Monday, January 06, 2014

Of brains and balls: Nassim Taleb's macro bets



Nassim Taleb is a vulgar bombastic windbag, and I like him a lot. His books do a good job of explaining some deep, important finance ideas for a general audience. He has helped popularize the notion of "skin in the game". His trolling of economists is also good for some lulz (I particularly enjoyed his coinage of the term "macrobullshitters").

However, Taleb has a tendency to indulge in a little macrobullshitting of his own. In February of 2010, he advised everyone in the world to short Treasuries:
As for Treasuries, “It’s a no brainer, every single human should short U.S. Treasury bonds,” said the hedge fund adviser and financial author. 
“So long as you see the picture of Larry Summers going to Davos, you have to stay short U.S. Treasuries for another year. It means they (the Obama administration) don’t know what’s going on,” Taleb said. 
“Every time you see the picture of what’s his name, (Federal Reserve Chairman Ben) Bernanke, and he still has that job, you have to run to make sure your position is active. So long as these two guys are in office, that’s the trade.” 
Taleb also recommends betting on hyperinflation using options to buy gold and silver and sell Treasuries.  
“You have a very small probability of making money,” he said.  
“But if you’re right, you’ll never see a public plane again.”
This could be regarded as sound trading advice. If the large probability of small losses is outweighed by the small probability of huge gains, then it makes sense to spend a bit of your money buying deep out-of-the-money puts on Treasuries. The last two lines of Taleb's advice seem to indicate that this is what he's thinking.

But the macroeconomics here is just atrocious (and not just because Taleb feigns not to know Ben Bernanke's name). In 2/2010 Taleb was predicting that the world had underestimated the danger of hyperinflation, and that the world would come to realize that the danger was bigger than it had thought, thus causing Treasury yields to spike and making a huge profit for anyone who shorted them. But history ruled against the inflationistas; even as more and more Quantitative Easing was announced, inflation stayed low and stable. 

In other words, people who think that "money-printing" and deficits lead to inflation were forced to rethink their entire worldview. But probably not before they did damage to the world economy, as John Aziz points out.

OK, fine. So Taleb made one bad macro bet. Big deal, right? If you make macro bets, you're going to get some wrong.

But then, on Twitter, when John Aziz called Taleb out on the bad advice, Taleb did his usual eruption-of-anger thing. "Fucking idiot, my prediction did not fail", he stormed. He asserted that he had made money on the Treasury-shorting trade: "[Aziz] is very idiotic; You would want to see my PL from this [trade]", he wrote. And when I retweeted Aziz, Taleb tweeted to me: "I did OK on [the] trades."

Let's see how Taleb really did shorting Treasuries in February 2010. Here is a graph of yields for 2-year and 10-year Treasuries, starting on the day that Taleb told people to short Treasuries, and ending on the day of his Twitter altercation with Aziz (remember that when yields go up, prices go down):


Could Taleb have made money shorting Treasuries on 2/4/2010? Well yes, he could - a little. Treasury prices fell a tiny bit over the 2 months following his prediction. If Taleb exited his short position before the start of May 2010, he would have made money. BUT, recall that Taleb told "every single human" to short Treasuries for one year. If Taleb got out after 2 or 3 months, he didn't take his own advice.

Everyone who did take Taleb's first piece of advice, and held the short position for exactly one year, might have just barely broken even (in other words, they took risk and reaped no reward), depending on which maturity they shorted. Everyone who took Taleb's later advice, and shorted Treasuries every year that Bernanke was in office, definitely lost a large percentage of their money.

Taleb's mistake was not (necessarily) to advise people to short Treasuries - after all, maybe there really was a small chance of a huge run on Treasuries, and that event simply failed to occur. His mistake was twofold. Buying into the inflationista macro-derp was a minor mistake. But the major mistake, as I see it, was to defend his trade after the fact, and to deride those who - like Aziz - caution against making macro bets.

There's a trading culture out there that encourages risk-taking. A lot of this culture is tied up with the culture of masculinity. To be willing to take big risks is to have "balls". Taleb himself has encouraged this idea, writing that "Those with brains but no balls often become mathematicians; those with balls but not brains join the mafia; and those with no brains and no balls become economists." When asked who has "both brains and balls", he replied that it was "traders".  

