By Laurence Fletcher
MONACO, June 18 The credit crisis is not over,
and losses in the financial sector are set to be around $1.3
trillion, according to star hedge fund manager John Paulson, who
says he remains short credit.
In its twice-yearly report in April, the International
Monetary Fund had said total potential losses on both subprime
and other loans as a result of the credit crisis could reach
Paulson, who earned $3.7 billion in 2007 according to Alpha
Magazine by going short the subprime sector during the U.S.
mortgage meltdown, also said a deterioration in consumer
spending was set to drive the U.S. economy into recession this
"I don't think we're through the credit crisis. There are
lots of problems out there, and I think we'll continue to
experience problems for the remainder of the year," he told the
GAIM International 2008 hedge fund conference in Monaco.
"I believe we're going to go into recession, I think the
second half (of the year) will be worse than the first half, and
I think the recession will last into 2009 ... The primary factor
leading to recession will be a decline in consumer spending, and
I believe that will be more pronounced in the coming months."
Paulson said his funds maintain a short credit bias, and
said he was short financial stocks likely to have to raise
further capital and had bought protection against default on
debt payments on these companies.
Shorting means betting on a lower price for a security in
He also said his funds had minimum exposure to equity
markets because of a likely recession and that it was too early
to start distressed debt investing, though a huge opportunity
would eventually emerge.
"I do think, long-term, distressed presents an opportunity
that is as much as $10 trillion. That is a reflection of how
much the credit markets were overvalued on the upside."
(Editing by Will Waterman)