Executive of the hedge fund Elliott Management wrote letter to investors warning that rapid inflation is their biggest concern in the current environment, adding that such a spike would not only collapse bond prices, but potentially lead to a stock market crash.

"This may seem like a strange thing to worry about under the current circumstances, but the tide toward inflation could turn rather abruptly," wrote the money managers in their third-quarter letter, dated Oct. 28. "If inflation starts accelerating to an annual rate of high single digits or greater, it will be quite difficult for the mix of strategies that Elliott favors to 'keep up.'"

Still, they added, the market and Elliott had weathered such a move before, and expected that assets would be priced lower again in its aftermath.

Sudden price hikes were only one of the Elliott team's worries, according to the firm's latest missive.

Up 8.4 percent for the year through September, money managers at the $30 billion hedge fund spend much of their time simply avoiding losses and hedging for various outcomes, the writers noted, in addition to looking for attractive opportunities in stocks, bonds and other asset classes.

Lingering over Elliott's portfolio management, the writers added, is a persistent fear that central bankers - by collectively cutting interest rates 673 times since the financial crisis - have so upended the natural price levels of stocks, bonds and many other assets, that the economy and markets are operating in denial of reality.

"Every sniffle is being treated by central banks as acute respiratory distress syndrome worthy of 'code-blues' and teams of frantic pumpers and fixers," the managers wrote. "What this policy landscape has engendered is a widespread belief, or at least a strong suspicion, that stock and bond prices won't ever be allowed to go down in any meaningful way."

This mentality, the writers added, "has encouraged massively risky behavior."

Elliott isn't the only hedge fund to sound leery of current monetary policy.

In a letter to Greenlight Capital investors also dated Oct. 28, hedge fund managers there pointed out that despite being seven years into an economic recovery, "central bankers still behave as if we're in crisis," and that, even with Fed Chair Janet Yellen suggesting that rate hikes are near, policymakers have shown little interest in normalizing the environment.

Elliott predicts that during the coming months or years, oil prices will trend higher than their current $45 level, but not by much. "The oil market has largely achieved balance," the managers wrote, "albeit with high stock levels, and we expect medium-term price appreciation to be limited by the return of U.S. production growth in the $50-60 range."

The managers added that the flat performance of gold during the third quarter, and the move down in response to the increasing belief that the Fed will soon rate interest rates, seemed puzzling: "Given the market gyrations that have accompanied each of the Fed's previous attempts at hiking policy rates over the last few years, now would seem to be an inopportune time to abandon the only actual safe haven that investors may reach for as an alternative to the really bad deal offered by fixed income instruments given current pricing."

In Europe, the Elliott managers noted, Italy is in a state of "tremendous flux" that will only continue should Prime Minister Matteo Renzi fail to win a Dec. 4 referendum intended to simplify the country's governance. "The resulting unrest may be more impactful than Brexit," the Elliott managers stated.

Meanwhile, in Germany, the straits faced by Deutsche Bank, the troubled financial giant now in talks to settle fraud charges with the U.S. Justice Department, may be overplayed in the market, given that the German government, in Elliott's view, will do whatever is ultimately needed to stabilize Deutsche.