Sell The Rallies, says Nassim Taleb

by StockJockey

Thursday, December 04, 2008 - 1:38 pm

Do you considering slitting your wrists everytime Nouriel Roubini makes and appearance in the media? Than don't watch this interview with Nassim Nicholas Taleb.

He came off as more bearish than Roubini last night in this latest Charlie Rose interview, and advocates only putting on "bi-modal" trades where you use a small percentage of capital to place "black swan" type option bets on out of the money strikes, so to speak. But he has kept lots of dry powder, 80%-90% in cash and equivalents, at the remainder in risky investments. He does not like "medium risk" investments, because they probably are higher risk than you think.

But watch the video to catch his drift - he lays into the investment bankers/traders who created this mess, delving into how they often "cooked" their books and "gamed the metrics" to maximize compensation, while putting the whole system at risk.

Too many people had all the upside, with no downside. He explains the "asymmetry" and much more - great interview, if a bit depressing. And, for the time being, sell the rallies. The hedge fund deleveraging has more to go.

Comments:

I do not believe for one moment that the bankers were the turkey. The people and the investors were the turkey. there were definatly people in these firms and in the banks who knew the size, complexity, and danger of being as far out on the ledge as we were.

its is the people who HAD to take out larger and larger loans to get a home, the workers who bought into the stock market, all the poor people who have lost half their retirements with the stock market.

we are in a culling. banks, wallstreet, and congress all worked together to both enabled and executed it despite warnings even from the comptroller general.

Posted by on 12/04/2008 at 06:32 PM

Well I think a lot of the quants put too much faith in their models - the equity quants all piled into the same stocks etc, without thinking it thru. VAR is a joke.

Fixed income stuff was worse, but I see what you are saying.

Main St deserves some of the blame as well. Home equity lines propped up the economy for too long.

Congress deserves some blame too...GSE’s were a joke.

Posted by on 12/05/2008 at 07:34 PM