How to hedge against inflation Michael Burry style. Part 2.

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OVV is mainly natural gas. It’s a play on nat gas prices remaining elevated for longer than expected and a heating crisis next winter. OVV has a lot of leverage though so be careful. They can get wiped out by low nat gas prices. I have a small position only. For quality energy production consider instead something like CNQ or DVN. OVV is more of a Yolo pick, fitting for Burry but I would not make it more than even 0.5% of my own personal portfolio. Edit: Didn’t mean to imply OVV is a crap company. They made some mistakes in the past and it seems their latest management has learned from mistakes and things are improving, but nonetheless they are very sensitive to natgas outlook.

cr0ne

Why does he buy both puts on TLT and calls on TBT. they are tied to the same underlying instrument so it seems one is sufficient

oarabbus

Has Burry directly said it’s an inflation play? If he hasn’t said anything, it could also be a tapering play on the bonds and deep value plays on the companies.

proverbialbunny

Pro Tip: If you are worried and want to hedge against inflation as a personal investor, there is a much simpler solution – buy a house with a mortgage. The greater the inflation is, the better things are for you. The risk is also far smaller than some of the things listed above.

-Sliced-

The big issue with Burry’s strategy is that the US is not in a period of high inflation, it’s in a period of stagflation. We are about to see more stimulus and a potential further lowering (or at least a push back of tapering and raising rates) which will drive TLT prices up, since the share price of TLT weighs short term probability of a rate increase/decrease. (Everything is always vs expectations). Look at any macro driver and it’s showing slowing (or even contracting) economic growth. Consumer sentiment is in the toilet. Further, raising rates will destroy US liabilities b/c the interest payments on them alone will be in the trillions. The only thing the US can do is live with negative real rates for an extended period of time — this is the same thing that happened after WW2. Inflation is forecast about at 5% and it will stay that way the next decade. 1.05^10 = 1.62 –> there’s 40% of your purchasing power gone. Stolen from zero-interest bonds that pensions and companies and retirees are forced to hold.

_rofl-copter_