Sadly, this culture of testosterone-fueled risk-taking overconfidence is terrible for the average investor, as Brad Barber and Terry Odean have documented. Balls interfere with brains. They make you you believe you have better information than you have - in other words, they make you ignore risks. That's probably why women, on average, make better traders than men. (And overconfidence is only exacerbated if, out of testosterone-fueled aggression, you angrily defend every single trade you ever made.)

Making big macro bets, on things like a run on Treasuries, is a very ballsy thing to do. You can't really hedge a macro bet (or if you do, then you didn't really make the macro bet). And there is very little likelihood that your macro bet will have alpha - after all, macro data is free and public and everyone is watching it like a hawk all the time. As a successful hedge fund manager once told me, "All financially useful data costs money; that's why macroeconomic data is free." Do you really know anything about macro that the world doesn't know?? Zero Hedge would like to tell you that you do. In 2010, Nassim Taleb told you that you do. Your balls would like to tell you that you do.

But you don't.

That's why when Nassim Taleb or some other guy on TV tells you that shorting Treasuries is a "no-brainer", you shouldn't bet your hard-earned money on his advice. You should keep your skin out of that game, because it's a losing game.

106 comments:

  1. Awesome. Taleb becomes one of the "experts" that he derides so much within The Black Swan.

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    1. Anonymous12:59 PM

      Teleb's basic thesis is that the distribution of possible outcomes is far wider than market participants realize. Therefore, you bet on low probability events with potentially unbounded profits. You expect to get paid a lot very rarely. That's all he recommended here. He 'predicted' that this trade wouldn't work the vast majority of the time, and it didn't, so his prediction was correct.

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    2. Nice. So Taleb's prediction is both correct and incorrect. He can't be wrong, because *MACROBULLSHITTERS*. QED.

      I agree with Noah's conclusion. He made a strong statement, and if he wanted it to be taken to mean something other than what he said, he should have said that too. A disclaimer, addendum - something.

      As another commenter pointed out, Taleb's become the very entity he's been critical of in his writing.

      Delete
  2. Anonymous5:39 PM

    this is klueless. Taleb tweeted: trading is not investing and shorting is not predicting. He traded probably 50 times in and out of the trade. Go take a klass on trading.

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    1. Ahh, I think I know who you are...
      http://www.youtube.com/watch?v=Yz2LaJOVAiA

      Delete
    2. Why did you use a K in "Clueless" and "Class." Is there some secret illuminati symbol here?

      Delete
    3. Anonymous5:45 PM

      Yes! Mrsmoketoomuch...Its him!

      Great call Noah ....

      Delete
  3. There is some truth to what Taleb says. In general traders have to take controlled bets (not good for a great night's sleep). One has to be disciplined. If the trade goes against you, a reassessment needs to be made: either cut your position, keep it the same size or "double down". Every trader knows that most of the time the last option typically makes money(assuming that a smart trade was made in the first place). However, typically risk limits will not let one do this for any sustained period of stress.

    Taleb's tail-hedge strategy loses money 95%+ of the time or more. Most funds are judged on a calendar year basis. How do you think he would have looked by that measure. Pretty sh*tty most of the time.

    If he had stayed short on T's the whole time (as required by his own tail hedge strategy) he would have lost his shirt. So did he not? Presumably because he was trading his own P/A rather than investor money (typically pennies on the dollar allocated by actual investors as opposed to Traderbullshitters). This tail allocation is most of the time written off as something that you are going to lose anyway.

    Bottom line: he is full of hot air. Let him bet his whole bundle (how much does he have? say $30m) on UST short and see what happens.

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    1. I agree completely. But if Taleb changed his mind and exited his trade, he should tell people why instead of just angrily defending his earlier advice.

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  4. “You have a very small probability of making money,” he said.
    “But if you’re right, you’ll never see a public plane again.”


    I believe that's called gambling.

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    1. Anonymous8:41 AM

      Only if you also consider taking an insurance policy on your house gambling.

      Delete
  5. Anonymous6:06 PM

    Noah, why the fuck do you care about a trade Taleb did three years ago. It is well known that Taleb is a dynamic hedger - if you had read any of his books you would know he aims to gain from any direction. If you had any clue about trading this post would not exist neither would Aziz's. Please refrain from making comments about trading - your view is utter bullshit.

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    1. Look at what you claim Taleb was doing, and look at what he advised people to do in that speech. There is no resemblance whatsoever.

      But you're smart enough to see that, right?

