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The 5 Black Swans That Keep Dylan Grice Up At Night... And How To Hedge Against Them All

Tyler Durden's picture




 

With all the hoopla over Egypt some have forgotten that this is merely a geopolitical event (one of those that absolutely nobody, with a few exceptions, was talking about less a month ago, so in many ways this is a mainstream media black swan which once again exposes the entire punditry for the pseudo-sophist hacks they are), and that the actual mines embedded within the financial system continue to float just below the surface. Below we present the five key fat tail concerns that keep SocGen strategist Dylan Grice up at night, which happen to be: i) long-term deflation, ii) a bond market blow-up, iii) a Chinese hard-landing, iv) an inflation pick-up, and v) an Emerging Markets bubble. Far more importantly, Grice provides the most comprehensive basket of trades to put on as a hedge against all five of these, while also pocketing a premium associated with simple market beta in a world in which the Central Banks continue to successfully defy gravity and economic cycles. For all those who continue to trade as brainless lemmings, seeking comfort in numbers, no matter how wrong the "numbers" of the groupthink herd are, we urge you to establish at least some of the recommended trades in advance of what will inevitably be a greater crash than anything the markets experienced during the depths of the 2008 near-cataclysm.

But before we get into the meat of the piece, we were delighted to find that Zero Hedge is not the only entity that believes that providing traditional annual forward looking forecasts is nothing more than an exercise in vanity (and more oftan than usual, error).

At this time of the year we’re supposed to give our predictions for what’s in store for the year ahead. The problem is I don’t have any. Not because making forecasts is difficult. It isn’t. It’s just pointless. Instead, I suggest getting in touch with our inner Kevin Keegan, the hapless former England football manager who, facing the sack after a bad run of results famously lamented “I know what’s around the corner, I just don’t know where the corner is.” The more people construct portfolios on the assumption that they can see the future, the greater the opportunity for those building portfolios which are robust to the reality that we can’t.

That said, no matter how ridiculous the act of Oracular vanity ends up being, those who charge an arm and a leg for their "financial services" continue to do it, only to be among the first carted out head first when reality is imposed upon them and their blind belief that this time is different and the crowd is actually right. Few are willing to accept and recognize the humility that they really know little if anything about how a non-linear, chaotic system evolves. Which is once again why we believe that Grice is among the best strategists out there: in his attempt to hedge the stupidity of the crowd, he has coined a term that may well be the term that defines 21st century finance and economics: instead of foresight, Grice believes the far more correct term to explain the process of prognostication should be one based on foreblindness.

In financial markets, craziness creates opportunity. It affects only prices, not values. And one of the craziest afflictions I know of is our faith in our ability to see the future. Indeed, there isn’t even an appropriate opposite to the word "foresight" in the English language. So I'm going to make one up. And rather than build a portfolio based on the pretence we have foresight, let's explore some ideas for building one that is robust to our foreblindness.

This is the kind of insight that one will never find from a TBTF "strategist"... And one wonders where all those softdollars go.

So now that we know that unlike the traditional cadre of sell side idiots who are always wrong in the long-run, Grice actually admits that he has no clue what will happen, which is precisely the reason to listen far more carefully to what he has to say. 

Let's dig in:

Here are some things I think are true:

  • developed economy governments are insolvent
  • Japan is the highest risk developed market (DM) to an inflation crisis (though it might be Greece)
  • there is too much debt around
  • China’s economic model is biased towards misallocating resources
  • every country which has industrialized has experienced nasty bumps on the way
  • China and the US are in the early stages of an arms race
  • demographic trends suggest more conflict in the oil rich regions of the world
  • bottlenecks are developing in key commodity markets
  • the only thing central banks are good at is blowing the bubbles that cause the crashes which are used to justify their existence
  • market prices only reflect fair value by accident and in passing
  • most people don’t think these things are important
  • they might be right.

Here are some things I know are true:

  • perceived uncertainty causes emotional discomfort which isn’t conducive to good decision making
  • all the above situations have the potential to cause significant asset price volatility
  • I have no idea when.

What to do? To my mind, the ideal is not to make huge bets on particular events happening because failure of the expected event to materialize will materially endanger your capital. Instead, the ideal is purchase insurance at a price which won’t materially pressure the returns from your core portfolio of investments if the event fail to materialize, but will protect capital from significant impairment if it does.

Is such an ideal attainable? By evaluating insurance and using the same valuation discipline you'd apply to anything else, I think it is. So what follows is not a list of recommendations here, or even any suggestions. Everyone should do their own homework. What follows is an illustration of why I think the macro research we’ve been doing is relevant and can be used to lower portfolio risk. The insurable risks I'm most worried about at the moment are:

  • long-term deflation
  • a bond market blow-up
  • a Chinese hard-landing
  • an inflation pick-up
  • an EM bubble

The first thing you'll notice is that these aren’t all consistent with one another. It’s difficult to get a Chinese hard landing and an EM bubble at the same time, for example. But internal consistency is overrated. It’s only relevant for point-in-time forecasts, and the assumption underlying this entire exercise is that I haven't a clue if/when any of what follows is going to happen. At the risk of repetition, I'm interested in the possibility of building a profitable portfolio which is robust to my ignorance.

Let's take a look at the five fat tails in detail:

Long-term deflation

Not surprisingly, Grice gives the least amount of weight to the one thing most troubling to such economic disgraces as Ben Bernanke and Paul Krugman. Yet it should not be avoided. After all there are many deflationists out there, who believe that the Fed, which has now clearly telegraphed it is all in on reflating (or after the Fed, the monetary collapse deluge) may actually succumb to what has been ailing Japan for two decades.

According to economists the primary risk faced by economies is that a huge deleveraging spiral becomes self-fulfilling: deleveraging reduces demand, which lowers prices, which further lowers demand, and so on. The idea was first developed by Irvine Fisher in the 1930s to describe the great depression, and has been used to explain the “First Great Depression” of the 1870s and Japan since the early 1990s.

Paul Krugman says everything has changed because we’re in a liquidity trap. The fear of prolonged deflation is what keeps poor old Ben Bernanke awake at night. And maybe that’s the clue. At our London conference this year, James Montier said that Bernanke  as the worst economist of all time. Now, I’m not sure I agree with James on this one because I can’t make up my mind, sometimes I think it’s the Bernanke, other times I think it’s the Krugman. But usually I think nearly all economists to be the joint worst economists of all time. So I have a lot of sympathy with the idea that if the consensus macroeconomic opinion is worried about something, it probably isn't worth worrying about. In fact, if they worry about deflation, I'm going to worry about inflation.

