Following Mike Novogratz"s earlier comments about the launch of Bitcoin futures,
“The market trades like it wants to go up, not down...
We are in a speculative mania and my sense is we are still fairly early.”
Infamous "Black Swan" theorist and tail-risk-hedger, Nassim Nicholas Taleb has a warning for the "no brainer" traders hoping to use Bitcoin futures to bet against the "bubble"...
In his tweet, Taleb said,
“No, there is NO way to properly short the bitcoin “bubble”. Any strategy that doesn’t entail options is nonergodic (subjected to blow up). Just as one couldn’t rule out 5K, then 10K, one can’t rule out 100K.”
Taleb"s view was reinforced by Cybersecurity pioneer John McAfee in a tweet earlier saying:
“Those of you in the old school who believe this is a bubble simply have not understood the new mathematics of the blockchain, or you did not care enough to try.
Bubbles are mathematically impossible in this new paradigm. So are corrections and all else.”
Why do career bureaucrats in Washington keep pushing military interventionism and irresponsible monetary policies? Because they face zero risk from the consequences of their decisions, said Nassim Nicholas Taleb during an appearance on the Liberty Report with former Texas Congressman Dr. Ron Paul and his co-host Daniel McAdams.
The conversation focused on some of the themes from Taleb"s upcoming book, “Skin in the Game,” which will be out later this year, including how the homogenous intellectual elite who shape American foreign policy have managed to stay in power despite decades of persistently advancing foolish interventionist policies.
Taleb even offered this colorful comparison:
“Let’s imagine you have pilots who were absolutely unharmed by crashes. People are stupid enough to put them back on planes. Then they would crash a plane, kill all passenger and continue. Well, that system would lead to complete systemic destruction.”
“And that’s what we have now with our foreign policy.”
Just how homogenous is the U.S. foreign policy elite? Remember that through the end of Hillary Clinton’s tenure as Secretary of State in 2013, either a Bush or a Clinton held one of the three highest offices in the U.S. – the presidency, vice presidency or secretary of state – for eight straight terms.
Another reason why interventionist foreign policy often fails is because federal-government bureaucrats and other outsiders don’t have “skin in the game” – an entrenched interest, financial or of another sort, in the conflict - and therefore, are incapable of achieving a comprehensive understanding of the situation. That goes for both elected leaders, beauracrats, and the media.
“We have today so many people sitting in the New York Times Washington office, in an air conditioned office, who can dictate foreign policy with zero risk.”
Dr. Paul seized the opportunity to criticize the “Chickenhawks” who advocate interventionism, but avoided serving in the military during Vietnam.
“I don’t fault them for trying to avoid the war, but I fault them for advocating war,” Paul said.
Many still haven’t internalized the lesson of the 2007-2008 economic crash and how the monetary policy missteps made by former Fed Chairman Alan Greenspan helped cause the crash. As a result, throughout human history, “we’ve never had so many people transferring risk to others,” Taleb asserts.
One reason these actors have been allowed to remain in power is that it"s difficult to assign blame to individuals when you’re dealing with “macro” conflicts like the Syrian conflict that involve many different state actors. This is one reason the policy elite at the State Department - whom Taleb compared to doctors from ancient times, who inflicted more harm than healing on their patients - have managed to stay in power, while a modern-day doctor who was causing an unusual number of patient deaths would quickly be barred from practicing.
Turning the conversation toward the asset bubbles that have continued growing since the last crisis, Taleb explained how Greenspan’s discovery that he could stabilize markets by slashing interest rates has led to our current struggle with unprecedented debt creation and a belief in “perpetual wealth and perpetual growth.”
“Lowering rates in such a manner leads to distortions. If we didn’t have a Fed, we’d be better off because the price of money would be negotiated between people.”
Since the crash, the Fed, by cutting interest rates to zero and embarking on a regime of unprecedented money creation, has succeeded only in “injecting novocaine” into the financial system.
“Now we’re inheriting a situation with $20 trillion in debt and we have interest rates at zero – you can’t intervene when you need them. And the people in Washington who got us here have no skin in the game.”
The Fed’s monetary policy missteps have also helped create the unprecedented economic inequality that exists in the world today, which has bred unprecedented dissatisfaction with the status quo.
Even in France, “Marine Le Pen got a lot of votes,” a sign that her defeat wasn’t an unmitigated victory for the establishment like some in the media reported.
Whatever happens to the Federal Reserve -if it’s allowed to continue monetizing debt or not – it may not matter. Because digital currencies like bitcoin, which are quickly growing in popularity and value, could one day supplant the use of fiat currencies altogether, Taleb said.
During the last U.S. election, people showed that they aren’t “victims of the New York Times.” Moreover, Twitter has helped upend the media power structure in favor of the people and independent thought.
“Trump was elected in spite of 264 top newspapers wanting him to lose,” Taleb noted, adding that he believes the future will be “a libertarian dream.”
