Bernie Schaeffer Schaeffer’s Investment Research Inc.
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"Mark Spitznagel made a fortune predicting the 'black swan' that hit markets last year. Now the relatively unknown hedge-fund manager is emerging from the shadow of his collaborator, Nassim Nicholas Taleb, with a big bet inflation will soar. The 38-year-old Mr. Spitznagel managed the Black Swan funds to triple-digit returns last year with a bet on volatility. The returns have brought a flood of cash, sending assets for his firm, Universa Investments LP, rising to $6 billion from $300 million ... 'Black swan' alludes to the once-widespread belief that all swans are white -- proved false when European explorers found black swans in Australia. A black-swan event is something extreme and highly unexpected. Mr. Spitznagel's winning streak now will be tested. Universa is poised to make a huge wager that will reap big rewards if inflation surges. Inflation is on investors' radar thanks to extensive economic stimulus efforts ... The new fund, expected to start trading in July, will place bets on options tied to assets expected to benefit from a big leap in prices, including commodities such as corn and crude oil, and options on shares of oil drillers and gold miners. It also will short Treasury bonds, likely to weaken in an inflationary economy ... The inflation bet marks a change for Universa. Typically, Messrs. Spitznagel and Taleb don't have an opinion about the near-term direction of the markets or economy. Rather, they argue, investors tend to underestimate the risks of major market swings. The latest wager is more of a directional bet that regulators' efforts to prop up the financial sector and the broader economy will spark inflation."
(The Wall Street Journal – "Black Swan Trader Bets Reputation on Inflation" – 6/17/09)

Schaeffer's addendum: Stock market history is replete with examples of players who experience success in a specific investment niche and for some reason to decide to move out of their "success zone" with very unhappy results. Renowned plain vanilla value investor Warren Buffett, who once referred to derivatives as "financial instruments of mass destruction," decided at a very inopportune time in early 2008 to sell put options on the S&P 500 Index. Hedge funds severely curtailed their short selling activity, just in time for last year's bear market. And pension funds – those bastions of "down the middle" stock and bond investing – were badly burned not long after they fell in love in recent years with "alternative assets" such as commodities and real estate.

Now come Messrs. Spitznagel and Taleb – who were masters of the "agnostic" approach to market direction and who instead focused on (and profited handsomely from) the market's under-pricing of volatility – with a multi-billion dollar bet "on options tied to assets expected to benefit from a big leap in prices, including commodities such as corn and crude oil, and options on shares of oil drillers and gold miners." In other words, this is very much a directional call and has very little to do with so-called "black swans." If a surge in inflation is "highly unexpected," someone forgot to tell those who have been pouring money into precious metals ETFs at an unprecedented pace and bidding up the price of gold coins to huge premiums above their bullion value.

Bernie Schaeffer:
• Developed Expectational Analysis®, a proprietary, three-tiered method of options analysis combining technical and fundamental studies with the analysis of investor sentiment.
Publisher
• In 1981, Bernie launched the newsletter, Bernie Schaeffer’s Option Advisor. Serving as senior editor since inception, Bernie has led the Option Advisor to become the nation’s leading options newsletter. Features: market commentary, specific trade recommendations, and trading strategy.
• Launched SchaeffersResearch.com, in 1997. A four-time winner of Forbes “Best of the Web” award, the website has also received positive mention in Barron’s, AAII and The Wall Street Journal Guide to Online Investing - “An independent options site that is one of the best for providing primers for both novice and advanced investors.” Features tools, quotes, data, commentary, and education.
• 10 Days to Successful Options TradingSM – This multi-media home study program teaches options basics. Learn fundamental strategies with hands-on application exercises and examples.
Author
• The Option Advisor: Wealth-Building Techniques Using Equity and Index Options (1997)
• New Thinking in Technical Analysis: Trading Models from the Masters – The industry has viewed Bernie’s Expectational Analysis® methodology as a groundbreaking approach to trading. Proof of this came with the publication of this new book by Bloomberg Press. One of twelve authors, Bernie was honored to be chosen from hundreds of market analysts to explain his methodology.
• Writes a monthly options column for Bloomberg Personal Finance magazine.
• Multexinvestor.com regularly calls on Bernie to contribute to their “Analyst Corner.”
Awards and Recognition
• Three time winner of The Wall Street Journal stock picking contest.
• Ranks fifth among market timers tracked by Timer Digest for the past decade.
• Dick Davis Hall of Fame inductee for his bearish posture ahead of the 1987 crash.
• He is known for successfully maintaining a bullish market posture throughout the 1990s.
• The Market Technician’s Association (MTA) awarded Bernie “Best of the Best” in 1997 in the field of Sentiment/Psychological Analysis.
• Bernie is regularly featured on investment chats on Yahoo! Finance.
• Bernie’s views on the stock market and the economy are regularly quoted in The Wall Street Journal, The New York Times, BusinessWeek, Investor’s Business Daily, and USA Today.
• Both Barron’s and The New York Times have featured Bernie in “Question & Answer” interviews.
• Recognized as a CNBC “Market Maven.”
• Appears regularly on national financial broadcasts such as CNBC, CNN, Bloomberg Television, the Nightly Business Report, Wall Street Week with Fortune and Fox News. Also serves as a guest host on CNNfn.
• Frequently invited to speak at national investment conferences and seminars.
• Regularly sits on Options Industry Council panels around the country.
• One of 50 market strategists appearing in BusinessWeek’s 2001 market forecast.