We couldn't have said it better ourselves.

So how does one trade deflation insurance?

More importantly though, deflation insurance is expensive. The following chart shows the price of 5y 0% US CPI floors to be trading for just under 200bps. The way these floors work is that they provide the owner of the contract with the right to payments equal to the rate of deflation. Since the floors in the chart have a five-year maturity, they entitle the owner to five annual payments. For example, if inflation was -1% in year one, the owner would receive 100bps of the notional value of the contract. If inflation was -1% in year two, he'd receive another 100bps. And if the rate of deflation remained at -1% for years three, four and five, he’d receive 100bp cashflow for each of those annual payments so that over the life of the contract he’d have received a total cashflow of 500bps. So if you're worried by the prospect of CPI deflation, this is the product for you.

And sceptical though I am of the debt deflation hypothesis, Western demographics worry me. Although we dont know what ageing economies look like, we know that the glimpse into the future provided by Japan isn’t encouraging. So I do take the scenario seriously and would be happy to put the hedge on at the right price. The problem is, I don’t think the price is right. I think this insurance should be sold, not bought.

Chinese Hard Landing

While Grice is obviously far less worried about a systemic deflation scenario arising out of events in the US, what may happen in China is obviously a far riskier proposition, and one that could generate deflation out of the proverbial "Hard Landing." Luckily there is an instrument with some wonderfully convex properties to hedge this...

Albert calls China a ‘freak economy.’ Certainly, running with an investment to GDP ratio of over 50% doesn't seem normal. Neither does keeping interest rates at 5% when the economy is growing by 15% in nominal terms each year. Such lax monetary conditions have helped land prices rise by 800% in the last seven years, according to NBER economists. And when you come to think of it, more recent examples of real estate inflation fuelled by negative real interest rates - Ireland, Spain, the US – didn’t end too well. Jim Chanos says China is a shortseller’s dream and that there’s not one company he’s looked at that passes the accounting sniff test. And if Jim Chanos, who built a very successful business around spotting accounting gimmickry says something like that, my guess is he’s right.

Taking a step back though, as far as I’m aware all industrialized countries have experienced financial crashes. It seems a part of the maturing process. Why should China be any different? A credit crisis wouldn’t necessarily mean the end of the China story any more than the panic of 1873 meant the end of America’s, (though US demographic prospects were considerably more favourable at the end of the 18th century than China’s are today ?). For the record, I think the Chinese have a bright future. My son is learning Mandarin. But when I look at the numbers I can’t help but think there’s going to be a crash and that it’s going to be  quite unpleasant. It’s just that my guess as to when it’s going to happen is as good as Kevin Keegan’s.

What happens if and when the inevitable crash happens? One word - Australia. Another word(s): 10x-20x payout.

When it does happen though, the Australian economy will be toast and its government bond yields will collapse. During the panic of 2008, AUD 10y swap rates fell around 3% to 4.40%.

The panic of 2008 was a ‘good crisis’ for Australia though. A Chinese crash would be more serious.

And you can get pretty attractive odds on AUD rates collapsing. The following chart shows the payout available using AUD receiver swaptions prices with a three-year maturity, based on the 10y swap rate. Effectively, these are put options that pay out when rates fall below the strike price. The prices I’ve used here are from Bloomberg based on the swaptions striking at about 5.5% (i.e. 100bp below the current rate of 6.50%). What's interesting is that at current prices, if Australian swaps were to break their 2008 lows, you'd be making about 10x your premium (for the record, these swaptions are priced at about 120bps, or 40bps per year over three years, which is about the same as the annualized revenue you'd get if you sold the CPI floors discussed above). If swap rates fell by 300bps ? as they did during the panic of 2008 ? the rate would fall to 3.5% and you'd make nearly 15x your premium. To repeat the point I made earlier, this isn't a recommendation. It's just a starting point (my guess is that you'd find more attractive payouts as you went further out of the money with the strike price, and that  capital structures of Australian banks, property companies and levered resource stocks would be worth looking into too).

Asset Bubbles

Grice provides one of the best and most succinct explanations of bubble mentality we have read to date:

For reasons I won't go into now, but which are probably obvious from what I just wrote about China, I think EM is riskier than it seems. I'm not even sure I feel comfortable valuing EMs yet. So should EMs bubble up, the risk for investors sharing my concern is that they’ll be faced with quite a nasty dilemma: do they buy something they don’t feel sure is cheap because everyone else is and they're scared of underperforming, or do they stick to their principles and prepare themselves to take on the business and career risk of underperforming their competitors, seeing clients withdraw their funds, and possibly finding themselves out of work?

And the sad reality is that ultimately nearly everyone gets hurt during a bubble. Sceptics get hurt as it inflates, believers get hurt when it bursts. George Soros says when he sees bubbles he buys them. He's been pretty good at selling them at the right time too. But most of us aren't so clever.

Regardless of the psychology behind each and every bubble, the good thing is that there is a good way to hedge this risk outright.

One way to hedge the inflation of a bubble, rather than its bursting, is to buy out of the money call options on the equity indices. Calls are usually cheaper than puts - I think because fear is a more powerful emotion than greed and the tails in equity markets tend to be on the downside. But the following chart shows that that difference (or skew, the difference in implied volatilities between puts and calls) is close to unprecedented highs, at around 4.5 vol points (the chart shows skew for the S&P500 though other equity indices show a similar picture).

In other words, the upside is close to unprecedentedly cheap relative to the downside. If you could get two year call options 30-35% out of the money for 130bps per year you'd be getting good value (of course you could make this zero cost, or even -ve cost by selling puts to fund the purchase, and you could do it in such a way that your downside risk would be similar to that of holding stock, but I'm no derivatives strategist - as usual, if you want to talk about this stuff to people who know more than I do, speak to your SG derivatives salesman, or ask me and I'll put you in touch).

Hyperinflation

A topic near and dear to many. Luckily, once again, one which can be hedged proximally in a form that generates massive returns should it transpire there where it most needed: no, not the US. Japan. In fact, if Grice is right about Japan, his proposed trade takes the returns generated by Paulson in shorting subprime... And magnifies them by about a million.

