Financials Surge After Paulson Buys

by The Investment U Research Team

After positive comments by the Federal Reserve and Ben Bernanke, Wall Street marched even higher yesterday before profit taking set in, blunting some of those gains. What made news in the aftermarket was John Paulson’s second quarter holdings statement.

It showed that Paulson & Co. had loaded up on Bank of America (NYSE: BAC) – buying 168 million shares valued at $2.2 billion – and other financial stocks like Goldman Sachs (NYSE: GS) and Marshall & Ilsley (NYSE: MI)

Making this disclosure more interesting is that fact that John Paulson was famously bearish for 2008 and reported to make more than $2.5 billion from his stance. These are huge bullish bets that the markets are taking notice of.

Last night and this morning during after hours trading the tickers for most of the financial sector came alive and more than a few companies added a point or two. It is expected that this trend should continue into today as the Street digests this data.

However, in all of the excitement, it seems to have pulled attention away from the larger question of whether the market has overextended itself over the past few months. The short answer seems to be no.

But – and there’s always a but – the farther and faster the market races upwards the louder and more convincing a pullback becomes. Perhaps making one inevitable.

Another thing to remember, is that Paulson owned these at the end of the second quarter (June 30), and he could have liquidated much of these holdings – or could be in the process of doing so now.

Symbols mentioned in this article: BAC, GS and MI.

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