      Delete
    2. Anonymous6:16 PM

      Noah he is a trader, he wrote dynamic hedging 13 years before this so called 'trade', it is obvious he would be hedged... Plus anyone who listens to predictions should take them with a grain of salt - you would have learnt that if you had read The Black Swan or any of his books.

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    3. For a dynamic hedger there are a few things to keep in mind: (1) If you are long tail vol, by definition there is not much to hedge (deltas are tiny and you don't have any spot sensitivity) (2) You are buying really expensive volatility, and, therefore you are again losing money 95% of the time. Same result my friend (look at the Vols on US payor swaptions for the entire period over the last 4 years, and you will get the picture).

      So Noah's view anything but bs. Your's is on the other hand. And put your name on your posts.

      BTW what is Taleb's tail hedge now? Let's put it down on paper (notional and maturity) and we can track it.

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    4. Anonymous6:23 PM

      Som, who says he was long tail vol that is an assumption, he could have had a number of positions e.g. a number of slightly OTM options and spot exposure. Who knows? Who cares? It was a trade. This post and your comment is full of bullshit bias.

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    5. If it's a trade, fine. It's the advice-giving part that I have a problem with. He got up there and told "every single human" to short Treasuries. He didn't tell them to do dynamic hedging, or to take a number of positions, or whatever. So he was just macrobullshitting.

      And you're just spewing. Go learn to meditate, it'll help curb that excess aggression.

      Delete
    6. Anonymous6:35 PM

      I wouldn't call it advice, he simply gave a fundamental opinion on the market - if anyone made an investment or trade on Taleb's two minute speech they deserve the outcome. No aggression just passion.

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    7. "“It’s a no brainer, every single human should short U.S. Treasury bonds."

      Not advice, eh? Just a fundamental opinion. Mmm hmm.

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    8. Anonymous6:43 PM

      Noah, yes of course it's an opinion, he said it due to his view on the market - sincerely advise you to read any of his books and you'll finally get it.

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    9. I read The Black Swan. Not bad, nothing I didn't know. Or were you thinking of a different book?

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    10. Phil Koop8:12 AM

      I don't agree that The Black Swan was not bad. But Taleb has written one good book: "Dynamic Hedging."

      Don't get me wrong, it's not perfect. All of his usual tics - the bombast, the comically narcissistic self-promotion, the envy of his betters - are there. But there is also the distillation of a lifetime's trading experience.

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    11. TO Anonymous:

      ".....e.g. a number of slightly OTM options and spot exposure"

      So talking about bullsh*t, look at your statement and understand that this does not make him short bonds. Just long volatility.

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    12. Agree that Dynamic Hedging is a good book. Even the tone is helpful to a trader. It is evident that he, along with surprisingly the entire Chicago school, didn't seem to have a functioning model of the economy when QE was put in place. Hence his comments. Suppose he was long tail vol, what would have happened as the vol declined. He must have been carried out whatever the trade was.

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    13. Smolov6:26 PM

      Why is Black Swan such a respected book? It seemed to contain very basic information, and rehashes of statistical issues already covered by a deep literature. There was a point where Taleb claimed that his book was a primary text. Why? If you are familiar with statistics, there was not a single original insight. That is, unless, you count asides like Wittgenstein as "someone who believed word games were important." After all the pointless, asinine references to people like Wittgenstein and Kolmogorov, I couldn't help but imagine a dinner party conversation where a guy tries to impress his liberal arts seat neighbor with such references, even though anyone trained in the respective fields can quickly ascertain his shallow readings.

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    14. It is hard to read Taleb rhetoric phrases and see it as investment advice, IMHO.

      "insofar as what is his name is going to Davos, every human being should short treasuries"

      Get real. Is any sane person reading this text and going to do trades. it is a clear rhetorical quip.

      And... he says on hyperinflation it is a super long shot bet. very low probability of getting rich. Never can you complain on losing such bets

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    15. You know what's utter bullsh*t? Most trading.

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  6. The thing that bothered me by this exchange is Nassim is very sensitive to being respected for being an intellectual. Aziz never said anything about Nassim's P&L. Nassim made a statement that reflected his understanding of how the economy/the fed/interest rates interact. He was obviously wrong. This had nothing to do with forecasting a low probability event that didn't happen. He was simply wrong in his understanding and his analysis - whether he has balls, brains or P&Ls have nothing to do with it. I wish he had been pinned on that. I think it would have made him squirm - it was a shyster move on his part to use the blatant distraction and misdirection strategy. I'd keep telling him he was wrong, make him have the balls to admit his big bad brain screwed up on this one.

