Klarman: "We Don't Disclose Our Inflation Hedge"

Some of us are wondering what Seth Klarman's inflation hedge is (see previous post). Thanks to David at the Finance Trends blog, who linked to this Street Capitalist post in commenting about Klarman recently. A key part in the Q&A:

We think inflation could become out of control in 3 to 5 years. Yet, we might not wait for that position. Hence, perhaps early, we have a large inflation hedge. We don’t own gold as a commodity. We won’t disclose our inflation hedge, yet with enough work, you can find true inflation hedges.

Jim Grant and Bruce Greenwald are also included. Good stuff.

Comments

[tester]

Could the inflation hedge be corporate inflation linked bonds? They typically have higher returns than TIPS?
Or perhaps OTC inflation derivatives contracts (swaps)?
Any other clues?

[Sivaram Velauthapillai]

Which corporation issues inflation-linked bonds?

[vdicarmine]

if you read Jim Grant, an idea could be on of the two UltraShort Lehman 7-10 Year Treasury Fund (PST) the UltraShort Lehman 20-Plus Year Treasury (TBT)

basically you're betting on increased Treasury yields due to:
- inflation increase since the Fed is printing money hand over fist
- huge deterioration of U.S. balance sheet due to increase government decicit caused by emercy bailout spending

[Ian Gardner]

Klarman says " we don't own gold as a commodity" - perhaps he owns gold via mining stocks? Or so simple?

[David]

John, thanks for the hat tip:).

Ian, I wondered the same thing re: the gold mining shares. Still, while I don't know too much about Klarman's investing methods, I wonder if he would invest in mining stocks at all.

On the whole, they are usually seen as more of a speculation than an "investment" (even by those who actively purchase gold mining shares), in that the industry is very capital consuming and stable returns in the form of dividends and the like are rather rare.

But at times, when the sector is highly beaten-down and out of favor (like in 1999-2002), some have found value in purchasing PM mining shares.

When Klarman says "we don't own gold as a commodity", I wonder if that rules out investing in the gold and silver-invested closed end funds and trusts like CEF and Central Gold Trust (GTU)?