Nassim Taleb, author of “The Black Swan,” and “Fooled By Randomness” recently spoke on a panel in Moscow where he said the “first thing” investors should avoid is U.S. Treasuries and the second is the dollar.
Taleb, who also advises a hedge fund called Universa Investments, favors the Euro to the U.S. dollar mainly because he has confidence in Germany. “Euros have Germany, the dollar has nothing,” Taleb said.
It appears that Nassim Taleb shares a similar sentiment to Bill Fleckenstein in that he favors Europe because it least Europe has started the process of resolving the sovereign debt crisis. The United States Congress nor the Fed have even acknowledged a problem with the enormous fiscal deficits or the dependence on quantitative easing. This would suggest that Europe is further along the road to recovery than the U.S.
Taleb has long argued that the financial system is now more fragile than in 2008 due to the fact that sovereign governments have assumed private debts.
“We have a very dire situation in the United States, and every day that goes by it gets worse,” Taleb said. “Every day that goes by, we’re spending money. We’re increasing that cumulative debt.”
It should be noted that although Taleb recommends shorting Treasuries, his strategy is far more complex. First of all, Taleb actually endorses a strategy whereby most capital (90-95%) is in ultra safe instruments such as U.S. Treasuries. The remainder of the capital is in highly speculative trading ideas with leverage. Taleb is a former options trader and has even written a book about options pricing.
In 2010, Taleb recommended using the speculative money for protection against hyperinflation (mainly out of the money calls on precious metals) and a collapse in Treasury bonds (via put options on Treasury bonds). This strategy is in congruence with his Black Swan theory.
It should be noted that Taleb does not actually predict economic events. He merely notes that investors should take out insurance against events that are totally unpredictable especially because the system is “fragile.”
Is Russia the Best or Worst in BRIC? from Troika Dialog on Vimeo.
Marc Faber starts speaking at the 25 minute mark. Nassim Taleb starts speaking at the 40 minute mark.
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