SAN FRANCISCO (MarketWatch) -- John Paulson, the hedge-fund manager famous for betting against mortgage securities, is now bullish on the U.S. housing market and the economy.

During a conference call with investors Wednesday, Paulson said he was concerned earlier this year about a potential double-dip recession.

"I'm not concerned about that at all today," he said. It's more likely there could be a V-shaped recovery, Paulson elaborated.

House prices have stabilized and could climb 8% to 10% nationwide in 2011, he added.

Corporate earnings are coming in ahead of expectations, the stock market is stronger and there's a "vibrant" credit market. With the "final leg" of a rising housing market, "the outlook for 2011 could be very strong," Paulson said.

Paulson oversaw $32 billion in assets at the start of 2010, making it the third-largest hedge-fund firm in the world behind J.P. Morgan Chase & Co. JPM, +0.96% and Bridgewater Associates.

The firm grew quickly after it made billions of dollars betting against mortgage-related securities before the housing market collapsed in 2007. One of those bets was against parts of a Goldman Sachs collateralized debt obligation called Abacus 2007-AC1.

On Friday, the SEC charged Goldman Sachs Group Inc. GS, +2.12% with securities fraud, alleging it didn't tell investors in the CDO that Paulson helped structure the deal and was betting against it. Goldman has denied the allegations. Read the latest on the suit and Goldman's response.

Reuters

The SEC stressed on Friday that it didn't charge Paulson because the hedge-fund firm wasn't obligated to disclose potential conflicts to investors in the CDO. Paulson defended its role in the CDO during Wednesday's conference call. Check out story on Paulson addressing redemption concerns.

Covering shorts

Returns generated by Paulson's main Advantage hedge funds lagged some rivals in the first quarter. Paulson said Wednesday that this was because the firm kept its net exposure to the market low. This means negative bets, known as short positions, were relatively high compared to positive, or long, positions.

Paulson added he was concerned about a potential double-dip recession and a possible default by a Southern European nation. "I'm currently much less concerned that either those two issues will happen."

Greece's problems are much better understood now and are being dealt with, he commented.

Paulson & Co. covered, or closed, many of its short positions recently and that showed up in stronger returns in April, the fund manager noted. The firm has been "much more aggressive" in positioning its Advantage funds to "participate in a stronger economic recovery," Paulson said.

Housing outlook

Paulson also cited signs of stabilization in the housing market, pointing out that prices have stopped falling. California, which was first to suffer during the housing collapse, also has been the first market to recover, he said.

Prices in California stopped falling more than six months ago, and the latest data show prices up between 8% and 10%. Nationwide house prices will likely follow suit, climbing 8% to 10% in 2011, according to Paulson.

'Voracious'

Paulson also was bullish about credit markets and said he isn't worried about the massive amount of corporate debt that needs to be refinanced in the next three years or so.

"That is a concern to some investors. It's not at all a concern to me," he said. "There's so much demand for debt."

Whenever debt matures, lenders get cash back that has to be redeployed and that drives demand, he explained.

There's a "voracious appetite for credit," Paulson commented, noting that offerings are "vastly" oversubscribed.

Inflation and gold

One investor on the conference call asked Paulson if the firm's views on inflation and its large gold positions have changed recently.

Paulson was recently the largest investor in the SPDR Gold Trust GLD, -0.60% and owns big stakes in at least one gold mining company. Check out MarketWatch special report on the new gold bugs.

He also set up a hedge fund dedicated to gold trading at the start of this year. But the fund lost 14% in its first month as gold prices languished, Bloomberg News reported earlier this year.

Paulson said Wednesday that the firm still expects inflation in coming years and hasn't changed its position on gold, which is seen as a good hedge against strong inflation.

Through quantitative monetary easing, the U.S. government has increased the monetary base by roughly 150% since before Lehman Brothers Holdings Inc. LEHMQ collapsed, Paulson said.

Excessive growth in the monetary base over real economic growth creates inflation, he argued. "Unless this can be removed, it's likely to find its way into the money supply and hence inflation. We haven't changed our view."

Inflation will take a while to develop, but in three to seven years, Paulson added, he expects to see higher rates of inflation.

For the money supply to expand, there has to be economic growth and banks have to expand their assets while unemployment falls, Paulson noted. "But that's what's happening now. I wouldn't be surprised to start seeing signs of money-supply growth in coming months."