I was in Manhattan last week attending Grant’s Fall Investment Conference. The U.N. General Assembly is meeting there, and the streets were blocked off in places. The NYPD was out in full force. I heard one passerby complain about the inconvenience of it all to one police officer. He responded, “Don’t blame the NYPD, blame the General Assembly.”

With the General Assembly in Manhattan and the G-20 in Pittsburgh, government has taken over the headlines this week. It seems half the world is mostly preoccupied with telling the other half what to do. No doubt, bossiness is in a bull market.

At Grant’s conference, I heard presentations on gold, the dollar, oil, real estate and more by a slate of luminaries, including John Paulson. Paulson is one of the best hedge fund managers in the world. There were many others, including Grant himself, who has created something of a stir lately.

Jim Grant, the host and editor of Grant’s Interest Rate Observer, has turned bullish on the recovery. In a Wall Street Journal piece on Saturday, the great bear turned in his claws and picked up the horns of a bull.

In a phrase, Grant’s thesis runs this way: The sharper the decline, the stronger the rebound. For this, he finds ample evidence in the historical record. The economy bounced back strongly after each sharp contraction — such as those in 1893-94, 1907-08, 1920-21 and 1929-31.

In the current recession, GDP (a rough measure of economic activity) contracted nearly 4% from peak to trough, which is a sharp recession as these things go. So, Grant reasons, the rebound will follow the historical pattern.

Grant loves to challenge the consensus. And the consensus this time around is that the recovery will be weak. I loved the quote he pulled from economist A.C. Pigou: “The error of optimism dies in the crisis, but in dying it gives birth to an error of pessimism. This new error is born not an infant, but a giant.”

Grant makes an eloquent and thoughtful case, as he always does. He goes on to conclude in his editorial: “The world is positioned for disappointment. But in economic and financial matters, the world rarely gets what it expects. Pigou had humanity’s number.”

I hope Grant is right. It is an appealing case, but I don’t buy it. Too many of the problems of the prior boom remain unresolved. There is still too much leverage and debt in the system. And on a more basic level, business is not good across a spectrum of sectors. The contraction is still ongoing. I’m inclined to remember the old bearish refrain that things are never so bad that they can’t get worse.

It’s All About Markets

It’s true we’ve had a sharp contraction, but there is no rule that says we can’t contract more. A nearly 4% decline in GDP could turn into an 8% contraction when all is said and done. The move from 4% to 8% would be painful, indeed. Even then, we would be a far cry from the dark woods of the Great Depression.

In some ways, the whole discussion is irrelevant anyway. As investors, we care about markets, and not GDP growth. There is a great fallacy out there that if the economy does well, stocks should do well (or if the economy does poorly, stocks should do poorly). Hence, too many so-called investors waste an inordinate amount of time talking about recovery, or lack thereof.

It’s possible that Grant is right: GDP does expand strongly. But investors could still lose. We have one glaring historical example: From 1964-1981, GDP grew 370%. And the sales of the Fortune 500 more than sextupled. Yet the Dow Jones industrial average went from 874 on Dec. 31, 1964 to 875 on Dec. 31, 1981.

As Warren Buffett once wrote: “Now, I’m known as a long-term investor and a patient guy, but that is not my idea of a big move.”

For investors, it is all about the price paid. The really relevant question is not one of whether or not the economic recovery is real. The question is: are stocks cheap enough? To answer that, you have to look at stocks and compare them with the alternatives.

My answer is some stocks are cheap and some are not. It is hard to generalize. In my view, investing is a craft of the specific. It is in the picking of the trees in which investing skills pay off the most, not in assessing the forest. There are, undoubtedly, specific stocks that will prove nice investments over the next few years. Finding them is what we are all about.

Sincerely,
Chris Mayer

Source: Are the Bears Turning Bullish?

It’s true; gold has become noticeably less unpopular during the last few months. It is still not as popular an investment as, say, AIG or the shares of almost any other incompetent financial institution. But some investors have actually begun to admit that they’ve purchased some gold.

A couple of the most conspicuous gold-buyers – the Chinese government and hedge fund manager, John Paulson – represent quintessential examples of the “new” gold buyer. This new type of buyer does not also buy ammunition, bottled water and Lynyrd Skynyrd tank tops. Nor does this new gold buyer spend Saturday nights sipping Gallo Hearty Burgundy in his La-Z-Boy, while flipping through binders full of Walking Liberty gold coins.

