Monthly Archives: August 2010

Thoughts on Inflation Protection and Other Hedging Approaches – Scala Volpe Capital

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It’s true Nassim Taleb (author of “The Black Swan”) recommends a “barbell” approach for most investors when allocating their capital. What this equates to is putting 80-90% of your funds into very conservative instruments, such as cash, and the other 10-20% into very high risk instruments like options, where payoffs are significant if your options come into the money. This way, you’re insulated against catastrophic loss but positioned to strike it big if your options hit. (Options have the potential for cubic payoffs, a concept I’ll examine in greater detail in future posts.)

But the commenter brings up a good point – what about inflation?

Deep Read: Nassim Taleb (The Black Swan Guy) : Planet Money : NPR

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by Jacob Goldstein

Here’s the latest Planet Money Deep Read — our occasional series of long-ish interviews with writers and thinkers.

Today, we hear from Nassim Taleb, the former Wall Street trader who published a book called the Black Swan back in 2007. The book was re-issued earlier this year, with a long new section called “On Robustness & Fragility.”

Listen to the Deep Read

[19 min 26 sec]

The book argues that most economic models fail because they don’t take into account rare, high-impact events that wind up driving history. (Taleb calls these events Black Swans.) The argument came out looking pretty good after the 2008 financial crisis.

The new section of the book includes, among other things, a prescription for withstanding a Black Swan.

The short version: Get rid of debt.

nntaleb: @felixsalmon sees with clarity: http://blogs.reuters.com/felix-salmon/2010/08/16/the-mess-that-is-deposit-insurance/

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nntaleb: @felixsalmon sees with clarity: http://blogs.reuters.com/felix-salmon/2010/08/16/the-mess-that-is-deposit-insurance/

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JohnH-  Excerpt from the article:

The product in question is CDARS, and Blinder is a founder of the company which invented them. When Blinder wrote an op-ed complaining about an attempt to broaden deposit insurance, I was underwhelmed, writing that “Blinder has a massive conflict: he’s the vice-chairman of the company which runs CDARS, a financial instrument designed solely to get around FDIC deposit limits.” Without deposit limits, of course, CDARS become moot, and Blinder loses a large chunk of income.

The Bed of Procrustes (Work in Progress)

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HatTip to Dave Lull.

Since aphorisms lose their charm whenever explained, I only hint to the reader the main subject of this book, which corresponds to the central theme of Fooled by Randomness and The Black Swan, though rephrased in an aphoristic style —

fooledbyrandomness.com/aphorisms.pdf

6 Gurus Who Told You That Selling Your Treasuries Was A GREAT Idea

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Shared by JohnH

Fortunately or not, I don’t have a lot to wager with, but I wouldn’t be too quick to discount Taleb’s advice.

Nassim Taleb: Every Single Human Should Short Treasuries

” ‘Every single human being’ should bet US treasury bonds will decline”

— Nassim Taleb (Author of “The Black Swan”) on Feb. 4, 2010

Other one-line stunts in the same interview include “[Fiscal] Deficits are like putting dynamite in the hands of children…They get out of control very quickly.” and “Democracies can’t handle austerity measures very well…We are going to have a severe problem.”