“We will destroy what needs to be destroyed, and build what needs to be built,” he said.
When Nassim Nicholas Taleb looks at President Donald Trump, he doesn’t see “a trainwreck.” The real trainwreck, according to the trader turned author, is “unfettered globalization." That"s the real danger that members of "the resistance" should be worried about, Taleb says during an interview with Bloomberg.
While he may not be a staunch "anti-globalist", at least Trump has promised to fix some things in system that, left unchecked, will sooner or later lead to wealth accumulating disproportionately at the top end of income earners as wave after wave of corporate consolidation lines the pockets of the transnational corporate class. When he wrote about the dangers of globalization in his book “The Black Swan, “everybody cheered," Taleb reminds his host. But now, people are defining their views on globalization based on their blanket opposition to Trump, causing them to overlook an even more sinister threat to their economic well being.
Trump could still prove to be a disappointment if he ends up abandoning his promises. But Taleb rejects the narrative of Trump that “some people” - the readers of The New York Times and Washington Post - are buying into: That Trump tried to pressure former FBI Director James Comey into dropping the bureau’s investigation into Mike Flynn, and is on the verge of being impeached.
Ignoring the ceaseless fearmongering in the media, Trump isn’t really that different from other politicians, Taleb says: The main differences are “his language and how he does things in an accelerated way.”
"Trump is not an idiot. There’s a logic to Trump that you can only get if you forget about the news and you look at Trump as Trump.”
By vowing to fix America"s “metastatic” tax code, Trump is on the cusp of accomplishing something truly remarkable by solving a problem 32 years in the making. Taleb also believes that Obamacare should be replaced with something “more rational." Though he stopped short of saying whether the AHCA is the right answer, he made it very clear: It"s not single-payer.
“We’re not Canadians. Canada is a small country you cannot scale things up. We need something different,” Taleb says. However, Trump has made one major mistake when it comes to message: He"s tried to own the market’s performance since the election. By doing so, Trump “bought at the top,” unlike Obama, who took office at the outset of an eight year bull market.
“Claiming credit for that rise in the market makes him vulnerable to a selloff.” While Tuesday"s selloff was likely just a “blip," the tail risk in the market increases with each new record high in the S&P 500.
“If you own stocks without a hedge [right now], it’s not rational.”
Economist-mathematician Nassim Nicholas Taleb contends that there is a global riot against pseudo-experts
After predicting the 2008 economic crisis, the Brexit vote, the U.S. presidential election and other events correctly, Nassim Nicholas Taleb, author of the Incerto series on global uncertainties, which includes The Black Swan: The Impact of the Highly Improbable, is seen as something of a maverick and an oracle. Equally, the economist-mathematician has been criticised for advocating a “dumbing down” of the economic system, and his reasoning for U.S. President Donald Trump and global populist movements. In an interview in Jaipur, Taleb explainswhy he thinks the world is seeing a “global riot against pseudo-experts”.
I’d like to start by asking about your next book, Skin in the Game, the fifth of the Incerto series. You do something unusual with your books: before you launch, you put chapters out on your website. Why is that?
Putting my work online motivates me to go deeper into a subject. I put it online and it gives some structure to my thought. The only way to judge a book is by something called the Lindy effect, and that is its survival. My books have survived. I noticed that The Black Swan did well because it was picked up early online, long before the launch. I also prefer social media to interviews in the mainstream media as many journalists don’t do their research, and ‘zeitgeist’ updates [Top Ten lists] pass for journalism.
The media is not one organisation or a monolithic entity.
Well, I’m talking about the United States where I get more credible news from the social media than the mainstream media. But I am very impressed with the Indian media that seems to present both sides of the story. In the U.S., you only get either the official, bureaucratic or the academic side of the story.
In Skin in the Game, you seem to build on theories from The Black Swan that give a sense of foreboding about the world economy. Do you see another crisis coming?
Oh, absolutely! The last crisis [2008] hasn’t ended yet because they just delayed it. [Barack] Obama is an actor. He looks good, he raises good children, he is respectable. But he didn’t fix the economic system, he put novocaine [local anaesthetic] in the system. He delayed the problem by working with the bankers whom he should have prosecuted. And now we have double the deficit, adjusted for GDP, to create six million jobs, with a massive debt and the system isn’t cured. We retained zero interest rates, and that hasn’t helped. Basically we shifted the problem from the private corporates to the government in the U.S. So, the system remains very fragile.
You say Obama put novocaine in the system. How will the Trump administration be able to address this?
Of course. The whole mandate he got was because he understood the economic problems. People don’t realise that Obama created inequalities when he distorted the system. You can only get rich if you have assets. What Trump is doing is put some kind of business sense in the system. You don’t have to be a genius to see what’s wrong. Instead of Trump being elected, if you went to the local souk [bazaar] in Aleppo and brought one of the retail shop owners, he would do the same thing Trump is doing. Like making a call to Boeing and asking why are we paying so much.