These new gold buyers do not LOVE gold nearly as much as they FEAR paper. But they are buying aggressively nonetheless…and leaving their tracks everywhere.

Earlier this year, for example, Paulson & Co., the hedge-fund firm run by billionaire John Paulson, became the largest holder of the SPDR Gold Trust (NYSE: GLD), an ETF that buys gold bullion. The New York-based firm owned 8.7 percent of the fund, as of March 31. Paulson has also taken very large stakes in several gold mining companies – in particular Gold Fields Ltd. (NYSE:GFI), Kinross Gold Corp. (NYSE:KGC) and AngloGold Ashanti Ltd. (NYSE:AU)

Paulson has lots of company among mom and pop investors who are allocating some of their capital to gold. As the nearby chart illustrates quite clearly, the SPDR Gold Trust ETF has been accumulating ever-rising quantities of gold bullion – all in response to investor demand.

Although this chart is a bit dated, the trend it illustrates remains firmly entrenched. As of September 21, this ETF controlled 1,563 tonnes of gold, making it the world’s fifth individual holder of gold. The Swiss central bank, by comparison, holds only a little more than 1,000 tonnes of gold.

Meanwhile, the Chinese doubled their official gold holdings last year, and have been making a lot of headlines with some very public gripes about the dollar. A couple weeks ago, Cheng Siwei, former vice chairman of the Standing Committee of the Chinese Communist Party, complained, “If [the Fed] keeps printing money to buy bonds, it will lead to inflation, and after a year or two, the dollar will fall hard. Most of our [Chinese] foreign reserves are in U.S. bonds and this is very difficult to change, so we will diversify incremental reserves into euros, yen and other currencies…Gold is definitely an alternative.”

No wonder rumors were running rampant last week that the 403 tonnes of gold the IMF is selling will land in a Chinese vault.

Interestingly, while investment demand for gold inexorably rises, mined production of gold inexorably declines. Apparently, the folks who coax this precious metal from the earth can’t coax as much of it as they might like.

According to Grant’s Interest Rate Observer (citing statistics from the World Gold Council), worldwide gold production has dipped over the last seven years. Gold production since 2002 has declined from 2,590 metric tons to 2,486 metric tons through June 30.

These divergent trends – demand up and supply down – do not guarantee a rising gold price, but they do suggest that a rising gold price may become the path of least resistance.

Obviously, substantial above-ground supplies of gold – in bank vaults, around fingers, in belly buttons, etc. – will find its way into the gold market if/as/when prices rise. Nevertheless, a powerful inflationary trend would produce enough investment demand for gold to easily absorb all sources of supply…and ALSO push the gold price higher.

“There is a growing distrust of paper currencies amid a deluge of massive government deficits since late 2008,” Roseman concludes. “The dollar might be the biggest drunk at the bar, but the euro and other currencies are also drinking their way to devaluation against gold.”

Source: The New Gold Buyer

It’s true; gold has become noticeably less unpopular during the last few months. It is still not as popular an investment as, say, AIG or the shares of almost any other incompetent financial institution. But some investors have actually begun to admit that they’ve purchased some gold.

A couple of the most conspicuous gold-buyers – the Chinese government and hedge fund manager, John Paulson – represent quintessential examples of the “new” gold buyer. This new type of buyer does not also buy ammunition, bottled water and Lynyrd Skynyrd tank tops. Nor does this new gold buyer spend Saturday nights sipping Gallo Hearty Burgundy in his La-Z-Boy, while flipping through binders full of Walking Liberty gold coins.

These new gold buyers do not LOVE gold nearly as much as they FEAR paper. But they are buying aggressively nonetheless…and leaving their tracks everywhere.

Earlier this year, for example, Paulson & Co., the hedge-fund firm run by billionaire John Paulson, became the largest holder of the SPDR Gold Trust (NYSE: GLD), an ETF that buys gold bullion. The New York-based firm owned 8.7 percent of the fund, as of March 31. Paulson has also taken very large stakes in several gold mining companies – in particular Gold Fields Ltd. (NYSE:GFI), Kinross Gold Corp. (NYSE:KGC) and AngloGold Ashanti Ltd. (NYSE:AU)

Paulson has lots of company among mom and pop investors who are allocating some of their capital to gold. As the nearby chart illustrates quite clearly, the SPDR Gold Trust ETF has been accumulating ever-rising quantities of gold bullion – all in response to investor demand.

