Paolo Pellegrini, before founding his own hedge fund PSQR was John Paulson’s right hand man at Paulson and Co. In a recent letter to shareholders he said that the structural problems that precipitated the Great Recession around the globe remain unresolved.
Making a long thesis short, he thinks we are essentially papering over the problems with more debt while China adds more exports to a saturated market. Thus far the massive stimulus has been successful in jumpstarting the global economy, but is nothing more than a temporary respite from the longer-term structural problems that remain.
So, Paolo Pellegrini’s favorite trades in 2010 are to short US fixed income, short US stocks, short the US Dollar and buy commodities.
In terms of equities Pellegrini says valuations are becoming stretched as organic growth fails to match expectations. He also believes higher taxes could ultimately be a net negative for equities.
He joins Jim Chanos and Marc Faber saying that China is one of the greatest risks to the recovery. He added, “I was in China late last year. One particularly enlightening meeting was with the top official of a major bank, who pointed to all the empty office buildings surrounding his own, observing that his country’s stimulus money would have been better spent paying people to stay home”
In the US, Pellegrini says that the end of the stimulus and the Fed’s programs will mark an economic top in Q1 2010 and set the stage for economic weakness in the latter half of 2010.
Related ETF`s: SPDR SP 500 (ETF) (SPY), ishares FTSE/Xinhua China 25 Index (ETF)(FXI), SPDR Gold Trust (ETF) (GLD)
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