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Academic

: Conglomerate

Are You Betting on Hyperinflation?

By Gordon Smith, Christine, Hurt, Vic Fleischer, Fred Tung, Lisa Fairfax, David Zaring

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If you aren't at least a little worried about inflation, you aren't paying attention. If you are a lot worried about inflation, join the so-called Black Swan Fund (Universa Investments L.P.) in placing your bet:

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.

By opening the inflation fund, 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.

So let's get the story straight ... Nassim Nicholas Taleb writes The Black Swan, and we all love the book. His "long-time collaborator," Mark Spitznagel, makes some bets against the market and gains big in 2008. Money from new investors starts flowing, and Spitznagel's funds go from $300 million in January 2007 to about $6 billion today. He starts looking for places to put that much money, and he lands on hyperinflation.

Do you see anything wrong with this story? We had an endearing expression for this sort of thing when I was growing up in Wisconsin, but I don't use that crass expression anymore. Let's just say that the Black Swan Fund looks to be doing things exactly backwards. Rather than allowing a great idea to drive financing, the Black Swan Fund is allowing the financing to drive the creation of a new idea. But the new idea they are betting on is supposed to be a black swan, which is, by definition, rare and unpredictable!

UPDATE: Someone else is skeptical of the Black Swan Fund.

Full post as published by Conglomerate on June 01, 2009 (boomark / email).