In 2008, his fund returned 37%  – in a year where the typical hedge fund lost 19%.

Since last September, Paulson earned nearly $420 million shorting the stocks of some U.K.-based bank stocks – specifically Lloyds Banking Group PLC (ADR: LYG), and the former HBOS PLC (which Lloyds absorbed in January).

Paulson clearly does his homework, and now he’s turned his attention to gold.

In a recent move that garnered much industry attention, Paulson acquired an 11.3% stake in AngloGold Ashanti Ltd. (ADR: AU). At $32 per share, that acquisition set him back a cool $1.28 billion. British mining giant Anglo American PLC (ADR: AAUK) was the beneficiary of Paulson’s acquisitiveness, for it sold Paulson the AngloGold shares from its own stake in that company.

So let’s think about this for a moment. A single transaction shifted a significant portion of ownership, and more than $1 billion in cash, strictly between two parties:  No banks and no stock markets took part in the deal.

Besides his 11.3% stake in AngloGold (the world’s fifth-largest gold miner by market cap), Paulson also owns 4.1% of Kinross Gold Corp. (KGC), making him that gold company’s fourth-largest shareholder.

It seems this prescient investor is in good company, too.  David Einhorn, founder of Greenlight Capital Inc., with $5 billion in assets, also began buying gold earlier this year – for the very first time.

Noted value investor Jean-Marie Eveillard holds $1 billion in a vault near Times Square as “calamity insurance.” What’s more, as much as 8% of his First Eagle Global Fund is comprised of bullion and gold miners’ shares.

In the case of Paulson, the billionaire hedge-fund investor, his exceptional skill lies in his ability to foresee extreme financial episodes. From there, he decides how to position his funds to benefit from a likely outcome.

And that’s why we should all pay close attention to his most recent actions.

The very day after Paulson’s acquisition of AngloGold, the U.S. Federal Reserve announced that it would buy back a total $1.25 trillion of long-term Treasury bonds and Fannie Mae (FNM) and Freddie Mac (FRE) mortgage junk. That is essentially a monetization of the debt.  And that’s a red-carpet invitation for inflationary times (which is also the best time to play gold).

Pure coincidence? Maybe. But it’s a lot more likely that one of the savviest investors of our recent era is really onto something.

Source: If You Follow the (Smart) Money, Gold is Clearly the Smart Play

Paulson’s New York-based hedge fund, Paulson & Co., manages about $28 billion.

They have been doing so well that he out-earned long-time hedge fund king, George Soros, last year. Soros ranked second in the 2007 hedge fund earnings league with a measly $2.9 billion.

Paulson pulled it off by acting on a hunch that U.S. property prices were overvalued since early 2006.

So, his fund took positions in esoteric mortgage-related instruments such as credit default swaps and collateralised debt obligations to profit when the property bubble burst.

And now they have cashed-in massively.

His Credit Opportunities Fund, through which many of the deals were structured, delivered a whopping 590% return last year!

That’s the kind of performance for which rich investors pay millions in fees. But as I’m about to show you, you needn’t pay any fees at all!

A huge opportunity is opening-up

You see, Paulson isn’t a one-hit wonder. He started his firm in 1994 and his real speciality is focussing on the debt of distressed companies and securities of firms going through mergers and restructurings.

His merger fund gained 52% last year.

So, you can almost see the chaps at Paulson & Co. rubbing their hands in glee at the opportunities opening up as the credit crunch continues to wreak havoc across the business world.

The credit crunch has already caused $324 billion of losses and write-downs. And it left the banks saddled with $230 billion of loans.

Banks have been desperate to sell those loans to raise the funds that they need for their operations. The only way that they have been able to do that is to sell them at a steep discount.

They now say that they’ve managed to cut the backlog of loans to about $93 billion since August. But they’ve had to sell their loans for as little as 63 cents on the dollar to do that.

The upshot: There’s a ton of money to be made from buying good loans on the cheap. But you have to have ready money to do that.

One company has money in abundance…

One of the main reasons we at Profit Hunter are invested in this play is because we believe the ongoing financial turmoil in the West will give the Gulf merchant bank a chance to snap-up undervalued Western assets with its access to the Gulf’s vast petrodollar reserves.

And that’s exactly what we are seeing right now. We’d love to send you all the details of this potential explosive investment.

This canny merchant bank already manages more than $15 billion in funds. It’s now setting-up a multimillion-dollar fund to buy distressed loans and bonds. And John Paulson is going to help invest it.

It will raise money for the fund from its deep-pocketed clients and invest in through partner companies, including Paulson & Co.

The latest fund is a perfect example of what we at Profit Hunter love about this company. Its access to the Gulf’s vast pool of petrodollars gives it all the funds that it needs to take advantage of the opportunities being created by the credit crunch.

About 80% of their clients are high net-worth individuals and companies from the Persian Gulf. As long as the petrodollar boom continues, this company remains a brilliant investment.

And that means there’s plenty of room for further gains to come…

The petrodollar story isn’t over

You see, even if the price of oil falls significantly – say even to $70 per barrel – the amount of money flowing into the Gulf would be colossal.

At $70 per barrel, McKinsey estimates that the oil exporting countries would have so much excess cash on hand that they will acquire $6.9 trillion of foreign assets by 2012. But the chances of us ever seeing $70 oil again for a prolonged period don’t seem very high to me!

So, there are going to be plenty of petrodollars for this brilliant little compnay to keep hoovering up to invest in undervalued Western assets.

Most of the Gulf States set their budgets based on an estimated oil price of about $40-$50, so there is an ample cushion for economic growth in the region. That’s good news for this firm’s Gulf investment fund as well.

Goldman Sachs’s latest estimate is for the price of oil to be $141 per barrel in the second half of this year. And Goldman and OPEC both see $200 oil over the medium-term as a very real possibility.

But prices are obviously volatile and there are too many unknowns out there.

That’s why I believe this is the single best way to profit from the tide of petrodollars that are going to keep flowing to the Gulf without actually going for a direct oil play.

You can get all the details here.

Regards,

Manraaj Singh
Editor
Profit Hunter

Source: How to Invest With the World’s Greatest Hedge Fund Manager