Taleb goes long inflation | FT Alphaville

Taleb goes long inflation

Here’s another one to add to the hyperinflation bandwagon: Nassim Nicholas Taleb, of Black Swan fame.

From the Wall Street Journal:

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. Earlier this year, Mr. Spitznagel closed several funds to new investors.

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’s bet on inflation means investing in commodities like crude oil, corn and copper, according to the WSJ, as well as options on stocks like oil drillers and gold miners. It also means, perhaps crucially, shorting US Treasuries at a time when the Fed is actively trying to boost their prices in a bid to stave off deflation. Going against the Fed is a brave call — but it’s one that would’ve paid off over the last week.

The point is that the inflation vs deflation debate currently taking place is polarising the world’s investors. Where you stand on that question will dictate your investment strategy for the next few months, in all likelihood, and place you in one of two diametrically-opposed camps.

And, ultimately, only one of those can be right.

Related links:
Marc Faber: Hyperinflation coming to the USA – FT Alphaville
Of bonds and stocks and the Weimar Republic – FT Alphaville