Historically, bankrupt governments have used inflation to alleviate their indebtedness. I doubt things will ultimately be different this time. And as regular readers know, I think Japan is the country closest to the edge. All DM governments have the same problems: they've made promises to their electorates which they’re unlikely to be able to keep. But while there’s time for European and US governments to fix the problem, for Japan I think it’s already too late. John Mauldin says the Japanese government debt position is a “bug in search of a windshield”. I agree with him.

I've already written too much this week, so I don’t want to rehash all the stuff I’ve already written on Japan and which regular readers will be familiar with. But if you chart past episodes of extreme inflations with how stock markets behaved during the episodes, you invariably find something similar to what happened to Israel in the 1980s.

In Steven Drobny's excellent “Hedge Funds Off the Record” (which I consider a must read ?- almost every interview oozes with profound risk-management wisdom), Steve Leitner talks about buying out of the money call options to hedge against such a hyperinflation. Buying 40,000 strike Nikkei calls with a ten- year maturity, with a payout in a strong currency can be done for around 40bps per year. And to give you an idea of how explosive that asymmetry might be, if Japan was to follow the Israeli experience from here, the Nikkei ?- currently 10,500 would trade at around 60,000,000 (sixty million). So putting even one-tenth of your notional into that kind of hedge would cost 4bp per year (for reference, the Nikkei currently offers in excess of a 2% annual yield, while some JREITS offer in excess of 4% - I'd argue that 40bp is a bearable burden, and 4bps certainly is).

Bond Market Blow-up

When a few weeks ago we presented Sean Corrigan's chart which we dubbed the Great Regime Change, few put two and two together, and realized the vast trading implications of this chart. And they are profound. As Grice rightfully observes, they stand at the base of nonthing less than the hedge against that most critical of fat-tail events: a bond market blow up, one which is getting increasingly more probable with every single $X0 billion UST bond auctions (the bulk of which is now monetized directly by the Fed).

One obvious way to hedge against a bond market blow-up is to use the swaptions market as we did in the Australian market to hedge a Chinese crash, only this time buying payer swaps, which are effectively call options on rates. But I thought I'd show you something I think is a bit more interesting: the correlation between the S&P500 and bond yields.

Bonds represent poor value in my opinion, with little margin of safety to protect against the very real risk that governments try to inflate away their debts. But one good reason to continue holding them is that they protect risk asset positions during the 'tails'. The following chart shows that over the last ten years the correlation has been volatile, but positive: when equities have fallen so have bond yields, offsetting losses in the equity portfolio as bonds benefit during ‘risk-off’ events.

When inflation expectations were (probably) around zero (before the 1960s) the correlation between bonds and equities was zero too. But look what happened during the 1960s when inflation expectations broke (this was during the Vietnam war, as the Bretton-Woods system was coming under pressure and as the bear market in bonds was getting into full swing). The chart shows that the correlation went negative. When bond yields rose equities fell because government bonds were reflecting the same tensions that were pulling down equity valuations (fear of ever-higher inflation).

As the bond bear market reached its climax in the early 1980s, the correlation remained negative. But as the worm turned, and central banks across the developed world made new and credible commitments to stop printing money, a bond market rally was born. And as inflation expectations began to fall, what was good for the bond market was good for the equity market. Now, falling yields coincided with rising equity prices and so the correlation remained negative. But during the last ten years, inflation expectations have been roughly stable and, if anything, slightly biased towards the deflationary side. So what’s been good for bonds hasn’t been good for equities, and the correlation between yields and equity prices has been positive to reflect that.

The point is this: if governments are insolvent, and the government bond market becomes a source of risk once again (as opposed to the nonsensical “risk-free" description it has somehow obtained in recent years) what’s bad for the bond market will be bad for risk assets too. As yields rise, risk assets will fall. The correlation will go negative. Bonds will provide less protection against the tail events than they have done in recent years because they will be a source of the tail event.

For all those who figured this out based on the Corrigan chart, congratulations. This could well be the holy grail of the biggest black swan insurance trade of all. For those who haven't quite grasped it, here is some more from Grice:

This correlation is tradeable. Any bank with a derivatives operation must have an implicit correlation exposure between products they've sold options on. So for derivatives houses, correlation is a by-product in much the same way that molybdenum is a by-product of copper miners. and correlations like this trade in the IDM market. And sometimes that means you can get it for a very good price. I recently heard of a correlation trade between the S&P500 and the US 10y swap rate done at 40 correlation points, which seems a decent enough price to me (of course, selling at 50 points would give you even more margin of safety), although current pricing is at around 30 I believe. Pricing can be volatile though and waiting to sell in the 40-50 range seems sensible to me. It would hedge risk positions against a regime in which government bonds were seen as the source of risk, rather than the reliever of it.

Finalizing the Black Swan Insurance basket.

Let’s add it all up and see how much it would cost to insure our portfolio. If we were to sell the 5y US CPI floors for 200bps (40bps annualized); buy the 3yr AUD receiver swaption for 120bps (-40bps annualized); buy 2yr 30% S&P500 calls for around 130bps (-65bps annualized) and bought one tenth of our notional on NKY calls for 40bps (-4bps annualised) the net upfront cost would be 90bps (200bps-120bps-130bps-40bps). If we wanted to hedge the risk of bond market turbulence with a correlation product, this would cost nothing upfront because it would be done on a swap basis with the bank. On a roughly annualized basis our cost would be 69bps each year.

Of course, we'd have a maturity mismatch because our hedges would have different time horizons. So we'd have to adjust them from year to year. We'd also be more vulnerable to deflation because we don’t think the deflationary hedges offer value. So our portfolio wouldn't quite be bullet-proof because it would be tilted towards inflationary outcomes. But we'd have insurance against deflation with the Australian receiver swaption. And since the correlation swap hedges us against any bond market blow-up which also blows up the equity market, we can feel more comfortable allocating some capital towards bonds we think might offer good value (not that there are many, I’d say maybe about 20-30% in Australian and New Zealand bonds).

I’d put 10% in gold. I’ll explain more in another note but for now, although I've said I'm not a fan of plain commodities as investment vehicles because buying commodities was equivalent to selling human ingenuity, I exclude gold from that logic. I prefer to see buying gold as buying into the stupidity of governments, policy-makers and economists, and I'm comfortable doing that.

