroup Inc. for long-term investment positions. ``We're trying to see the right entrance point,'' he said. ``If you invest too early, you lose money.''

To contact the reporter for this story: Poppy Trowbridge in London at ptrowbridge@bloomberg.net

Last Updated: June 18, 2008 12:01 EDT

Anonymous Coward
User ID: 431830
6/18/2008 12:18 PM

Re: Writedowns May Reach $1.3 Trillion	Quote
What do you get when you loan lowlife D-Bags your money? The shaft. The rest of us who didn't borrow out of our league and actually have the mentality to save for shit we want will be left holding the bag. If this site wasn't a cover I'd tell you all what I'm doing to hedge my bets... but alas...

Anonymous Coward
User ID: 381742
6/18/2008 1:15 PM

Re: Writedowns May Reach $1.3 Trillion	Quote
What do you get when you loan lowlife D-Bags your money? The shaft. The rest of us who didn't borrow out of our league and actually have the mentality to save for shit we want will be left holding the bag. If this site wasn't a cover I'd tell you all what I'm doing to hedge my bets... but alas... Quoting: Anonymous Coward 431830 I agree. You don't build wealth by borrowing money.

Old Trader
User ID: 459715
6/28/2008 12:54 PM

Re: Writedowns May Reach $1.3 Trillion

Quote

My original projection from over a year ago (which I posted here among other places) was $1.5 trillin in actual losses for institutions on the paper they held, NOT counting losses in value on tangible assets held by property owners/investors/pension funds etc. that were NOT required to be sold immediately. Those UNrecognized losses will probably exceed the amount of the recognized losses, maybe even by a factor of 2!!

What you are seeing with this is a "REVERSE WEALTH EFFECT", a downward spiral in fact. A downward spiral that keeps reinforcing itself to the down side as multiple asset classes take value hits and causes not only a direct cutback in consumer spending behavior, but also creates a consumer attitude of NOT spending even if they have the money to spent.

Economics is BORING to most people ... but those very same people certainly love the stuff that economics brings to them: nice houses to live in, vehicles to drive, heat in the winter time, cooling air in summer time, recreational opportunities galore. In the not too distant past the average person had little of those listed items since virtually all their income went to just keep food in their bellies and the roof of a shack, if that, over their heads.

A HUGE amount of phantom "wealth" is about to disappear from people's balance sheets. Many Pension Funds are going to lose so much money that people's retirements will be effected (they may actually have to WORK when they are older ... SHADES of all of human history up until the 1950's!!).

Old Trader

Anonymous Coward
User ID: 458022
6/28/2008 1:38 PM

Re: Writedowns May Reach $1.3 Trillion	Quote
well my write down is not6 yet complets,its pending.

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