    Oh and of course I much admired his books

    (antecedents straightened out)

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    1. Obviously he could be wrong on the analysis and right on the P&L the two have an unknown relationship.

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    2. Anonymous6:32 AM

      green lumber problemo

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  7. Interesting. If Goldman Sachs told "every human being" to short Treasuries we would assume that they are planning to be long, yes? But that's Goldman Sachs, and this is Taleb..... Hmm.

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  8. Taleb just banned me from his Facebook page. Shame, I was friendly with a lot of people on there. His followers are mostly genuinely curious people.

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    1. Anonymous11:48 PM

      That's generous. Every encounter I've had with his followers makes them seem like cultists.

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    2. John Aziz: Wow...that was nice of him.

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  9. Trader types have been throwing temper tantrums for the last few years because their investments haven't made money. The hatred for Bernanke is proportional to the relative performance of the S&P 500 vs hedge funds.

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  10. Anonymous3:13 AM

    I would agree with Taleb's advice, but for a holding period of at least 10 years.

    By the way, hearsay from old colleagues of Taleb is that he was a crap trader, hence the books to explain that trading success is a random outcome ....

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    1. What is "crap trader"?

      He is known to have made millions in multiple market crashes.
      Did your old colleague measure Taleb's long haul P/L or daily returns? Or just Taleb's popularity on the trading floor.

      Also, your guy does not understand randomness. there are measures of success that can filter out randomness. But naive looking at results might see only random outcomes disguised as meaningful indicators

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    2. What measures of success are you talking about here?

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    3. Anonymous12:17 PM

      having earned millions as supposedly he did, seems a good measure of success

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    4. We have only Taleb's word on that, really. Aziz and I have both been receiving emails telling us that Taleb's record as a fund manager was atrocious, and that at Lehman he made one large successful bet and otherwise didn't do so hot.

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    5. Nathanael11:44 AM

      Personal trading records often differ wildly from fund manager trading records. To me, this makes perfect sense. Other economists may wish to do some institutional and psychological analysis and come up with a theory as to why.

      In short, someone who is great at trading for his own account is not someone I'd hire to manage a fund and vice versa.

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  11. Anonymous5:31 AM

    Taleb is full of himself. The guy can't stand being criticised yet he insults anyone who disagrees with him. I agree with many of the ideas he helped to popularise, but as a person, his narcissism and over-reaction to fair criticism is letting him down big time.

    Grow up Nassim (yes I know you are reading this ;-)). You are a good author and an entertaining speaker, but you are not a genius nor a prophet (and never been a good trader or fund manager). Best of luck.

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    1. Anonymous12:19 PM

      well pitty because he is a genius and a prophet. Only if he is too succesful this wont be recognised. Remember 2008 remember 2001 remember Fukoshima, remember the two planet scale tsunami's in the same decade

      Delete
  12. Anonymous6:14 AM

    from his facebook page he is making fun of you as turkey. the turkey problem vs. the butcher. Nice to cherry pick something 4 years in the past and fail.

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  13. Anonymous6:23 AM

    Taleb is crazy intolerant short fused megalomaniac. But krap trader but he loses money all the time ... those who call him krap trader are poorer than he is.
    He is also very unfair, a total asshole.

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  14. Anonymous7:26 AM

    Taleb and Noah, lust like all Krugtrons, are very reliable contra indicators.
    Krugman on Ireland, the Euro, latvia, etc, just do the opposite and prosper.

    That is why the FT is linking to here : - )

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    1. But what am I a contra-indicator of? I usually say it's impossible to know stuff, or at least harder than people think (hence the blog title). Does that mean when I say something is hard to know, it's actually likely to be blatantly obvious?

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  15. The notion of tail risk and probability of extreme events is nothing new for banks and financial institutions. They have known about this since at least 1987 or even longer. Banks notionally try to hedge tail risk, as best they can in an interconnected and highly leveraged system. How do you "hedge" such a system? Probably by distributing the leverage better and regulations (I don't claim to have an answer).

    I read Black Swan and recently skimmed through Antifragile. There really isn't anything new there (and I am not even talking about insight really, but mostly about the minimally disguised alpha-male chest thumping).

