Friday, November 12, 2010

Taleb Nails It

Below is a must view interview of Nicholas Nassim Taleb.

Taleb is as independent of a thinker as you can get. There is no indication he is familiar with Austrian economics, but his independent thinking and observations put him on the right track more often than any other commentators you will see on television. Most important, his comments will make you think.

The man also doesn't hedge. In the interview, he remarks that when he hears Alan Greenspan talk he shuts down and doesn't listen. Appropriately, Taleb says that Fed chairman Bernanke's QE2 is Bernanke writing a call option on hyper-inflation. (For those of you not familiar with options, when you write an out of the money call option, you are betting some event won't happen, but if you are wrong, you are likely destroyed.) You can write out of the money options for a long-time before you get smacked, but when you are wrong, it's devastating. I once saw a trader, who wrote out of the money calls, carried out on a strecher when a trade went against him. He was financially destroyed within seconds.

With QE2, Bernanke is doing just what Taleb says he is doing: Betting that he won't ignite hyper-inflation. If he does, it is going to be massively destructive.


  1. Taleb is definitely familiar with Austrian economics at least peripherally; he specifically mentions Hayek as one of his philosophical influences. He has some great interviews with Russ Roberts,

  2. If I remember "Fooled by Randomness" correctly, Taleb advises putting about 10 or 20% of one's assets in one, potentially speculative play that you believe in ("put all your eggs in one basket and guard it well") and the other 80% goes into "risk-free" Treasuries/Tbills.

    I am curious how his strategy works or has changed now that Treasuries are increasingly less "risk-free" and so is the dollar.

    Taleb's last minute of comment in this video were spot on. You're right, he nailed it.

  3. You would think that Taleb has never been wrong before, because by his own logic we should not listen to such people.