With the exception of Japan (which we'd be hedged against anyway) I'm not so worried about “traditional” CPI inflation any time soon. At the moment, I think the first signpost on the way to that kind of crisis will be via the bond market, which the correlation swap should protect us against. That and my gold holdings would make me comfortable allocating 20%-25% cash. I still think risk assets are generally overvalued and cash is the simplest insurance “option”, whose relative value rises proportionate to the decline in other assets. So let’s say I'm 20% in cash,10% in gold, and 20% in mainly Australian and New Zealand government bonds. That leaves just under 50% of my capital for me to put into the equity market (the 69bps per year for my insurance bucket to be precise).

Which equities? I've always thought investing in index funds to be crazy, but nearly everyone does it and it's a part of the craziness we can use to our advantage. The EMH says that market prices are always broadly efficient because all market participants respond to all available information. But around 10% of the market is explicitly passive and probably another 50% is benchmarked and therefore implicitly passive. In other words, the overriding variable for the majority of equity investors is a company's weight in the index! Intuitively therefore, the prices can't fairly reflect fundamental value, which means that at any point in time, there will be lots of stocks which are mispriced.

The following chart shows two lines. The red line shows the cumulative return to buying stocks in the cheapest decile, while shorting stocks in the most expensive decile (I define value as the discount relative to the estimated intrinsic value - a methodology I've been meaning to write up in detail for several months now but which I will definitely do within the next few weeks). Using a monthly rebalance, the annualized return is 750bps. This shows that there is meaningful alpha in identifying and owning those stocks trading at a discount to intrinsic value. The black line shows the relative outperformance of the top decile against our wider stock universe. (In passing, note that this value strategy underperformed in the late 1990s during the tech bubble, and remember that this is the reason our hypothetical portfolio has out of the money call options.)

The relative outperformance of this long-only basket has been 330bps. If I expect a stock market return of 5% per year over the coming years, that 330bps outperformance is highly significant. It means we only need to put 60% of our capital into that  basket of stocks to generate the same incremental return as a market portfolio would generate. So owning 50% isn't as cautious as it sounds.

The bottom line, and the reason why we think this is a great basket trade, is that it makes money in a normal environment while at the same time, providing great positional hedges to those 5 events which sooner or later are bound to happen.

In the sort of world in which everything is normally distributed, well behaved, and in which our insurance expires worthless (i.e. the sort of world most economists forecast), we'd still be making decent returns. And while there's no such thing as a truly bullet proof portfolio, we'd have done so with far less embedded risk. Because if any of the scenarios I've explored here come to pass we'd be in a much better position to take advantage of the distressed selling of others.

The said, and as Dylan would be the first to acknowledge, if and when everyone is positioned with precisely this hedge on their books, it will be something totally different that will cause the next great financial wipeout. But until then, those who step in first, will benefit from appreciating prices precisely on their hedges. At that point it will be up to the principal to decide whether to take profits or to hold off until the bitter end. The problem, however, at least the way we see it, is that should any of these five black swans occur, any currency that one generates as a result of a successful trade, no matter the P&L, will probably not be all that useful for the world that materalizes at T+1.

 

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Sun, 01/30/2011 - 23:51 | 919267 NOTW777
NOTW777's picture

"With all the hoopla over Egypt some have forgotten that this is merely a geopolitical event"

its not "hoopla" to those dying and suffering

 

"we were delighted to find that Zero Hedge is not the only entity that believes that providing traditional annual forward looking forecasts is nothing more than an exercise in vanity"    so? couple pages of vanity

Sun, 01/30/2011 - 23:53 | 919270 Tyler Durden
Tyler Durden's picture

"It's priced in" - also, Zero Hedge has more than its fair share of "picture only" pieces for the vanity challenged.

Sun, 01/30/2011 - 23:55 | 919276 NOTW777
NOTW777's picture

LOL - ok

Mon, 01/31/2011 - 05:26 | 919610 asteroids
asteroids's picture

I call Bullshit. Those that fail to learn the lessons of history are doomed to repeat them. The FED knew there were going to be unexpected results to their money printing. They are causing inflation but want no blame for the turmoil and strife. What cowards. I see a generation retiring in poverty.

Mon, 01/31/2011 - 00:08 | 919302 NOTW777
NOTW777's picture

BTW - not complaining, just sayin the author set himself up

Mon, 01/31/2011 - 01:08 | 919412 topcallingtroll
topcallingtroll's picture

The vanity is often short lived, but fun while it lasts.

Mon, 01/31/2011 - 00:02 | 919292 NOTW777
NOTW777's picture

buying commodities = "equivalent to selling human ingenuity"

 

or selling human weakness and bad judgment

Mon, 01/31/2011 - 00:35 | 919348 tickhound
tickhound's picture

The other side... from the hollowed canoe, to the steam engine, to plastic wrap, to the cell phone... human ingenuity seems to work well with materials.

Mon, 01/31/2011 - 09:02 | 919763 blindfaith
blindfaith's picture

you can have all the ingenuity God can grant you, but if you can't afford to buy the commodity/materials to create the product, you are screwed....dead in the water, sold out, dream lost, enterprise failed.

Speculators who drive up the cost of general commodities create nothing, destroy creativity and ingenuity...look at the thousands of companies closing and folks out of work because the price of base materials/metals has doubled and tripled since THIS summer. You just haven't seen the damage yet or you don't want to!   

Will you mad because that new central AC is 50% more than last year's estimate?  How about that bag of chips being 12 0z instead of 16 for the same price?  And, don't you just love paying more at the pump and that nice new business suit you had your eye on is now $300 more....and you can't understand why.

I agree with the author, buy Gold and or silver if you need to 'invest' in commodities.

Mon, 01/31/2011 - 01:40 | 919452 Vint Slugs
Vint Slugs's picture

buying commodities = "equivalent to selling human ingenuity"

That observation is profound.  In the 213 years since Thomas Malthus published his Essay on Population in 1798, commodities prices in real terms (inflation adjusted) have declined.  That directly contradicts Malthus's theory that populations grow geometrically while natural resources stay constant or, at best, grow arithmetically (meaning that natural resource costs should ultimately limit population growth).  Why?  Because of human ingenuity.  Technological development has cheapened the cost of obtaining natural resources be they base metals in the ground or grains in the field.  Grice doesn't want to bet against man's smarts; he's got all of history on his side.

Mon, 01/31/2011 - 06:17 | 919621 1984
1984's picture

Yeah, yeah.  But that's long term.  What about in the next few years, when buying commodities = selling the Bernank and the CNY peg?