You’re seen as something of an oracle, given that you saw the 2008 economic crash coming, you predicted the Brexit vote, the outcome of the Syrian crisis. You said the Islamic State would benefit if Bashar al-Assad was pushed out and you predicted Trump’s win. How do you explain it?
Not the Islamic State, but al-Qaeda at the time, and I said the U.S. administration was helping fund them. See, you have to have courage to say things others don’t. I was lucky financially in life, that I didn’t need to work for a living and can spend all my time thinking. When Trump was running for election, I said what he says makes sense to a grocery store owner. Because the grocery guy can say Trump is wrong because he can see where he is wrong. But with Obama, he can’t understand what he’s saying, so the grocery man doesn’t know where he is wrong.
Is it a choice between dumbing down versus over-intellectualisation, then?
Exactly. Trump never ran for archbishop, so you never saw anything in his behaviour that was saintly, and that was fine. Whereas Obama behaved like the Archbishop of Canterbury, and was going to do good but people didn’t feel their lives were better. As I said, if it was a shopkeeper from Aleppo, or a grocery store owner in Mumbai, people would have liked them as much as Trump. What he says makes common sense, asking why are we paying so much for this rubbish or why do we need these complex taxes, or why do we want lobbyists. You can call Trump’s plain-speaking what you like. But the way intellectuals treat people who don’t agree with them isn’t good either. I remember I had an academic friend who supported Brexit, and he said he knew what it meant to be a leper in the U.K. It was the same with supporting Trump in the U.S.
But there were valid reasons for people to be worried about Trump too.
Well, if you’re a businessman, for example, what Trump said didn’t bother you. The intellectual class of no more than 2,00,000 people in the U.S. don’t represent everyone upset with Trump. The real problem is the ‘faux-expert problem’, one who doesn’t know what he doesn’t know, and assumes he knows what people think. An electrician doesn’t have that problem.
Is the election of Trump part of a global phenomena? You have commented on the similarity to the election of Narendra Modi in India.
Well, with Trump, Modi, Brexit, and now France, there are some similar problems in those countries. What you are hearing is people getting fed up with the ruling class. This is not fascism. It has nothing to do with fascism. It has to do with the faux-experts problem and a world with too many experts. If we had a different elite, we may not see the same problem.
There are other similarities, to quote from studies of populist movements worldwide: these leaders are majoritarian, they build on resentment, they use social media for direct access to their voters, and they can take radical decisions.
I often say that a mathematician thinks in numbers, a lawyer in laws, and an idiot thinks in words. These words don’t amount to anything. I think you have to draw the conclusion that there is a global riot against pseudo-experts. I saw it with Brexit, and Nigel Farage [leader of the U.K. Independence Party], who was a trader for 15 years, said the problem with the government was that none of them had ever had a proper job. Being a bureaucrat is not a proper job.
As a businessperson, you have a point about experts and pseudo-experts who you say are ‘left-wing’. How do you explain the other parts to the phenomenon that aren’t economic: the xenophobia, Islamophobia, misogyny, etc.?
I don’t understand how a left-wing person can defend Salafism, or religious extremism. In a democracy, you can allow people to have any view, but they can’t come with a message to destroy democracy. Why should people who come to the West come with a message to finish the West? This is where the discourse goes haywire. So in Yemen, the [Saudi] intervention is good, but the intervention [by Russia] in Aleppo shouldn’t be allowed. I don’t think Trump was racist when he said Mexican criminals shouldn’t be allowed into the U.S.; he was targeting criminals. If you are Naziphobic, you are not against Germans. If I oppose Salafism, I am not an Islamophobe. Obama also deported Mexicans and refused to accept immigrants.
Is anti-globalisation a part of this sentiment?
I am not anti-globalisation, but I am against big global corporations. One of the reasons is what they cost. Today, every project sees cost overruns because these projects have to factor in global risks as well. In nature there is an ‘island effect’. The number of species on an island drops significantly when you go to the mainland. Similarly, when you open up your small economies, you lose some of your ethnicity or diversity. Artisans are being killed by globalisation. Think of the effect on so many artists who have been put out of work while people are buying wrinkle-free shirts and cheap mobile phones. I’m a localist. The problem is globalisation comes through large global corporates that are predatory, and so we want to counter its ill-effects.
Where do you see the world moving now? Further right, or will it revert to the centre?
I don’t think it will go left or right, and I don’t know about the short term. But I think in the long term, the world can only survive if it lives like nature does. Many smaller units of governance, and a collection of super islands with some separation, quick decision-making, and visible implementation. Lots of Switzerlands, that’s what we need. What we need is not leaders, we don’t need them. We just need someone at the top who doesn’t mess the system up.
