Nassim Taleb Says Dump Your Shares

On Uk Telegraph: Investors told to sell shares

• .... He has poured scorn on the economic recovery, claiming that the global economy is in worse shape than it was during the subprime crisis and warns that the US could yet lurch into a Greek-style meltdown.
  
  In an interview with Bloomberg TV, Taleb said the fragility in the banking system that he spotted in 2007 is still there and the bail-out of the financial sector has encouraged bankers to continue their 'casino' operations by increasing moral hazard.
  
  "Look at all of the money they made with our backing- it is like they spat in our faces," he said.
  
  His main concern is that the transferal of debt from the private to the public sector has seen the risks within the financial system increase and 'take a much more vicious form.'
  
  Western governments have been issuing record levels of debt to keep the recovery afloat, but Taleb says that it is inevitable that at some point they will struggle to find buyers of these assets.
  
  "It is clearer than ever that we are going to have a failed auction [of government bonds here in the US that will cause contagion," he said. "There will not be enough buyers of Treasuries and the government will have to print money and before you know it you wake up with hyperinflation without having had any inflation."
  
  So how should investors position their portfolios for such a doomsday scenario? Taleb, who made millions betting against financials during the credit crunch, recommends investors dump long-term government bonds and only hold short-dated debt. He also warns against viewing the dollar as a hedge against the ailing euro, pointing out that both currencies face the same underlying problems.
  
  He dismisses the stockmarket, which would be expected to perform badly in a period of hyperinflation, completely,
  
  "I recommend not thinking about the stockmarket," he said. "It is a big hoax that has disappointed people over the last decade making their retirement plans, thinking it would appreciate."
  
  "Use it as something to play with for entertainment and nothing more."
  
  He favours moving into hard assets and advises investors to build exposure to a basket of metals rather than try and second guess which individual hard commodity will outperform. He also likes agricultural land, but said avoid 'speculative real estate'.
  
  Taleb is certainly a controversial figure in investment circles, but he is always intriguing and even if you do not agree with his outlook, he is difficult to ignore.
  
  The managers of the top-performing Schroder Income fund are to leave the group and move to investment boutique RWC Partners.
  
  Under the stewardship of Ian Lance and Nick Purves, the fund became a firm favourite with investors and has grown into a £1.5 billion giant.
  
  It is easy to see why. The fund is one of only two to have delivered a positive total return over the last three years in the 89-strong UK equity income sector and has consistently topped the charts.
  
  The pair will be replaced by Nick Kirrage and Kevin Murphy, who will run the portfolio alongside the Schroder Recovery fund, which they have co-managed since 2006.
  
  Like Lance and Purves, the new team also sit within the fund house's specialist value team, which will provide a continuity of approach that is leading financial advisers to recommend sticking with the fund.
  
  "Lance and Purves have a very good track record but they are part of a bigger team," says Hilary Brown, investment strategist at Alexander Forbes. "It is a loss, but we are not too worried because Schroders has enough depth to cope and the incoming managers will be using the same investment process and investment philosophy."
  
  Underlining this point, the Schroder Recovery fund has 80pc commonality of holdings with Schroder Income, suggesting the incoming pair will make smaller than wholesale changes to the underlying portfolio.
  
  
  

More Bearish Comments From Dr. Doom & Black Swan

Posted on CNBC. http://www.cnbc.com/id/29103328

From Professor Roubini

• “If you don’t do everything right, and I think there’s a large probability that’s going to happen, then we may end up in a multi-year stagnation or near depression like the one that Japan had,” he added.
  
  Roubini said there is still a 20 percent downside risk to U.S. global equities, and he advises investors to stay in cash until there is a real bottom.
  
  “Officially the write-downs have been about $1 trillion; I see another $2.6 (trillion) coming up,” he said. “…Losses are mounting and this severe recession is going to get only bigger.”

From Nassim Taleb

• “If I follow my logic to the end, what I thought would happen was anything fragile…would break, namely the banks and people who have a lot of debt and private equity," he said. "This is just happening. It’s not finished yet; it hasn’t probably started."
  