Mon, 01/31/2011 - 08:39 | 919719 bernorange
bernorange's picture

Wars have a tendency to cut back on population growth.

Mon, 01/31/2011 - 12:16 | 920502 Kim Jong-Il
Kim Jong-Il's picture

The time period you reference coincides with the discovery and exploitation of cheap fossil fuel energy resources.  

Mon, 01/31/2011 - 00:03 | 919294 ShiftCTRL
ShiftCTRL's picture

"Nations who move on do so when their people say enough is enough, even if it is unpopular at the time."

Unrelated, but a good piece.: 

http://tribune.com.pk/story/44487/pakistans-human-cockroaches--ii/

Mon, 01/31/2011 - 00:05 | 919297 Kassandra
Kassandra's picture

I find it morally repugnant to profit off the backs of the revolutionaries...therefore, I am usually broke...but I sleep well.

Mon, 01/31/2011 - 02:40 | 919496 strannick
strannick's picture

I found most of the revolutionaries I saw at university morally -or maybe asthetically?- repgugnant.

Only cause they were such manipulative, elitist, pompous, whiny, useless bigots; who pretended to be broke, while cashing trust fund checks. 

Where I slept well was in the classrooms next to the revolutionaries during the lectures from the grey, bald, radical armchair theorists who trolled for undergraduates.

Mon, 01/31/2011 - 00:05 | 919298 dick cheneys ghost
dick cheneys ghost's picture

who will benefit the most from all this unrest in the middle east?

 

the IMF? the world bank? or the radicals

Mon, 01/31/2011 - 00:30 | 919340 Cdad
Cdad's picture

who will benefit the most from all this unrest in the middle east?

Answer:  principled people with common sense.  This isn't a Middle East issue.  This is a world wide banker issue.  Common sense has been dictating for months where we are headed with all of this debt issuance nonsense.

The clock is now running on Ben Bernanke.  The sooner he is removed from his station, the less the suffering will be.

Mon, 01/31/2011 - 00:39 | 919354 Kassandra
Kassandra's picture

principled people with common sense...

 

This IS a world wide issue. Thank you for putting it so concisely.

Mon, 01/31/2011 - 00:45 | 919364 treasurefish
treasurefish's picture

Too bad this is not common knowledge. The Egyptians are actually revolting against the US FED.  They just don't know it.  What they do know is that all the tear gas cannisters and rubber bullets are stamped "Made in USA."  Bush and Obama must be so proud.  Not only is it free advertising of police-state goods against sovereign-risk, but each weapon utilized equates to another American job saved. God bless Amerika.

Mon, 01/31/2011 - 01:09 | 919413 Hephasteus
Hephasteus's picture

But those are freedom rubber bullets and we love you so much we cry about it tear gas!!!

Mon, 01/31/2011 - 00:06 | 919299 NOTW777
NOTW777's picture

we've heard these hope and change promises before

 

http://finance.yahoo.com/news/Face-of-Mideast-unrest-young-apf-172961354...

Mon, 01/31/2011 - 00:09 | 919304 Misean
Misean's picture

This is almost as good as reading Super Bowl betting strategies. Too bad capital markets have been turned into casinos by central bank fiat...

Mon, 01/31/2011 - 00:20 | 919321 MsCreant
MsCreant's picture

These posts are above my head in the sense that I probably miss about 15% of the message because I am NOT a trader and cannot relate to these specifics. I am okay to stretch and try to grasp it. But it is because I cannot grasp it all that I am simple, pulled out of the stock market, and in PMs and cash. I am a lamb to the slaughter, but I have a feeling it is less slaughter than many. 

Thanks Tyler. You are loved. Keep bringing it.

I know of no where else to go that will let me in the door and keep presenting such a wide variety of materials with varying levels of accessibility.

 

Mon, 01/31/2011 - 00:35 | 919345 NOTW777
NOTW777's picture

such prognostication should be anathema to a trader.  inherently one will be biased to his or her own predictions.

i agree with you that tyler is amazing.  i see the ripple effects of ZH all over.

it is further emboldening others to tell it like it is.  its amusing to go to other blogs and cites and see ZH info repeated (sometimes with attribution, sometimes not) and or see it leak though to some in MSM who use telltale phraseology

Mon, 01/31/2011 - 00:55 | 919385 kokoro33
kokoro33's picture

ditto

you see ZH regurgitated all over everywhere

pathetic weasels can't come up with their own material

especially the "pay board" weasels

Mon, 01/31/2011 - 02:13 | 919487 saulysw
saulysw's picture

Project mahem at work.

Mon, 01/31/2011 - 00:41 | 919359 Dr. Sandi
Dr. Sandi's picture

I know of no where else to go that will let me in the door and keep presenting such a wide variety of materials with varying levels of accessibility.

Have you tried JoAnn's Fabrics? Some of the good stuff is intentionally placed just out of reach on the higher shelves.

Mon, 01/31/2011 - 01:35 | 919447 Jasper M
Jasper M's picture

HAhaha haha! +1

I wov you, Sandy.

Mon, 01/31/2011 - 01:31 | 919440 Lord Koos
Lord Koos's picture

+1 on everything.

Mon, 01/31/2011 - 01:35 | 919449 topcallingtroll
topcallingtroll's picture

you know mscreant.  10 percent of those assets into an intermediate term corporate bond fund and ten percent of those assets into stocks would make you a nice little portfolio with less volatility than cash and gold alone, and probably a much better return.  You really can control volatility and improve your return.   YOu can dollar cost average into an intermediate term corporate bond fund from Vanguard and a total stock index fund from vanguard also.  Do it over 12 months.  TD it might be really good for you to go into basic portfolio theory at some point.  A lot of these gold and cash people could sleep well at night with ten to fifteen percent bonds and ten to fifteen percent stocks in their portfolios.  they would be amazed at the volatility reduction and likely improvement of returns.  I don't think even TD could be against diversifying a little bit from cash and gold. I know you don't really make portfolio recommendations but having one of your contributors doing a primer on portfolio construction volatility and expected returns would do a great service for some of your readers.

Mon, 01/31/2011 - 18:32 | 922016 Panafrican Funk...
Panafrican Funktron Robot's picture

This is pretty fucking awful advice, but I assume this is intentionally (sarcastically) so due to the username. 

 

Mon, 01/31/2011 - 00:31 | 919341 buzzsaw99
buzzsaw99's picture

Those plays all require doing business with wall street maggots. Pass.

