The Inflation Trade

A number of people have noticed that the inflation trade is likely to be profitable. For example, Accrueed Interest wrote about it here. Also, some hedge fund managers apparently believe that there is money to be made as well.

From Bloomberg:

36 South Investment Managers Ltd., a New Zealand-based hedge fund firm set up by derivatives traders, will close its Black Swan Fund after it gained 236 percent in the last 12 months and start a fund that wagers on inflation.

So it isn't really news to anyone at this point that going long inflation is a trade to be considered. However, inflation expectations have traded down with the stock market. I think this is a good level to put this trade on as my model believes inflation expectations will return to normal as GDP growth improves. I think we are looking at about a 12 to 18 month horizon.