Nassim Taleb makes big bet on inflation

Discussion in 'Wall St. News' started by turkeyneck, May 31, 2009.

  1. 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.

    Universa Investments LP is known for its ties to 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, gained more than 100% last year. Universa now runs about $6 billion, up from the $300 million it began with in January 2007.

    While inflation isn't unimaginable, Universa's bet is that rising prices will reach levels few expect as governments seek to goose their economies. 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.

    "We think these things are going to see massive volatility," Mr. Taleb said in an interview.

    The Black Swan Protection Protocol-Inflation fund will also bet against Treasury bonds, which tend to weaken in inflationary environments. Last week, Treasury yields shot to their highest level since November as prices fell on inflation concerns. Oil topped $66 a barrel. Gold is nearing $1,000 an ounce.

    Mr. Taleb doesn't have an ownership interest in the Santa Monica, Calif., firm, but he has significant investments in it and helps shape its strategies.

    The term "black swan" alludes to the once-widespread belief that all swans are white. The notion was proven false when European explorers discovered black swans in Australia. A black-swan event is something that is extreme and highly unexpected.

    As investors, Messrs. Spitznagel and Taleb have a mixed track record. They wound down their Empirica Capital fund in 2004 after years of lackluster returns.

    Also, some investors are worried not about inflation but about deflation and its effects were the economy to remain stalled.
  2. Interesting thanks for posting
  3. The main thing I don't like about the inflation trade is it's so obvious.

    Then again, GM bk was too.
  4. like most trades that seem too obvious...

  5. Going to party like its 1923...(germany)

    No doubt it will be quicker and worse than germany since so many more people are going to exacerbate it than they did in germany (yeah there were traders back then betting on hyperinflation too!)

    Look on some of these sites that sell gold/silver. They are backed up so far, they are posting that it will take up to 4 weeks for delivery.

    Whats going to happen when some billionaires decide to take delivery 1000s of contracts of gold/silver?

    More importantly...whats going to happen when the us government hyperinflates and finds that the only cure is to get back on the gold standard. They going to steal all the gold back AGAIN like in the 30s?
  6. I always felt like the inflation trade was what governments and wall street sold the public as a reason to invest in stocks.
  7. FYI. From the bits and pieces ive read around the net, nnt thinks that its either massive deflation or hyper inflation. my guess is thats whay universa is starting a new fund. one deflation one hyper inflation.
  8. Doesn't their predicting it mean that it's not a black swan, by definition?
  9. Im not betting against the sun coming up tomorrow morning, and i think this viewpoint is pretty crowded.
  10. So what is it, Mr. WSJ Journalist? Hyperinflation or 70s inflation? Just a "tiny" difference there.
    #10     Jun 1, 2009