36 South Investment Managers, the hedge fund managers who made 234 percent betting on "black swan" events in 2008, are now placing their bets on hyperinflation (see Bloomberg article). The new fund, called the Excelsior Fund, is targeting returns that will be five times the average inflation rate for the France, Germany, Japan, U.K., and U.S. economies. The Excelsior Fund will make its bets on inflation by buying long-dated options that are currently cheap (i.e., typically deep-out-of-the-money options). The fund will be using the options to look for increases in commodities and equity prices, along with increases in bond yields and currency volatility. Given that the options are deep-out-of-the-money, the fund will be very high risk, but carry the potential for very high returns.

It looks as though the price of European emission permits are increasing at a fast enough rate that German companies are threatening to leave the country. As reported in the Spiegel article, in the last 12 months the price for the right to pump a ton of carbon into the atmosphere has increased from €23 ($36.5) to nearly €30 ($47.6). The approximately 30% hike over the last year is having a direct effect on the electricity production of power companies. Based on past studies, it is expected that the marginal price for electricity generated from a coal-fired plant would increase by the entire price of the carbon credit. For modern natural gas plants, the marginal price would increase by approximately 33%. Of course, the tough measures of the emission trading program have not yet been implemented, with a proposed trading period starting in 2013. At that time every company will need to acquire the permits from the trading exchange. It is expected at that point that both prices and volatility will increase further.

If companies are being negatively impacted, then who is doing well? Apparently, the German state. The German Finance Minister Peer Steinbrück expects tax revenues from the climate protection program to exceed earlier estimates, raising €525 million ($832 million) in the first six months. If the trend continues, the German government may need this money to make up for the job losses that are being threatened to be lost to relocation. Of course, all of this says nothing as to whether or not the credits will even have any benefit, regardless of their impact on economic growth (see lessons learned).