Mon, 01/31/2011 - 00:50 | 919373 Who is John Galt
Who is John Galt's picture

Right on Buzz.

I have comitted myself 100% to "going Galt"

I may not end up rich, but I'll be damned if I will contribute to "their" riches.

Mon, 01/31/2011 - 00:51 | 919375 RockyRacoon
RockyRacoon's picture

Ditto, Buzz.  Thanks for saying it.

Mon, 01/31/2011 - 01:43 | 919453 Kassandra
Kassandra's picture

Thank you..thank you.

Mon, 01/31/2011 - 00:32 | 919343 Yen Cross
Yen Cross's picture

I adore the vernacular edicucate in this post.

Mon, 01/31/2011 - 00:35 | 919347 Jasper M
Jasper M's picture

Tyler sets this one up with better eloquence than most of hist posts, and I was all ready to applaud. Alas, the author, in his very first exercise, reaches into the derivative bag of tricks, pulls out a deflation hedge . . . and then proposes to take the other side of it.

I almost stopped right there.

But, in his 'defense' (?), his choice of asset is flawed to begin with. He does not mention counterparty risk. In a robust deflation (and can we expect any other kind now?), exactly whom would you rely on to keep standing, when you buy the contract from them? BoA? JPM? UBS? 

Well, Tyler is still holding his breath waiting for WTI to get back over $100/barrel, and silver to get to back to $31. And maybe they will. But until then, clearly his choices for best advice  will not reliably coincide with mine. 

Mon, 01/31/2011 - 07:52 | 919669 Ricky Bobby
Ricky Bobby's picture

+10 If any of those fat tails come to pass will he get paid? How do you measure that?

Mon, 01/31/2011 - 00:41 | 919358 sschu
sschu's picture

Interesting that the Egypt thing was so unexpected, yet nothing like this is mentioned on his list.

The real Black Swans are geo-politcal events that can change everything.  911 was such an event, the collapse of the Soviet Union another example. 

An angry and aggressive China, making a move on Taiwan would be a game changer although not necessarily a surprise.

A list of these would be more interesting than the standard inflation/deflation guesses.

sschu

Mon, 01/31/2011 - 00:44 | 919366 chump666
chump666's picture

the problem with a AUD 10yr swap, is that Aust yields should go into hyperspace on a China crash, at the moment Aust bonds are paying a premium cause of the housing bubble.  Asia currently has a bond and a CDS bubble, so the swap to quality would be a challenge as most Asia yields will be high/er.  Singapore bonds may be attractive for quality wise, but if China goes it should take out Singapore/property market.

Best bet, short the AUD, rates may have to be cut on a housing market crumbling and the government struggling to issue bonds/CDSs blowouts (floods/cyclones). 

Mon, 01/31/2011 - 00:45 | 919367 gwar5
gwar5's picture

On the bright side there's always a future, no matter how surreal.

For a glimpse of ours, here's David Lynch's "Eraserhead",  the (Oscar snubbed) Black Swan of movies, set to ELO.

YouTube - Mr. Blue Sky - ELO (Eraserhead)

Nothing but blue skies, boys.

.

 

 

Mon, 01/31/2011 - 00:49 | 919369 chump666
chump666's picture

...question is, if the middle east goes into a debt/fiscal crisis from Egypt, who will bail it out?  CDS have widened on Asia last week or so.

So it won't be China this time lending assistance

Possibility?  Oil going to 150 real quick.

 

Mon, 01/31/2011 - 00:55 | 919386 topcallingtroll
topcallingtroll's picture

Wow!  Excellent article!  The old TD is back!  This is at least worth a small donation and a coffee cup and a T shirt!  Spy puts were fairly cheap up until recently if you want to hedge a little more of the deflationary risk.  I haven't priced them recently but suspect they have gone up.  The gdp percent of corporate profits is still at record levels and we are probably going to have a little mean reversion here and some tough times ahead.  I tend to lean toward the deflationary side of things at least at the moment but am totally in touch with my inner woman and reserve the right to change my mind at any time even before I finish typing.   In fact what you have recommended is really almost a collar, except that it is skewed against deflationary risk.  A person could construct a synthetic portfolio from this, and many do.  YOu would really impress the hell out of me if you would show us step by step how you would construct a synthetic protfolio out of this and it's parameters such as Beta etc, along with the geometric mean expected returns.

Mon, 01/31/2011 - 00:57 | 919387 savagegoose
savagegoose's picture

my tope 5 black swans

1 solar flare

2 meteor impact

3 mid atlantic tsunami

4 yellowstone volcanoe

5 me winning powerball

except 5 is prob the least likely

Mon, 01/31/2011 - 01:21 | 919429 Yen Cross
Yen Cross's picture

I'm going  regress Mr. Savage Goose. But I suspect you like Solar Angels. (sans)  Judas Priest.

Mon, 01/31/2011 - 01:52 | 919466 savagegoose
savagegoose's picture

yeah i have an apocalyptic vision, that hopefully comes before i die.but  it isnt human created , we just die like the ants we are. as the  blind and stupid god of the universe swings around his hammer in a random acts of destruction and renewal.

but not sure im with you on the solar angels thing. i looked up the music , based on nostradamus.

 

sure mankind could survive an apocalytic event if we all pulled together and managed to get off this rock. but we're too busy fucking ea over for a percentage for that to ever happen.

but i didnt even mean total destruction in my black swans , just enough to disable modern civ. thats pretty devestating.

after all who cares about black swans if we're all dead?

 

Mon, 01/31/2011 - 01:22 | 919430 Yen Cross
Yen Cross's picture

I'm going  regress Mr. Savage Goose. But I suspect you like Solar Angels. (sans)  Judas Priest.

Mon, 01/31/2011 - 02:02 | 919475 serotonindumptruck
serotonindumptruck's picture

You left out the return of our own Sun's (Sol) brown dwarf companion star (Nibiru).

According to the Sumerians, Babylonians, Egyptians, Mayans, and the Hopi, to name only a few.

Even the Christians have a name for it.

Wormwood.

Theorized amongst theologians (pun intended) that Wormwood, which returns to our vicinity of the solar system approximately every 3,600 years, was responsible for the Biblical story of Noah and the Great Flood.

Pole shift of the planet is a cataclysm that can be difficult to imagine.

The return of Wormwood is imminent. 