Nassim Taleb's Interview With Charlie Rose

If you enjoyed the posting on Nassim Nicholas Taleb's (author of ‘The Black Swan ), And The Bystanders Get Whacked In The Current Crisis, here is an interview of Nassim Taleb and Charlie Rose.

And The Bystanders Get Whacked In The Current Crisis

Interesting commentary from Nassim Nicholas Taleb, author of ‘The Black Swan, published on UK FT.com

• Bystanders to this financial crime were many
  By Nassim Nicholas Taleb and Pablo Triana
  
  Published: December 7 2008 19:18 Last updated: December 7 2008 19:18
  
  On March 13 1964, Catherine Genovese was murdered in the Queens borough of New York City. She was about to enter her apartment building at about 3am when she was stabbed and later raped by Winston Moseley. Moseley stole $50 from Genovese’s wallet and left her to die in the hallway.
  
  Shocking as these details surely are, the lasting impact of the story may lie elsewhere. For plenty of people reportedly witnessed the attack, yet no one did much about it. Not one of the almost 40 neighbours who were said to have been aware of the incident left their apartments to go to Genovese’s rescue.
  
  Not surprisingly, the Genovese case earned the interest of social psychologists, who developed the theory of the “bystander effect”. This claimed to show how the apathy of the masses can prevent the salvation of a victim. Psychologists concluded that, for a variety of reasons, the larger the number of observing bystanders, the lower the chances that the crime may be averted.
  
  We have just witnessed a similar phenomenon in the financial markets. A crime has been committed. Yes, we insist, a crime. There is a victim (the helpless retirees, taxpayers funding losses, perhaps even capitalism and free society). There were plenty of bystanders. And there was a robbery (overcompensated bankers who got fat bonuses hiding risks; overpaid quantitative risk managers selling patently bogus methods).
  
  Let us start with the bystander. Almost everyone in risk management knew that quantitative methods – like those used to measure and forecast exposures, value complex derivatives and assign credit ratings – did not work and could provide undue comfort by hiding risks. Few people would agree that the illusion of knowledge is a good thing. Almost everyone would accept that the failure in 1998 of Long Term Capital Management discredited the quantitative methods of the Nobel economists involved with it (Robert Merton and Myron Scholes) and their school of thought called “modern finance”. LTCM was just one in hundreds of such episodes.
  
  Yet a method heavily grounded on those same quantitative and theoretical principles, called Value at Risk, continued to be widely used. It was this that was to blame for the crisis. Listening to us, risk management practitioners would often agree on every point. But they elected to take part in the system and to play bystanders. They tried to explain away their decision to partake in the vast diffusion of responsibility: “Lehman Brothers and Morgan Stanley use the model” or “it is on the CFA exam” or, the most potent argument, “modern finance and portfolio theory got Nobels”. Indeed, the same Nobel economists who helped blow up the system at least once, Professors Scholes and Merton, could be seen lecturing us on risk management, to the ire of one of the authors of this article. Most poignantly, the police itself may have participated in the murder. The regulators were using the same arguments. They, too, were responsible.
  
  So how can we displace a fraud? Not by preaching nor by rational argument (believe us, we tried). Not by evidence. Risk methods that failed dramatically in the real world continue to be taught to students in business schools, where professors never lose tenure for the misapplications of those methods. As we are writing these lines, close to 100,000 MBAs are still learning portfolio theory – it is uniformly on the programme for next semester. An airline company would ground the aircraft and investigate after the crash – universities would put more aircraft in the skies, crash after crash. The fraud can be displaced only by shaming people, by boycotting the orthodox financial economics establishment and the institutions that allowed this to happen.
  
  Bystanders are not harmless. They cause others to be bystanders. So when you see a quantitative “expert”, shout for help, call for his disgrace, make him accountable. Do not let him hide behind the diffusion of responsibility. Ask for the drastic overhaul of business schools (and stop giving funding). Ask for the Nobel prize in economics to be withdrawn from the authors of these theories, as the Nobel’s credibility can be extremely harmful. Boycott professional associations that give certificates in financial analysis that promoted these methods. Remove Value-at-Risk books from the shelves – quickly. Do not be afraid for your reputation. Please act now. Do not just walk by. Remember the scriptures: “Thou shalt not follow a multitude to do evil.”

Source: here