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Hedge Fund Trade Of the Week: Reflation

Will John Paulson and other hedge funds keep betting on inflation after Wednesday’s Fed announcement?

As you may remember, back in September, Paulson forecasted double-digit inflation by 2012 in a speech at New York’s University Club — a prospect he sees as bullish for gold, stocks, and real estate, and bearish for fixed income investments and the dollar.

But does the tepid QE2 move by Bernanke change how hedgies are positioning?

For insights we turned to our own hedge fund insider, Anthony Scaramucci of Skybridge Capital.

”QE2 demonstrates that the Fed believes in the wealth effect,” explains Scaramucci.

Basically that means if people see their assets appreciate – things such as homes and stocks- they feel comfortable spending.

According to Scramucci QE2 is aimed at pushing those asset prices higher. "The Fed is in the game and trying to establish a floor on assets," he says.

That’s bullish for stocks broadly however Scaramucci thinks it's particularly good for one stock that will not only inflate – but reflate.

And that’s BP .

”The stock is still priced for the worst case scenario,” says Scaramucci. Not only should it move higher due to a weaker dollar and inflation but "at 6.7 times 2011 earnings, I think it’s cheap,” he says.


Click here to check out other Hedge Fund Trade Of The Week posts

* Anthony Scaramucci runs SkyBridge Capital, a leading alternative asset manager with more than $7 billion under management. Every week on Fast Money, Scaramucci, aka 'The Hedge', takes you behind the hedges, giving you an unprecedented look at the names getting the most chatter amongst the hedge fund community.



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Trader disclosure: On November 3, 2010, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s "Fast Money" were owned by the "Fast Money" traders; Pete Najarian owns (BAC), (LVS), (MS) and (NTRS). Adami owns (AGU), (BTU), (NUE), (C), (GS), (INTC) and (MSFT). Cortes is short crude oil, gold, (AAPL) and (RSX). Cortes is long S&P 500. Cortes owns (GOOG), (K), (TSN) (CLX) and US Treasurys. Joe Terranova owns (APA), (AAPL), (AXP), (C), (GOOG), (GS), (FCX), (HES), (IBM), (MCD), (NKE), (ORCL), (PCP), (PEP), (UPL), (VRTS) and (XBI).

For Guy Adami:
Adami’s wife works at Merck

For Brian Kelly:
Accounts managed by Kanundrum Capital own (GLD)
Accounts managed by Kanundrum Capital own (GDXJ)
Accounts managed by Kanundrum Capital own (TLT)
Accounts managed by Kanundrum Capital own (TIP)
Accounts managed by Kanundrum Capital own (SLV)
Accounts managed by Kanundrum Capital own (CLF)
Accounts managed by Kanundrum Capital own (ANDE)
Accounts managed by Kanundrum Capital own (GPRE)
Accounts managed by Kanundrum Capital own (JJG)
Accounts managed by Kanundrum Capital own (HD)
Accounts managed by Kanundrum Capital own (PCL)
Accounts managed by Kanundrum Capital own (XHB)
Accounts managed by Kanundrum Capital own (FCX)
Accounts managed by Kanundrum Capital own (EWH)
Accounts managed by Kanundrum Capital own (CLF)
Accounts managed by Kanundrum Capital own Euros
Accounts managed by Kanundrum Capital are short Japanese Yen

For Joe Terranova:
Terranova is chief market strategist of Virtus Investment Partners, LTD.
Virtus Investment Partners own more than 1% of (ABAX)
Virtus Investment Partners own more than 1% of (ALK)
Virtus Investment Partners own more than 1% of (AMKR)
Virtus Investment Partners own more than 1% of (CASS)
Virtus Investment Partners own more than 1% of (CMS)
Virtus Investment Partners own more than 1% of (CSC)
Virtus Investment Partners own more than 1% of (CSVI)
Virtus Investment Partners own more than 1% of (FCFS)
Virtus Investment Partners own more than 1% of (IGE)
Virtus Investment Partners own more than 1% of (LDR)
Virtus Investment Partners own more than 1% of (LPHI)
Virtus Investment Partners own more than 1% of (MGRC)
Virtus Investment Partners own more than 1% of (NRCI)
Virtus Investment Partners own more than 1% of (DBV)
Virtus Investment Partners own more than 1% of (XLB)
Virtus Investment Partners own more than 1% of (XLP)
Virtus Investment Partners own more than 1% of (XLY)
Virtus Investment Partners own more than 1% of (XLF)
Virtus Investment Partners own more than 1% of (XLI)
Virtus Investment Partners own more than 1% of (XLU)
Virtus Investment Partners own more than 1% of (SOA)
Virtus Investment Partners own more than 1% of (SUBK)
Virtus Investment Partners own more than 1% of (WDFC)
Virtus Investment Partners own more than 1% of (WMB)
Virtus Investment Partners own more than 1% of (YDNT)
Virtus Investment Partners own more than 1% of (DRYS)

RICHARD VOLPE
RBS makes a market in U.S. Treasuries

JEFFERY HARTE
Sandler O'Neill has received compensation from (BAC), (C), (JPM) for investment banking services in the past 12 months.
Sandler O'Neill intends to seek compensation from (BAC), (C), (JEF), (JPM) for investment banking services in the next 3 months.
Sandler O'Neill has received compensation from (BAC), (C) (JPM), (MS) for providing products or services other than investment banking services in the last 12-months.
(BAC), (C), (MS) is a client of and receives non-investment banking securities-related services from Sandler O'Neill

PETER BOOCKVAR
***No Disclosures***

DEBORAH WEINSWIG
Citigroup owns 1% of (SKS), (SVU)
Within the past 12 months, Citigroup has managed an offering of (TGT), (WMT), (HD)
Citigroup has received compensation for investment banking services provided within the past 12 months from (TGT), (WMT), (SKS), (HD), (KR)
Citigroup intends to seek, within the next 3 months, compensation for investment banking services from (WMT), (KR)
Citigroup received compensation for products and services other than investment banking services from (COST), (M), (JCP), (KSS), (TGT), (WMT), (HD), (WAG), (KR), (SWY), (SVU) in the past 12 months.
Citigroup has, or had within the past 12 months, the following investment banking clients (TGT), (WMT), (SKS), (HD), (KR)
Citigroup has, or had within the past 12 months, the following non-investment-banking, securities-related clients: (COST), (M), (JCP), (KSS), (TGT), (WMT), (SKS), (HD), (CVS), (WAG), (KR), (SWY), (SVU)
Citigroup has, or had within the past 12 months, the following non-investment-banking, non-securities-related clients: (COST), (M), (JCP), (KSS), (TGT), (WMT), (HD), (WAG), (SWY), (SVU)
Citi makes a market in (COST), (M), (CVS)

ANTHONY SCARAMUCCI
Scaramucci and SkyBridge Capital owns (BP)
Scaramucci and SkyBridge Capital owns Gold

MIKE KHOUW
Cantor Fitzgerald makes a market in (OPEN)




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