Thursday, June 04, 2009

Julian Robertson Bets the Farm on Inflation -- Seeking Alpha

Julian Robertson Bets the Farm on Inflation -- Seeking Alpha:
"Today, we are going to highlight Julian Robertson's steepener swap play. In layman's terms, he is betting on inflation. Taken from eFinancialNews, 'Steepeners are a type of interest rate swap, where one party agrees to pay the other a fixed rate in exchange for a floating rate, which is derived from the difference between long and short term rates. Many of these products also use high leverage, where the difference between the two rates is multiplied by up to 50 times to produce a higher return.'

He thinks rates could hit 7% easily and could go as high as 18%....

" Robertson told Fortune, "I've made a big bet on it. I really think I'm going to make 20 or 30 times on my money." "

While much of the article is not strictly new (Based off an interview in Fortune from 2008), it is an interesting look at the types of large stake bets money managers sometimes make.

A couple of "class worthy" points:

1. Interesting how financial technologies have evolved that now allow individual investors take the same positions. (ETFs)
2. The leverage of his trades is quite amazing.
3. What if he is wrong? How long can the typical fund manager maintain a losing position before being fired? Going broke?

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