    What Taleb does, is go about and publicly insult a number of well regarded economists. A number economists are doing serious work - well above the narrow agenda of filling one's own pockets. Many of course are not, driven as they are by political and other affiliations. But when you consider economists like Stiglitz, Bernanke, Krugman, Summers, Delong, Romer etc. you realize that they are engaged in understanding our economic condition from a great many serious aspects. Like Unemployment. Like Distribution. Like Productivity and Growth. Its not some half-witted attempt to appear macho and/or smart.

    Similarly you would never see a serious investor like Buffet, or Munger or Dalio make statements that insult. Nor from serious portfolio managers like Paulson, Gundlach, Soros or Simons.

    Taleb finds that taking pot shots at economists fairly risk free. Why? Perhaps it is a cheap way to salve one's own deep seated insecurity? After all would it be as cheap hurling the same insults at people like Gundlach or Soros or Tepper, who were long bonds during the same period?

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    1. Nathanael11:45 AM

      The material in Black Swan and Antifragile is not technically new -- it was known in the 19th century -- but like so much correct economics, it was deliberately forgotten by the cult of "efficient markets". That's why it's useful for Taleb to republish this knowledge AND insult the economists who were part of the "efficient markets" cult.

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    2. Anonymous8:48 AM

      Taleb insults these people because they do very well for themselves advising on things, without taking any risk onto themselves.

      Delete
  16. For what it's worth re: women and trading, the linked research doesn't actually say that women outperform men, only that women lose less due to one particular factor (excessive trading):

    "While not pertinent to our hypotheses—which predict that
    overconfidence leads to excessive trading and that this trading
    hurts performance— one might want to compare the raw returns
    of men with those of women. During our sample period, men
    earned average monthly gross and net returns of 1.501 and 1.325
    percent; women earned average monthly gross and net returns of
    1.482 and 1.361 percent. Men’s gross and net average monthly
    market-adjusted returns (the raw monthly return minus the
    monthly return on the CRSP value-weighted index) were 0.081
    and 2 0.095 percent; women’s gross and net average monthly
    market-adjusted returns were 0.062 and 2 0.059 percent.14 For none of these returns are the differences between men and women statistically significant."

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  17. If we are talking about a trade recommendation (which I know isn't the point here), and this trade should be understood as being hedged, and will probably lose money because it's part of a trading strategy in which you make lots of small loses and a few big wins ... in what circumstances could we ever say this was a good/bad recommendation? Can those who are defending Taleb on these grounds answer? Because it looks to me like when his words are seen in this way, Taleb can never be wrong.

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    1. Anonymous6:30 AM

      You measure in P/L not in trades.

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    2. right. So he could come out with: "Everybody should be betting on Will Farrell as the next President. The fact political pundits rule out this possibility just show they don't have a clue. You'll probably lose but if you win you'll never have to work again." and you couldn't call that a bad call because his overall trading P/L looks good.

      If somebody recommends a particular trade, how do you evaluate that recommendation? Why not consider how returns on winning compare to odds of winning? In which case Taleb can be criticised here for implicitly getting the odds of inflation ballooning wrong because he doesn't understand macro as well as he thinks he does.

      Delete
  18. Anonymous10:28 AM

    At least he is making trades. You guys are like art critics. Never make any trades. If you economics bloggers and Bernanke/Yellen etc actually traded you would know how bad your economics is.

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    1. Anonymous10:38 AM

      Could you tell us what trades is he actually making? He is an author (never quite made it as a trader, ask former colleagues at Calyon!).

      If he was trading he would be far too busy to spend his time blocking people on Facebook ;-))

      Buffet/Soros are trading. Bernanke is making decision. This guy is the art critic.

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    2. Bill Ellis12:15 PM

      Why is making trades a virtute ? In fact isn't "making trades" often a way wall streeters make money while adding absolutely nothing of value to the world ?

      Warren Buffett, Gives this advice : "Invest in a very low cost index fund — where you don’t put the money in at one time, but average in over 10 years — you'll do better than 90% of people who start investing at the same time. ”
      No tradeing needed.

      I believe Noah gives basically the same advice.

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    3. warren buffett lost $25 billion during 2008/2009 and had to lobby congress to bail his companies out.

      Delete
    4. Anonymous8:36 PM

      And car dealers trade cars. Does that make them experts in engineering?