Although this chart is a bit dated, the trend it illustrates remains firmly entrenched. As of September 21, this ETF controlled 1,563 tonnes of gold, making it the world’s fifth individual holder of gold. The Swiss central bank, by comparison, holds only a little more than 1,000 tonnes of gold.

Meanwhile, the Chinese doubled their official gold holdings last year, and have been making a lot of headlines with some very public gripes about the dollar. A couple weeks ago, Cheng Siwei, former vice chairman of the Standing Committee of the Chinese Communist Party, complained, “If [the Fed] keeps printing money to buy bonds, it will lead to inflation, and after a year or two, the dollar will fall hard. Most of our [Chinese] foreign reserves are in U.S. bonds and this is very difficult to change, so we will diversify incremental reserves into euros, yen and other currencies…Gold is definitely an alternative.”

No wonder rumors were running rampant last week that the 403 tonnes of gold the IMF is selling will land in a Chinese vault.

Interestingly, while investment demand for gold inexorably rises, mined production of gold inexorably declines. Apparently, the folks who coax this precious metal from the earth can’t coax as much of it as they might like.

According to Grant’s Interest Rate Observer (citing statistics from the World Gold Council), worldwide gold production has dipped over the last seven years. Gold production since 2002 has declined from 2,590 metric tons to 2,486 metric tons through June 30.

These divergent trends – demand up and supply down – do not guarantee a rising gold price, but they do suggest that a rising gold price may become the path of least resistance.

Obviously, substantial above-ground supplies of gold – in bank vaults, around fingers, in belly buttons, etc. – will find its way into the gold market if/as/when prices rise. Nevertheless, a powerful inflationary trend would produce enough investment demand for gold to easily absorb all sources of supply…and ALSO push the gold price higher.

“There is a growing distrust of paper currencies amid a deluge of massive government deficits since late 2008,” Roseman concludes. “The dollar might be the biggest drunk at the bar, but the euro and other currencies are also drinking their way to devaluation against gold.”

Source: The New Gold Buyer

Underground investor Christian DeHaemer says junior gold stocks are the ones to watch. In fact, he says this asset class will be “the number one asset class over the next two years.” This means that junior miners could make you more money than any other asset class in the near future. According to DeHaemer, there are several factors contributing to this play (most of which will be familiar to Notes readers).

For one thing, the US is creating more money than at any time in history in an effort to inflate the next bubble, save the banks, and extend the hand of government. Bloomberg has put the total bailout bill at $12.8 trillion, which is roughly this year’s annual GDP. The profligate spending by current and past administrations is well documented and ultimately must lead to inflation. What we are seeing now is the de facto definition of an inflation-generating machine. […]We have seen from the 1970s that hard assets perform better in a high inflation environment. Add to this a falling dollar, which is the other side of the same coin, and a flight away from paper currencies into gold, and you get a powerful long-term trend in real assets like oil and gold.

*** Christian says junior miners are a great way to play this scenario because they offer low risk and high reward…

Junior gold stocks didn’t fully participate in the rally that drove gold from $250 to $1,000 per ounce over the last seven years. But they absolutely got hammered in the commodity/credit bust of 2008. Many fell by 75% or more. And these are the top-tier, small companies with little or no debt and plenty of proven reserves. These are companies that were trading at market caps from $500 million to $1 billion a few years ago, that you can now buy in the $100 million range… in December I was able to pick up some of these small-cap gold companies for little more than the cash they had in the bank.

This kind of trade is for gutsy investors only. But here at Notes we reckon this could pay off big time.

P.S: James Davidson’s Crisis Strategy Alert portfolio continues to soar to new heights, without the risks of conventional investments. James has a nose for what he calls “investment outliers” — assets mispriced by crisis conditions. One “income outlier” he recently discovered allows ordinary citizens to pick up “tax rebate” (up to $781.33 a month). These monthly payouts are easy to set up. But you must act fast. The next check could arrive as soon as 4.00 EDT, Friday, June 12.

“Inflation is coming, inflation is coming.”

The world knows it. Even the guys at the switch – the Fed – can’t deny it.

Last week, Philadelphia Fed President Charles Plosser warned inflation could heat up much sooner than expected.