Mon, 01/31/2011 - 03:10 | 919522 savagegoose
savagegoose's picture

niburii yeah populated by reptile people who can shape shift and that live among us, ocupying posistions of power. legend has it gold brings them immortality. a small few  transmigrated during the last encounter of our worlds.

nah i dont count bullshit scifi stories, just   disasters that have empirical evidenceof happening before. ones that maybe need a bit more spent on them than androgenous globull warming. but you get me off on a rant.

fact is black swans are more than a bunch of rich doods lose a crap load of money. its people starving cities dying, mass migrations, whats indonesia got 250 millions, australia 20,  theres a migration pattern that would only be stopped with nukes, and we dont have any!  sure maybe in a black swan disaster that 250 gets  cut to 125 mill.

but theyre still comeing and theres still a crap load of them.

Mon, 01/31/2011 - 03:43 | 919553 serotonindumptruck
serotonindumptruck's picture

I don't buy in to the whole reptilian thing. I'm more inclined to look for any scientific evidence that would support the existence of a second star within our solar system. When one considers that up to 80 percent of the celestial bodies (namely star systems) within the visible universe exist as binary systems, the probability that our own solar system is dominated by two stars begins to increase.

Ask yourself a question. With a few exceptions, why does recorded human history only reveal roughly the last 4 or 5 thousand years, when paleontologists can prove that homo sapiens have existed in their present taxanomic classification for around 100,000 years?

Could it be that something cataclysmic happens every few thousand years to the Earth? Something that perhaps destroys upwards of 90 percent of all life?

Also known as an Extinction Level Event?

There have been some theories circulating for the past several years that posit the true reasons behind the construction of the Great Pyramids of Egypt, and the Mayan pyramids situated at approximate latitudes.

They are planetary markers, designed to show the degree of pole shift after the event occurs.

Mon, 01/31/2011 - 05:35 | 919612 savagegoose
savagegoose's picture

ok i dont get into the 2nd star thing , we can now detect planets by the amount of gravity they exert on the systems suns wobble, and the lightwobble thru the system. also they say may soon be able to detect atmosphers of said planets!

yet a 2nd sun in our system will be a complete suprise?

 

ok the extinction event and human civs being destroyed  every so many thousands of years ,  kinda has a ring to it.

u know the eye in the pyramid, i always saw that as when the pyramidscheme of bankers crumbles, they survive and get to stay on top when the next pyramid is built.

 

i dont think any sort of civ came before homo sapien or that they survived a mass extinction event . sure some life survived the event and evolved, in the new empty and furile world. it took those 100 000 years to  develop, language.

once we learnt to pass on knowledge, from generation to generation the rest is history.

i think ther pyramid symbol was co opted, by some smart guys who aprreciated the prescision and thought that went into ancient works. not seriously passed down. since egypt.

although i have heard of pyramids being exactly built on longatude points equally pread about the earth, and have no freeking clue how that was done, although good knowelge of the stars, and a good clock. would help.

 

 

Mon, 01/31/2011 - 08:57 | 919749 bernorange
bernorange's picture

Zecharia Sitchin wrote a bunch of books on the subject.

Mon, 01/31/2011 - 00:57 | 919392 The Answer Is 42
The Answer Is 42's picture

Excellent, informative piece, even if you don't agree with all his recommendations. It is the occasional gem like this that more than makes up the mindless drivels on this site.

Mon, 01/31/2011 - 01:14 | 919418 topcallingtroll
topcallingtroll's picture

Well said...but it is kinda fun to mess with the doomsters, america haters, third world apologists, and angry populists.  I think the gems are a little more than occasional but I admit recently it has seemed more doomier and gloomier than usual.

Mon, 01/31/2011 - 01:17 | 919423 topcallingtroll
topcallingtroll's picture

Oh... and let me add...unthinking anti islamists and rabid zionist supporters...It's fun to mess with them too...

Mon, 01/31/2011 - 01:20 | 919428 topcallingtroll
topcallingtroll's picture

oh yeah...and I just saw a fundie republican on the site praying for our souls...but I'm going to try to be nice to him.....change my ways....maybe....I mean you don't really make fun of the retarded....especially when they seem sincere.

Mon, 01/31/2011 - 09:36 | 919854 Calmyourself
Calmyourself's picture

 I thought and I still don't like radical Islamists and their political/religous system.  If you do, you might try thinking instead of blind optimism.

Mon, 01/31/2011 - 01:52 | 919465 The Answer Is 42
The Answer Is 42's picture

In terms of fast bad news reporting, nothing but nothing beats ZH. In terms of good, in-depth analysis, it's very much Poisson -- every once in awhile there's a great piece, then a bunch of ok ones, and more complete crap. But it's the good ones keep me coming back.

It's no doubt one of the best trading blogs, if you know how to parse it.

Mon, 01/31/2011 - 01:18 | 919425 arthur darrell
arthur darrell's picture

Best part of this piece, as an American in England who watched Spain lose 1-0 @ the old Wembley is reminding me of Kevin Keegan's game winning goal in front of 93,000 stomping fans ( and 1 observer ). If there's a lesson from this piece that remains misunderstood it's Derivatives "bitchez"

Mon, 01/31/2011 - 01:10 | 919414 Douglasnew
Douglasnew's picture

Foresight or Foreblindness? To know what was around the corner would have required one to know what the Government and Fed policy was going to be for the past few years. Nothing to do with free market forecasting or fundamentals, everything to do with Government intervention. I suspect next one will have to know what the will of the people and the resulting political effects on the market will be. Trade wars? Deflation taking hold as a result of the Helicopter being grounded? Seems likely to me. The alternative is massive energy and food inflation overseas, and the canaries in the coal mine are Tunisia and Egypt. More to follow.

Mon, 01/31/2011 - 04:19 | 919572 PhattyBuoy
PhattyBuoy's picture

Helicopter cannot be grounded - who will buy all our debt?

We export massive inflation ... no other choice ...

This cake is baked !!

Mon, 01/31/2011 - 01:16 | 919420 chump666
chump666's picture

oil at 90

china will go bonkers soon

Mon, 01/31/2011 - 01:28 | 919435 Yen Cross
Yen Cross's picture

Nah China will melt down from with in.

Mon, 01/31/2011 - 01:31 | 919441 user2011
user2011's picture

Japan to hyperInflat before US ?     It is hard for me to envision.

Japan hold 900 billion+ of US bonds.   If they want to reduce the public debt, they can liquidate the bond. and reduce their debt by 8%.  However, getting rid of the bond will definitely hyperinflate the US dollar.  

