John Paulson shorts German government debt - his funds may be better served shorting french , spanish and italian debt ....

http://www.cnbc.com/id/47083208

John Paulson, the billionaire hedge fund manager who foresaw the collapse of the US housing market, is shorting German government bonds in a wager that the euro zone debt crisis will significantly deepen in the coming months.

Tim Sloan | AFP | Getty Images John Alfred Paulson, president of Paulson & Co.

Mr. Paulson told investors in a call on Monday that he was betting against the creditworthiness of Germany, regarded in markets as among the safest sovereign borrowers, because he saw the problems affecting the euro zone deterioratingseverely, said a person familiar with Mr. Paulson’s strategy.

The 56-year old hedge fund manager, who oversees $24 billion at his New York-based firm Paulson & Co, believes that problems for the Spanish government will spill over to threaten the stability of the euro zone as a whole.

While Spanish bond yields this week rose to multi-month highs above 6 percent, German 10-year Bunds yields have recently traded as low as 1.66 percent, within a whisker of record lows.

Mr. Paulson’s position, which includes holdings of credit default swaps written on German debt, has been in place for several months.

A spokesperson for Paulson & Co declined to comment.

Broad details of the positions came as part of a quarterly call to reassure investors of his funds’ recent progress, according to a client of the firm.

Many Paulson & Co clients were rattled last year by steep losses across Mr. Paulson’s range of funds. His flagship Advantage plus fund dropped 51 percent in value, wiping out billions of investors’ money.

Mr. Paulson said the firm had instituted new risk management measures, including committees to meet regularly and discuss exposures, to help improve its management of money in the future.

In spite of 2011’s losses, Mr. Paulson’s longer-term track record is still among the best in the $2 trillion hedge fund  industry.

Paulson & Co has been closely watching Spanish banks for many months now, and was initially rumored to be a potential buyer of stakes in several.

Analysts at the hedge fund firm have noted the rise in borrowing from Spanish lenders from the European Central Bank  this year, as well as questions over the Spanish government’s resolve to tackle its fiscal difficulties.

Mr. Paulson’s bearish view is shared by the head of world’s largest hedge fund manager, Ray Dalio, whose Bridgewater Associates recently issued a note to clients saying that Spain was worse off than it was last year.

Mr. Dalio believes more government debt restructurings, such as that experienced by Greece, will need to be instigated for European sovereign borrowers.

and.....

http://ftalphaville.ft.com/blog/2012/04/18/965181/a-gratuitous-post-on-france/

A gratuitous post on France

Posted by Paul Murphy on Apr 18 10:17.

Just in case anyone thought we’d gone soft on Sarko…

From Andrew Garthwaite at Credit Suisse on Wednesday:

Heading into the election, we have the following concerns about the French economy:

- Limited de-regulation and corporate tax reform. Under President Sarkozy, France has one of the worst records in Europe on deregulation. This is unlikely to change, especially as the extreme left seem to be gaining popularity in the opinion polls. Additionally, the corporate tax take is expected to rise (especially for banks);

- Labour costs are the highest among the large Euro-area economies. The non-wage costs of employment are also double those in Germany – and since 2000 unit labour costs have risen by 20% relative to those in Germany. Hollande has few policies to address this.

- France is the second most closed economy in the Euro-area after Greece, and thus benefits less from a weaker euro or a global upturn.

- Many of the French debt dynamics are more akin to peripheral economies than core. The primary budget deficit is 3.4% of GDP, the current account deficit is 2% of GDP and net foreign debt is 11% of GDP.

- We agree with Credit Suisse interest rate strategists who expect the OAT/Bund spread to rise to 150bp (from the current 125bp).

- We would underweight domestic France: it is slightly expensive on P/E relative, underperforms when the OAT/Bund spread rises – and government spending is high, at 56% of GDP, and, when more people rely on it than not, it’s harder to cut. Eiffage, GDF Suez, Carrefour are all expensive on HOLT®.

More in the usual place.