Taleb bets on big inflation
From Scott Patterson in the WSJ...
A hedge fund firm that reaped huge rewards betting against the market last year is about to open a fund premised on another wager: that the massive stimulus efforts of global governments will lead to hyperinflation.
The firm, Universa Investments L.P., is known for its ties to gloomy investor Nassim Nicholas Taleb, author of the 2007 bestseller "The Black Swan," which describes the impact of extreme events on the world and financial markets....
Funds run by Universa, which is managed and owned by Mr. Taleb's long-time collaborator Mark Spitznagel, last year gained more than 100% thanks to its bearish bets. Universa now runs about $6 billion, up from the $300 million it began with in January 2007...Unlike last year's sudden market implosion, inflation isn't an unimaginable event that few currently anticipate. In fact, many fear inflation right now amid government efforts to goose the economy. Universa's bet, however, is that inflation will reach levels few expect....
Universa is trying to capitalize on a wave of investor demand for its products, which when they're right can protect investors from extreme market moves.
The new strategy, designed by Mr. Spitznagel, aims to post big gains if inflation and interest rates take off as they did in the 1970s. Universa will invest in options tied to commodities such as corn, crude oil and copper, as well as options on stocks such as oil drillers and gold miners....
The fund will also bet against Treasury bonds, which tend to weaken in inflationary environments....The term "black swan," which has become a market catchphrase in the last few years, alludes to the once-widespread belief in the West that all swans are white. The notion was proven false when European explorers discovered black swans in Australia. A black-swan event, according to Mr. Taleb, is something that is extreme and highly unexpected....
As investors, Messrs. Spitznagel and Taleb have a mixed track record. The two managers wound down their Empirica Capital fund in 2004 after several years of lackluster returns...
posted by Eric Schansberg @ 4:25 PM
3 Comments
3 Comments:
So Eric,
You finally posted something on the H-Word!! :)
I've been somewhat concerned about it since March(?) when the Fed announced they were going to be buying 1.2 trillion $$ of U.S. Govt debt - when they ain't got no money.
Even if it doesn't go "hyper", double digit will be bad enough and I seriously doubt they will be able to shut it down.
The situation is much more constrained today than with Voelcker in the early 80's - and he had to push rates up to 21%(?) to induce a slowdown which resulted in 10% unemployment.
Do you see the Obama/Geithner duo moving toward any such fiscal discipline?
Seems like the thing to do is
Get Ready Just In Case.
This is my take on things - maybe someone else can post a reason to be optimistic.
A little bit of clarification:
Volcker-- and previous Fed chairmen-- chose to allow inflation to increase, resulting in higher interest rates. Then, to tighten the money supply, they may have further increased interest rates in the short-term.
I don't see Obama/Geithner easily moving to fiscal discipline. Events may dictate that they get there, kicking and screaming.
Everything you just said - that's what I meant! :-)
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