      Delete
  19. Anonymous12:22 PM

    since your reply to reply does weird things:

    good point, with the contra indicator evidence

    I wondered a little bit how much I remember from you.

    After your Krugtron "getting 14 out of 15 predictions right" I didnt come here anymore

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    1. Fair enough! Your computer is yours to control.

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    2. Krugtron believe the Euro is an unsustainable system, but a system in which every country's currency is backed by the debt of a single country is sustainable.

      Delete
  20. Kristian L. T. Blom12:51 PM

    My opinion, built on sand, like Taleb's, Azziz'z & every other opinion is that it's important to know what business we are in as well as what business the 'opinionator' is in. Taleb is in the entertainment business and he may be in the trading business as well. Finally forecasts, predictions & calls is what Wall Street (the entertainment business) employs to condition the masses via the classic method of alternating fear & release to part with their money.

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  21. When he states he did '700,000 trades in career' in the context of these spats, that's not trading in the sense of speculating on an anticipated price move, that's market making, which is entirely different an irrelevant to speculating (done correctly). Humans don't have 700,000 opinions that cover the bid-ask spread. That he constantly conflates market making with speculation highlights that he's not intellectually honest because he knows he difference yet throws those statements around merely to bully critics about his latest nonfalsifiable assertion. He writes about such intellectual pettiness in his books because as he embodies the vices he likes to write about (BSer, charlatan, hubristic, pedantic, crude, etc.), he understands them.

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    1. Anonymous6:29 AM

      Eric falkenstein is a crank with obsessive disorder with Nasim.

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    2. It remains a bet that he asserted has "low probability of making money". So this rampage is funny.

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    3. Nonsense, Eric.

      In 25 years trading, there can be millions of individual bets to make.

      Then, one can always go nitpicking. How you count bets etc etc

      You speculate there were not so many bets. Go speculate

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    4. Anonymous12:39 AM

      This rant is utterly ridiculous - OF COURSE you would include hedging the deltas etc, because that is an actual trade and he mentions trades in career... Market makers are often short vol too - directional inventory risk! Clearly you haven't actually made a market before because you talk about it as though it is risk free!?!
      How did you get that job at Pine River?

      Delete
  22. Why can't Taleb go short Treasuries but hedge with a long equities position? Equity traders have said that the taper and higher rates are the main risk to equity prices. If you believe that higher (lower) nominal rates will result in lower (higher) equity prices, then that short Treasuries long equities trade would follow.

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  23. Anonymous3:50 PM

    If the market is efficient, then there obviously can't be no-brainer trades. The trade is either riskier than some people would like, or has less pay-off (or a worse ratio of those things, or some other negative factor) - if it didn't, the price would adjust until it did, right?

    But if the price is always perfect, then you also can't go wrong. You should simply invest at random and trust the market pricing to always be fair.

    The fact is that the price of assets accounts for the risk premia and time preferences of all potential investment dollars, and trends and highly salient information channels can affect prices in ways that are not perfect. Humans have a tendency to hedge towards the middle when estimating values, and the market is full of examples of explosive many-multiple growth that was not baked into the price. You don't need to beat the greatest of expert traders... you only need to be more patient, better informed, and less sentimental than the average investor.

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  24. we'll see.

    by the way, where's my free money?

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  25. Anonymous8:45 PM

    I am much less concerned with Talebs prediction 4 years ago. He like others relied on the fact that printing money would be inflationary. A better approach was espoused by Richard Koo and a balance sheet recession.

    I shorted more treasuries for simple reasons.

    1) The economy is expanding faster than anticipated. GDP revisions are significantly higher. Unemployment is decreasing and job growth for December will exceed 200,000.Both ISM employment numbers for December indicate job growth exceeded expectations.

    2) QE taper has begun. The treasury market has been manipulated for the last 5 years by the FED. They are now exiting. The largest marginal buyer is buying less and less. With GDP of 3% rates will normalize. Who wants to be long duration? Way too much risk.

    3) Prices revert to the mean. Look at long term charts. The world didn't end. Rates hit their historical bottom and have only gone up in the last 6 months.


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    1. If printing money is not inflationary, why is the fed doing it then? I thought fed wanted higher inflation. Are you saying the fed is totally wrong?

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    2. The fed and krugman say higher inflation would be good and that QE will increase inflation, Austrians say inflation would be bad and out of control, inflation did not happen, thus krugman and co say this prove austrains wrong and that QE does not cause inflation, so the fed has been doing something useless for 7 years? LOL wat?