Here’s the problem. Everyone and their second cousin keep piling into the predictable hedge – investing in gold. The World Gold Council reports investment demand in the first quarter increased 248% to hit a record level.

Forget the contrarian implications. Such overcrowding, to an extent, means the profit pie will keep getting sliced up in smaller and smaller pieces. Moreover, when we get to the end of the inflation road, it implies the selloff will come fast and furious. I mean, look what happened last summer when the fire alarm sounded on oil. Prices collapsed 80% before anyone knew what hit them.

Here’s all I’m suggesting. If everyone’s clamoring for gold like they did last summer for oil, why not consider a road less travelled, especially if it promises equal, and possibly better, protection?

Yes. Such an investment exists. It’s art investing.

Art Investing: More Than Art for Art’s Sake

I crunched the data on gold, art and inflation since the end of the Bretton Woods system. For art, I used the Mei/Moses Fine Art Index, which tracks the prices of art based on repeat sales at auction, and captures 90% to 95% of the market.

Here’s what I found:

• Art’s correlation with inflation rivals gold’s.

• Since 1997 art actually tracked inflation a tad better than gold, sporting a 0.26 correlation versus 0.24. (Remember, correlations range from 1 to -1, with 1 meaning prices move perfectly in tandem.)

• And during the last bout of out-of-control inflation, from 1977 to 1982, art prices jumped a healthy 130%.

Now, I know what you’re thinking…

Art’s highly illiquid. Transaction, transportation and insurance costs can be excessive. Diversification can be difficult to achieve unless you’re a billionaire. And most problematic of all, many of us probably don’t know the difference between a Monet and a Manet!

The good news is you don’t have to let these obstacles stand in your way…

Enlist The Help Of Art Investing Professionals

You can enlist the help of art investing professionals:

• Like longtime friend of The Oxford Club, Mike Kuschmann, President of Fine Arts Limited in Winter Park, Florida.To get in touch with Mike, call Fine Arts Ltd. at 800.229.4322 or 407.702.6638, or email him at mkuschmann@cfl.rr.com and ask for his free brochure pack.
• Or renowned money manager and art expert, Debra Diamond, who I had the pleasure to speak with and hear present at this year’s Investment U Conference.

Both can provide you with personalized art advisory and even discuss the potential tax advantages of investing in art. (Hint: gold does not offer the same advantage.)

Of course, some of you might be looking for a quick, cheap, no hassle art fix. Thankfully, one exists.

Track the Mei/Moses Index By Owning Sotheby’s

It stands to reason we can track the performance of the Mei/Moses Index by owning the auction house, the company that will facilitate the sale of each piece of artwork that will eventually become the data for the index.

Well, only one trades on a U.S. exchange – Sotheby’s (NYSE: BID). Granted, the current fundamentals leave much to be desired. But that will change.

As inflation draws nearer I expect well-heeled investors to bolster their art collections, especially while prices are depressed. And as inflation cools, they’ll inevitably look to cash in on their hedges. In both instances, Sotheby’s stands to profit.

At the same time, I’m encouraged by the highly cyclical nature of this stock. As the GDP growth resumes – and it will eventually – history dictates the stock will, too. If you have any doubt, check out this chart:

No Perfect Hedge Against Inflation Exists…

The fact remains, no perfect hedge against inflation exists. Not one investment sports a correlation of one with inflation. So let me issue a word of caution – don’t invest in only one hedge.

Or more simply, don’t be a John Paulson.

The famed hedge fund manager who successfully predicted the subprime market collapse is piling into gold. Based on the latest SEC filings, his total position size in gold-related assets soared to 23.16%, or roughly $6 billion.

Let me assure you betting the farm, no matter how strong your conviction, leads to ruin, not riches, more often than not. Not to mention, once you lose it all, it’s hard to make it back.

Bottom line, inflation is coming. But that doesn’t mean you need to follow the narrow-mindedness of the herd into the most obvious and overcrowded hedge, gold. Instead, I recommend you diversify across the five options David and I have provided. And position size!!!

Good investing,

Lou Basenese

Source: The Inflation Hedge Nobody’s Talking About

David Einhorn, the hedge fund manager who predicted the downfall of Lehman Bros., recently bought gold for the first time. And then there is John Paulson, the guy who made billions of dollars by correctly anticipating the housing bust and credit crisis.

