Perhaps it is a sign of recovery and an intent to make big profits instead of playing it safe, but John Paulson and Warren Buffett plan to dump their bonds perhaps gradually, and purchase stocks. Part of the equation is the possibility that rising bond yields are just a bubble which will be temporarily impacted by a government policy known as quantitative easing.
In early November of this year the US government bought their second huge purchase of their own bonds. The purchase of up to $900 billion is predicted to help the economy considerably. Yields increased despite the measure, which has been nicknamed QE2 (quantitative easing 2). Some people including Warren Buffett and John Paulson believe this effect will be at least somewhat temporary. Warren Buffett seemed to believe however that the bubble would not burst but rather defuse, and that the dilutive effect of QU2 won’t be huge. Perhaps that is why he didn’t specifically use the word bubble, but rather inferred it.
It is well known that Warren Buffett prefers stocks to bonds and no wonder. He’s made most of his fortune with his tremendous stock savvy. Not everyone has the kind of instincts for stocks which Warren Buffett has. Selecting stocks and other investments are truly his forte. Warren Buffett stated specifically thought, “I think short-term and long-term bonds are a very poor investment at the present time.” Warren Buffett also said that the tax code would hit those making more a bit harder than those making a little less.
John Paulson also believes people should sell U.S. Government bonds. John Paulson especially underscored that other equities had earning yields of 7%-8% compared to the 2.6% pittance available on 10 year Treasury Bonds. John Paulson also went on to mention his own favorite blue-chip stocks. JNJ (Johnson & Johnson) is yielding 3.8% and PFE is yielding 4%. He also suggested KO (Coca Cola), C (Citigroup), BAC (BankofAmerica) STI (Suntrust Banks) and RF (Regions Financial)
John Paulson often purchases the distressed bonds of bankrupt companies, and then converts the debt into equity in reorganization. When K-Mart teetered on the edge of bankruptcy billionaire John Paulson bought up the stock at $10 a share only to see the stock skyrocket to $190 per share. John Paulson predicts a 2% growth in the GDP for 2011 and 2012. John Paulson also recommended real estate investments in the coming year, especially homes. “If you don’t own a home buy one. If you own one home, buy another.”
It would seem that both John Paulson and Warren Buffett feel that it is time to sell the US bonds. John Paulson even advised on which stocks to buy instead, and if you don’t feel lucky on stocks, real estate is certainly a sure thing this year. Warren Buffett also suggested to buy stocks but then he’s Warren Buffett. Warren Buffett started life as lower middle class, and today Warren Buffett is the richest individual in the world mostly because he bought good stocks.