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    3. Anonymous11:42 AM

      There are two types of inflation. Cost push and demand pull. We have had neither. In respect to printing money being inflationary what you need to consider is the velocity of money. The printed money has had very limited velocity. In a balance sheet recession people pay down debt to reduce their over leveraged positions. The Fed ZIRP (zero interest rate program) was a way for business and consumers to lower their debt service which enables them to reduce debt. The printed money has stayed in Bank reserves as bank are reluctant to loan and business and consumer reluctant to expand.

      Todays ADP jobs number augers well for a strong employment report on Friday. Bonds are off sharply and the 3% resistance on the 10 year looks extremely vulnerable.

      Delete
  26. With regard to women, one of the best bloggers I ever read was Maxine Udall, Girl Economist, but so sadly she died young three years ago. Here's a sample of her great work:

    http://www.maxineudall.com/2010/12/weve-come-a-long-way.html

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  27. If treasuries collapse (yields rise), what would Noah Smith do? Issue a retraction?

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    Replies
    1. Anonymous12:11 PM

      Noah didn't predict treasuries to go up. He merely exposed the double standards of Mr Talab.

      Delete
    2. Shalom1:11 AM

      Yeah but then Taleb would be vindicated (even though I don't think he will be).

      What I want to know is why Aziz & Noah have started this campaign... Who knows what he bought, maybe he got long a leap with very low IV. You can still make money if IV goes up even if you're wrong in direction.

      These guys know nothing of what they talk.

      I will concede something though, Taleb shouldn't be up there trying to jawbone the bond market when he clearly doesn't understand it. However, some things do need to be criticised, and generally that is a good thing. Taleb put the Fed to the test of scrutiny and was wrong, end of story. And retail bloggers like Aziz and hacks like Noah (who presumably don't trade) should put it to bed now.

      Delete
    3. Revising priors good. Derp about dangers of debt — while ignoring dangers of mass unemployment — bad.

      Delete
    4. You would still be losing money on gold if you invested in 1980.

      Delete
  28. Although I'm a bit behind in saying this, it seems you've ruffled Mr. Taleb's feathers, Noah...

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  29. Does he tell people to buy lottery tickets too?

    ReplyDelete
    Replies
    1. No, he doesn't tell people to buy lottery tickets, because their return value is clearly bounded, and you can tell the risk vs reward is terrible.

      He recommends betting on long shots when you there's a chance that the rewards are extremely large. But essentially he's just a "barbel" guy: invest in some safe stuff, but also invest in some risky stuff with potentially high rewards.

      This isn't as revolutionary or as interesting as he makes it out to be.

      Delete
  30. Anonymous2:42 PM

    Someone should tell Dr. Taleb that there are a lot of economists who dont macro. He's a very smart guy, obviously, but generally when you generalize you make a fool of yourself. I know that there's a whole contingent of the population who truly, deep down, believes high-finance, fancy trades, and prediction of financial/economic events is just the bees knees of life goals. There are, however, a lot of ECONOMISTS studying health, labor, IO, game theory, etc. Then there are the macro guys doing trade, international, life-cycle, and so on. I find it astonishing that such an educated man has such a small view of the world.

    ReplyDelete
    Replies
    1. He's not as smart as he thinks he is.

      But then aren't most of us?

      Delete
  31. Anonymous3:40 PM

    Nassim wrote about Noah error 15 years ago. Noah made a n=1 mistake he should go back to school. Elementary n=1 mistake.
    https://twitter.com/nntaleb/status/420903297491275776/photo/1

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    Replies
    1. If Nassim's treasury tip had paid off he'd be on CNBC lapping up up the praise. Now that's an antifragile approach — if your prediction fails, you deny it was a prediction, if it succeeds then lap up the adulation!

      Personally, I am not criticising him for making his macro bets, I understand his trading strategy, although Noah is absolutely right to raise Barber & Odean as trading just isn't a viable approach for most people irrespective of the strategy. But the really bullshitish aspect of all of this is that Nassim seems to want to abolish macroeconomics and replace it with stuff he pulls out of his ass about how debt is awful because it accelerates volatility and therefore austerity is awesome. Sure, macro isn't a hard science, but a Bayesian mixture of qualified empirics, falsifiable predictions, consistent theory are still way better than just making stuff up.