Paulson just plunked down $1.3 billion for an 11% stake in AngloGold (NYSE:AU). He’s also got a big position in Kinross Gold (NYSE:KGC).

Peter Munk, the 82-year-old chairman and founder of Barrick Gold, also offers up his own anecdote about gold’s broadening appeal. “I have had more phone calls in the past six months than ever before – from people who have $120,000 inherited from grandmother, and from hedge fund managers with millions,” he says. “I am not saying George Soros, but people of that caliber have told me they are buying gold.”

You no longer have to be a gold bug to think gold will rise in price. In fact, this buying by some of the world’s greatest investors may be the leading indicator for a quick 116% climb – to $2,000 per ounce or higher. Give gold the cold stare of a professional handicapper and the odds look very good, indeed.

Why? The biggest reason is that the value of the dollar looks about as brittle as a 90-year-old’s hip socket. And if you worry about the value of the dollar – or any paper currency – then gold is a good alternative.

In fact, gold has held up well while most everything else has taken a beating over the last year. On a recent conference call with investors, First Eagle fund manager Abhay Deshpande points out that gold is at a new high in just about every currency apart from the U.S. dollar and Japanese yen. “It has performed its job for everyone in these countries,” he says. “It has held its value.”

Take a look at the nearby chart and you can see the falloff of the dollar in recent years and the rise of gold.

“But there have always been worries about the value of the dollar,” you say. “That’s not new.” True. What is new is a global financial crisis unlike anything we’ve seen in the post-World War II era. And that crisis has brought with it serious doubts – the most serious in decades – about the dollar’s ability to keep its top perch in the aviary of world currencies. As that doubt increases, gold gathers new fans.

As I write, the headlines are abuzz with China’s proposal to replace the dollar as the world’s reserve currency. (The U.S. Treasury secretary, in a weak moment, said: “We are quite open to that.” He took back those words, but the hammer had already hit the nail.) China and other countries hold a lot of dollars. And they are not too happy to see the U.S. government handing out bills like after dinner mints. America’s $2 trillion (and ballooning) annual deficit and ballooning national debt causes them to wonder about the value of all the paper they hold.

They are not the only ones worried, as I noted up top. Many top investors are already buying gold.

It is easy to buy gold today with gold exchange-traded funds (ETFs). They are like mutual funds that hold gold. As investors pile into these ETFs, the ETFs’ gold holdings also go up. It’s one way to see the dramatic increase in demand for gold in just the last few quarters. (See chart below.)

So we have to ask: At $900 per ounce, are all the fears baked in or are we on some new history-making path?

I have a good friend who advises institutional clients on investing. As he reminds me, the really big money hasn’t started buying yet. There are no big pension funds or endowments with significant gold holdings. That could change. If so, the gold price will go wild.

“Gold is a small market,” Munk notes. Munk’s career spans 60 years and he knows the gold market as well as anyone. Says he:

“Let’s say a small percentage of the world’s central banks – or simply the United Arab Emirates itself – do not believe President Obama’s pledge that he will halve the U.S. deficit by the end of his first term. They shift some of their dollar reserves to gold. It would not take many decisions of this kind to push the price above $2,000 per ounce.”

That’s how gold gets to $2,000 per ounce – just a bit of doubt turning into action. The mind boggles at what would happen if China decided to hold more gold! Gold could well hit $5,000! As long as President Obama, Fed Chief Bernanke and pals treat the dollar like confetti, gold should continue to gather new fans. And gold stocks should do even better.

Gold stocks are supposed to do especially well as gold rises. But that has not been the case over the last year and a half. Mostly, this was because mining costs were rising as fast as, or faster than, the price of gold – thanks in part to record-high energy prices. But as Deshpande points out: “These things have reversed in recent months as gold stocks became quite cheap relative to the underlying value of the gold in the ground.”

The case for gold and gold shares is a nice and clean setup, like one of those toy houses in the window at Macy’s on Madison Avenue. The world order will not always hinge around the dollar. Global finance will not always find its center on Wall Street. As Munk pointed out: “Look around Davos this year. So Goldman Sachs (NYSE:GS) cancels its dinner party. In its place, a Kazakh company has a dinner party.”

As the dollar goes bust, who knows what will replace it? With gold, you don’t have to worry too much about the answer.

Source: How Gold Will Top $2,000 Per Ounce

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