There was just one problem. How do you actually bet against the housing market? You can't short a house. So to place his negative bet, Paulson uncovered securities that hotshot mortgage traders used as insurance. They went up in value if more people didn't pay their home loans.
Paulson was the first to place abnormally large bets on these so-called swaps. The rest of the story you know well by now. In 2006, one subprime lender admitted to illegal lending practices. In 2007, the housing bubble exploded and three months ago, this unknown investor from Queens surpassed George Soros by taking home the biggest one-year payday Wall Street had ever seen; $4 billion dollars.
That’s why we’ve named John Paulson Fast Money’s subprime savant superstar.
What's the trade?
Personal investors probably can't trade in his wake, however if you think he's smart money you can trade alongside Paulson in other areas, explains Pete Najarian. He currently holds large positions Kinross , Alcoa and Hercules.
> Subprime Savant: Jamie Dimon
> Subprime Savant: Bill Ackman
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Trader disclosure: On Apr.3, 2008, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Macke Owns (MSFT), (YHOO); Najarian Owns (XLF), (AAPL), (CSCO); Najarian Owns (MER) Puts; Najarian Owns (AA) Calls; Finerman Owns (GS), (NYX), (MO), (MSFT), (FNM), (VLO), (SUN), (TSO), (FNM); Finerman is Short (GLD)