On the economy side, Japan is a net export country.  They have trade surplus and low unemployment rate.  How could they hyperInflate ?   The only way I see is that they start raising interest rates and that loading up the national debt further.    But Japan has a very low unemployment rate and in the midst of a stagnation economy.

Mon, 01/31/2011 - 01:48 | 919457 Yen Cross
Yen Cross's picture

Japan just posted @ 4.2 percent. I'm more concerned with growth in Japan. And wealth destruction. Via Exporters trading against Kampo. I adore the Japanese. Homogenous or not. I like like em! Pearl Harbour and all.

Mon, 01/31/2011 - 01:32 | 919443 user2011
user2011's picture

Japan to hyperInflat before US ?     It is hard for me to envision.

Japan hold 900 billion+ of US bonds.   If they want to reduce the public debt, they can liquidate the bond. and reduce their debt by 8%.  However, getting rid of the bond will definitely hyperinflate the US dollar.  

On the economy side, Japan is a net export country.  They have trade surplus and low unemployment rate.  How could they hyperInflate ?   The only way I see is that they start raising interest rates and that loading up the national debt further.    But Japan has a very low unemployment rate and in the midst of a stagnation economy.

Mon, 01/31/2011 - 02:03 | 919474 chump666
chump666's picture

possible.  I mean China/japan have that option, blow out UST's and make the USD bid.

If there is a QE3...it's all oil and food inflation.

Just today on the wires a non-disclosed PBoC rep said that he thinks that a QE3 is not necessary for the US, he is saying that now. So that is a veiled warning againts further QE

IMO

China/Japan could force the US into an interest rate austerity

 

Mon, 01/31/2011 - 01:58 | 919470 The Answer Is 42
The Answer Is 42's picture

Guy messed up the first one, I think. If you think the deflation protection is too expensive, selling it is not the proper protection. Selling the CPI floor, regardless of price, loses you money as CPI goes down. You could sell the cap, but the downside is unlimited in the hyperinnflation scenario. Fact is deflation risk is very hard to hedge.

Mon, 01/31/2011 - 02:34 | 919499 ak_khanna
ak_khanna's picture

The various government­s around the world will realize that if the banks and financial institutio­ns are not refrained from speculatio­n, their activities are likely to bankrupt countries causing hardship to a majority of the population­. They are likely to become a major pain for the politician­s and central bankers themselves­, the very class of people who let the banks exist in their present form after repealing The Glass Steagall Act in 1999 and allowing them to thrive under their patronage.

http://www­.marketora­cle.co.uk/­Article245­81.html

Mon, 01/31/2011 - 02:47 | 919508 EconomyPolitics
EconomyPolitics's picture

Finally, someone with the huevos to admit that they don't know squat.  Collective knowledge is greater than individual knowledge and once they finally get that they realize predictions are for fools.

Having said that one way to manage the deflation risk is hold cash. Another alternative would be a long position in USD vs a basket of currencies.  Deflation should make your currency stronger as things get cheaper.  

Of course the only caveat to that is that it assumes that other countries would not be going through deflation, and as we have seen the world seems to act in unison these days.  

Mon, 01/31/2011 - 03:09 | 919520 Eternal Student
Eternal Student's picture

A silly question. Perhaps because it's late, but I'm just not getting why the heck someone would want to buy "deflation insurance" as defined by the article? If the CPI went down -1 %, there's really no "insurance" against losing money. The same cash that you pay for the contract now buys 1% more in goods. As the CPI goes down, cash becomes more valuable.

If you're getting an additional 100 bps, that's more of a bet than insuring the original value, since you'd be getting more than the original value back. Plus, there are a lot of negatives to this type of "insurance", as you're betting that the insurance company doesn't go under. And paying fees to boot.

I agree that this is a product which is better sold than bought. So what am I missing here? Either Mr. Grice should quit losing sleep, or I need to get some. Perhaps this will make more sense in the morning, but if anyone out there can explain it, I'd be appreciative.

Thanks.

 

Mon, 01/31/2011 - 03:16 | 919529 truedisbeliever
truedisbeliever's picture

New to the site, so unsure of the protocols.

Got a link to the Dylan's full document?

Mon, 01/31/2011 - 04:04 | 919565 Yen Cross
Yen Cross's picture

Nice work my friends! Very well done!

Mon, 01/31/2011 - 07:33 | 919660 edmondantes
edmondantes's picture

Very interesting but almost too clever... the nub of the problem is set out in your last sentence: if the black swans materialise then the 'profits' generated in whatever currency may not be worth very much.

In addition I think it is worth pointing out that the moneyprinters are rolling the dice with the entire system: the proposed trades require the survival and continuation of the counterparty (the provider of insurance) ... and I think this can hardly be assured.

Accordingly at the risk of repeating the line many at ZH endlessly sustain, I think the only real insurance for black swans described (and others) is physical gold and silver outside the banking system.  So I believe this suggested approach could be improved: the proportion held in cash is far too high and the proportion held in gold far too low.  And I would suggest Norwegian government bonds are far superior to Australia and NZ govt bonds. 

Mon, 01/31/2011 - 08:28 | 919693 Cthonic
Cthonic's picture

Aye, and isn't it wishful thinking that the counterparties could actually fulfill their obligations under any of the payout scenarios?

Mon, 01/31/2011 - 11:35 | 920297 Stuck on Zero
Stuck on Zero's picture

Forget these minor little black swans.  They're like little ducklings.  The real black swan in the future is lurking in a volcano in Indonesia or the Phillipines.  Every hundred years, or so, one of these latent monsters blows its top (Toba, Tambora, Karkatoa) and the results are ugly.  We're way over due for a big one.  If one were to hit we'd see 30-50% crop losses worldwide and lower worldwide temperatures for several years.  Has your government been stockpiling food for you?  Have you? 

Mon, 01/31/2011 - 11:37 | 920306 thebark
thebark's picture

Cthonic....Exactly...with sooo many black swans out there wouldnt one be a bit smarter in attempting to try and limit their counter party risk? Maybe we ZH`ers are all just a bunch of worry warts....party on bitchez...

Mon, 01/31/2011 - 13:02 | 920724 mackdmorris
mackdmorris's picture

What about counter-party risk? If there was massive inflation or deflation all your derivative hedges would be worth nothing since your counter-parties would be bust.

Only physical real assets can hedge against hyperinflation.

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