      Delete
    2. Childsplay1:34 AM

      To be honest I don't think he would be lapping up the praise, because he isn't in the prediction business.

      Delete
  32. The problem with Taleb can be boiled down to his problem understanding Keynes.
    As Minsky pointed out in his book on Keynes, the basis of his analysis was the huge uncertainty a businessman faces when making an investment decision. That uncertainty leads to panics when the economy freezes up, and that panic has to be undone by concerted effort if you are to get out of the freeze.
    For someone who claims to understand unlimited uncertainty, his failure to understand the basic idea behind Keynes is, simply, stunning.

    ReplyDelete
  33. My problem isn't with Taleb's missed call. Like I said, everyone makes those. It is n=1.

    My problem is with Taleb's defense of his missed call after the fact. He should just say "You win some, you lose some". Instead he felt he had to deny his mistake. That's a bad example.

    Also, his macroeconomic outlook is silly, as Aziz pointed out eloquently.

    ReplyDelete
    Replies
    1. Childsplay1:42 AM

      Macro aside - this is the most retarded thing I have read all day... Watch the whole video Noah!

      Delete
  34. His bets are long shot bets. Also, I believe the way he places bets is even less known, which means he might have actuallubgained even on this specific bet, depending on which exact instrument he used etc.

    Nobody has proven yet that his treasuries call was wrong. It was a probabilistic call (I.e. X% chance for treasuries to fall). And we have only one outcome- not reliable probability ex ante distribution.

    ReplyDelete
    Replies
    1. Anonymous10:31 PM

      “It’s a no brainer, every single human should short U.S. Treasury bonds" is not a probabilistic statement, and if you really believe it is, I have a great bridge to sell you.

      Delete
    2. Childsplay1:33 AM

      Obviously not quite familiar with hyperbole.

      Delete
  35. Just a few thoughts on that: suppose you bet on an outlier event (doesn't matter based upon what assumption):

    How do you do that to maximize your Profit? You go for Long Options. Then: how much money do you use to do that? Most certainly not a 100% of what you have (if you do that you should really reconsider mental help) -> but maybe 1% or 2%, at maximum five and ideally, you have other incomes/returns the off set this premium paid in the case of "not happening, e.g. your options expire worthless.

    Ideally, these incomes/returns are not correlated in any way to your outlier bet, it's best to use cash flow from old/closed out profitable trades prior to that as they are available.

    Now - your rare event is maybe not so rare but for the time being it'll remain very rare yet close to non-existent (i know... all I am saying: just did not happen UNTIL now) and you lose money on the trade.

    In my view: losing a little while having the opportunity to make a huge killing is mandatory in trading/investing? So in a way, Taleb is right: he did OK on this trade?

    Anyone?

    Cheers,

    Trader D

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    Replies
    1. Shalom1:41 AM

      Would need to look at the implied and historical vols... I haven't the time to log on to my eDerivs to check it, but it is quite likely that through hedging deltas Taleb hasn't lost his premium as there has been some vol in treasuries.

      Delete
  36. Shalom12:59 AM

    Wouldn't a LESS RUDIMENTARY analysis look at implied vols along the curve over that timeframe!?!

    ReplyDelete
  37. Anonymous10:59 AM

    Saw the Video, and can say noah is acting in bad faith. Taleb was doing a hypothetical portfolio with barbells and out of the money options, with 20 positions of which this is one.
    Totally insane that someone would write this article.
    The video was posted by someone on Taleb's FB page.

    ReplyDelete
    Replies
    1. Hatchet job that failed1:37 AM

      +1

      Delete
  38. Ken Heebner also takes big bets and has very inconsistent returns.He isn't necessarily brash but he holds "legendary" status as Taleb does.

    http://www.bloomberg.com/news/2013-02-26/ken-heebner-bets-21-of-his-stock-fund-against-treasuries.html

    ReplyDelete
  39. I think that Taleb is an awesome engineer of human behavior.

    His last book explained how different professions can allow a practitioner to choose particular images, and that of the author rewards both very fame and notoriety. He points out that his message will best be spread by negative reviews.

    He then includes segments and does interviews that contribute to his notariety, the negative reviews roll in, and his message is spread more widely.

    He made a lot of $ on the books I think, but far more trading. Pretty rare for that to happen, and that skin in the game is why his opinions are valuable. Have to give the man credit, whether he won or lost on that trade, he followed his own advice.

    ReplyDelete