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'Big Short' Paulson Goes Long Big

John Paulson, the hedge fund manager who reaped billions from the infamous ‘Big Short” against the subprime housing market and the American financial system, is now increasing his bet on their recovery, according to recent filings.

The manager of $29 billion at New-York based Paulson & Co. added to his Bank of America stake last quarter, bringing his total holdings in the TARP recipient to 168 million shares. He also increased his stake in Hartford Financial, the insurance firm whose exposure to AIG and Lehman Brothers caused its shares to plummet during the credit crisis, from about 3 million shares to more than 12 million. The hedge fund manager, who counts Citigroup among his three biggest holdings, even bought a new stake in a homebuilder, picking up 5 million shares of Atlanta-based Beazer Homes.

“Once again he’s going for the biggest bang for his buck by betting on areas that people hate,” said Pete Najarian, co-founder of OptionMonster.com and a ‘Fast Money’ trader. “The guy is betting on the big beta stuff.”

Shares of the companies jumped today on Paulson’s 13-F disclosure last night and after government data showed housing starts jumped to their highest annual rate since Oct. 2008. Banking shares, as measured by the Financial Select SPDR ETF, have led the stock market’s sell-off from its April highs in part because of recent comments from analysts like Meredith Whitney, who see new regulation restricting the group’s earnings growth.

Goldman Sachs has fueled the fall in financials after the SEC said it was investigating the firm for fraud in relation to a mortgage derivatives trade in which Paulson took a short position. The SEC has not accused him of any wrongdoing in the deal.

‘The Big Short’ is a phrase characterizing the investment made by a smart few against the subprime housing market. It has been popularized by Michael Lewis’ recent best seller of the same name, as well as by an e-mail from Goldman’s CFO David Viniar released during heated Congressional questioning last month.

Dissecting Paulson’s filings further, it seems he is applying a riskier investment approach outside of financials as well, buying new positions in MGM Mirage and Boyd Gaming. The SEC filings reflect positions as of March 31.

“His involvement in this sector appears to be a new direction for him although it is not a huge part of his book,” wrote Michael Block, chief equities strategist for Phoenix Partners Group, in a note to clients. “There will be much speculation as to what Paulson is doing in gaming. Is this a takeover play? Is this a high beta leverage play on gaming/leisure/real estate? Is this a relative value play against other names?”

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And in a seemingly contradictory move, Paulson continued to add to his positions in gold miners AngloGold and Kinross Gold. Almost a third of his reported holdings are gold ETFs or miners, according to Block. With gold seen as a safety play, traders are trying to figure out the scenario Paulson envisions where banks, casinos and gold all go higher at the same time.

“The miners position is consistent with a bullish view on the global economy,” said Tim Seymour, founder of Emerging Money and a ‘Fast Money’ trader. “The miners have typically not done well during the ‘run for cover’ bullion trade.”

Despite arguably making more money than anyone else in the world by betting early against the housing market collapse, some strategists and investors are on the fence about following Paulson this time.

“History says guys that make a killing in a one-directional trade like he did with subprime in 2008 typically don’t have a second encore as big,” said Gary Kaminsky, who used to manage $13 billion for Neuberger Berman and is now a contributing editor for CNBC. “Think of all the tech gurus who disappeared after 2003.”

For the best market insight, catch 'Fast Money' each night at 5pm ET on CNBC.

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