CPI-linked derivatives

[Packer16]

Does anybody know of any of these instruments are available to individual investors.  FFH has taken a huge bet (similar to CDSs) with these contracts.

 

Packer

[Sea Island]

It sounded like Prem was calling in from the Fairfax corporate retreat on the moon. Did he say these swaps had a notional value of $22.5 billion?

[Zorrofan]

I wonder if FFH could make as much off these swaps as they did with the credit default swaps......another round of billion dollar quarterly earnings reports anyone!  On the other hand, how bad do they expect things to get?

 

cheers

Zorro

[Hoodlum]

CPI derivatives just started trading in July and are generally used by Pension funds.  Just remember that while Prem was correct with the Credit Default swaps he did get in a couple of years too early.

 

http://www.pensionsweek.com/news/fullstory.php/aid/3706/CPI_swap_market_will_be_a_slow_burner_.html

 

Consumer Price Index-based (CPI) swaps are unlikely to take off for schemes in the short term, despite the first being traded this month.

 

The derivatives are aimed at replacing similar contracts currently used by schemes with liability-driven investment (LDI) strategies, in light of the government’s decision to change inflation-linked shifts in pension benefits from Retail Price Index (RPI) to CPI.

 

 

[randallchsu]

What about buying put options on TIP related ETFs. However, the longest expiration date is usually less than one year.

 

http://blogs.wsj.com/wallet/2008/12/12/how-deflation-would-affect-tips-and-i-bonds/

[Libs]

What about buying put options on TIP related ETFs. However, the longest expiration date is usually less than one year.

 

http://blogs.wsj.com/wallet/2008/12/12/how-deflation-would-affect-tips-and-i-bonds/

 

TLT puts are still a cheap way to hedge against deflation.

[Zorrofan]

http://azvalue.blogspot.ca/2014/04/fairfax-and-their-bets-now-looking-in.html

 

Since there is a lively discussion of AZ Value's post on Valeant, i thought it might be interesting to look at their take on FFH's hedges and CPI contracts.  They do raise a good point about Buffet buying quality companies while FFH has spent a lot of money on these hedges...

 

cheers

Zorro

[Drake]

A side question: how is it possible to use inflation linkers as inflation hedge? Even if the hedge is effective in protecting the notional, tax is calculated on the nominal gain, not on the real gain - so after tax, an inflation hedge cannot work, can it?