Nassim Taleb: "We Are Going To Have, At Some Point, A Failed Auction"

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Thu, 05/13/2010 - 17:08 | 350145 Leo Kolivakis
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Love Taleb's "in your face" style, but he's wrong. The risk of debt deflation is still too high to shun Treasuries altogether. In fact, the biggest contrarian bet of all over the next decade will be to go long Treasuries, and stay long.

Thu, 05/13/2010 - 17:35 | 350213 jc125d
jc125d's picture

Leo, when rates spike, where goes your long treasury bond price? Go long and stay long, stay underpaid for the risk. What am I missing? 

Thu, 05/13/2010 - 17:46 | 350255 I am a Man I am...
I am a Man I am Forty's picture

When are rates going to spike??  Before that happens they will send the market down a thousand points so everyone will run back into treasuries.  At least it is working so far.

Thu, 05/13/2010 - 17:49 | 350265 Burnbright
Burnbright's picture

Nothing, it doesn't make sense to go long treasuries when swap lines are open and interest rates are basically 0% meaning money is free.

Hmm lets bet against inflation when money is fucking free, real smart.

Thu, 05/13/2010 - 19:14 | 350452 Popo
Popo's picture

Well, one must point out: It would have been 'real smart' to bet against inflation in Japan for the past 20 years -- and rates were at 0%. Low rates aren't always inflationary.

Thu, 05/13/2010 - 21:25 | 350723 AccreditedEYE
AccreditedEYE's picture

Japan was cut off Popo... an isolated event. This is a global collapse we have coming. Also, we have commodity prices and risk assets rising together. $ not being loaned out by banks be damned... with all of the liquidity in the system inflation has GOT to leak out into various places. It's either that or you do get a market crash because deflationary forces are overwhelming the firepower of the Fed. You can't have your cake and eat it too. Both ways out are ugly.

Thu, 05/13/2010 - 17:42 | 350237 Edna R. Rider
Edna R. Rider's picture

It seems you can accomplish nearly the same thing but staying in cash.  At 3-4% with significant risk (unless your crystal ball works better than mine) it seems cash is the best asset right now if you believe things will be "OK" but deflation will ultimately take hold.

Thu, 05/13/2010 - 17:42 | 350239 PeterSchump
PeterSchump's picture

You obviously do not fear a failed auction.

Thu, 05/13/2010 - 19:19 | 350459 Popo
Popo's picture

A failed auction isn't possible under the primary dealer system.

Thu, 05/13/2010 - 19:50 | 350526 mephisto
mephisto's picture

Excuse my ignorance, but why not?

Thu, 05/13/2010 - 22:43 | 350850 Landrew
Landrew's picture

Duh! A 100% primary purchased auction is a failed auction. That is exactly what he means. When a government has to purchase all of it's own debt that is a failed auction.

Fri, 05/14/2010 - 08:41 | 351372 Crime of the Century
Crime of the Century's picture

A failed auction isn't possible under the primary dealer system.

Whoa. Do you even understand what Tyler is saying above?

Thu, 05/13/2010 - 19:56 | 350541 assumptionblindness
assumptionblindness's picture

Leo does not fear a failed auction because he has witnessed evidence that it will not be allowed to occur.  I often find myself torn between knowing what should happen (failed auction) and what IS happening (green shoots, V-shaped recovery, ZIRP forever).  Leo (like the rest of us) knows that the game is on, however, doesn't believe in a hard landing.  Maybe that is why he can make the leap to solar energy technology will be the next big thing as long as there is reserve currency money to pay for it.  As for myself, I beleive that we have already blown our money shot...calling in a fluffer to set up a 2nd take is a waste of effort.

Thu, 05/13/2010 - 22:22 | 350818 living on the edge
living on the edge's picture

Leo, if you go long on treasuries you can say "so long to your money"...

Thu, 05/13/2010 - 23:13 | 350896 digilante
digilante's picture

Agreed, Leo. There will be no fails on USTs. TBT is still a very crowded trade. USA, and now Euroland have assumed the Japanese Disease - years of "sub-optimal" growth and very low IRs. And every time Europe or SA or the Asian periphery barfs, there will be renewed luv for the USD and its proxies.

Fri, 05/14/2010 - 00:44 | 350979 bruiserND
bruiserND's picture


After 15 years in the Treasury bond pit at the Chicago Board of Trade commencing in 1980 I would have to say that Taleb's comment /observation / prediction was the wisest thing I've seen in quite a while.

Ever seen it locked limit sellers for days while everyone is long and the only way "out" is in a body bag?

The law of supply and demand needs no rationale.

Fri, 05/14/2010 - 00:57 | 350986 Double down
Double down's picture

Love him too, but I think you are wrong about treasuries, being long those may look "wise" but is merely "Avant guard".

I dislike arguments with too many certainties, a diamond with many flaws and cracks may still be a diamond but far from priced as such.  

Something else is brewing 

Fri, 05/14/2010 - 04:26 | 351142 ConfederateH
ConfederateH's picture

Leo's sage investing advice:  sell all your gold and buy solar stocks and 30 year tbills.  Sounds like Leo is suffering from brain-flatulence.

Thu, 05/13/2010 - 17:11 | 350153 sheeple
sheeple's picture

Nero Tulip: I'm innocent!

Thu, 05/13/2010 - 17:23 | 350186 -1Delta
-1Delta's picture


Thu, 05/13/2010 - 17:12 | 350156 Cistercian
Cistercian's picture

 Benrons response to the crisis is like hosing down a fire with gasoline.

 A plane analogy would be pushing the stick forward while lighting the afterburners....and never pulling up.The only question is: how big will the crater be?Impact velocity and fuel remaining influence crater size, as does angle of impact.After the EPIC FAIL that is coming, people will dissect and investigate the catastrophe for years.

 And, given enough time...probably repeat it!


Thu, 05/13/2010 - 20:34 | 350624 Problem Is
Problem Is's picture

" Benrons response to the crisis is like hosing down a fire with gasoline."

Little bald boys who play with fire will get their beards singed off and their little helicopters engulfed in flames...

Thu, 05/13/2010 - 17:15 | 350167 Greater Fool
Greater Fool's picture

Taleb seems to be overreacting to his past at times. His book on dynamic hedging of vanilla and exotic options is a little low on equations as such books go, but it has lots of graphs and numbers and a good amount of common sense, which is rare. Excellent book. Too bad he's too busy making himself into a cartoon character.

Thu, 05/13/2010 - 17:19 | 350174 bada boom
bada boom's picture

"The stock market is a big hoax, hype thing"


Thu, 05/13/2010 - 17:20 | 350179 whatsinaname
whatsinaname's picture

Any good engineers here ? Now BP wants to put a tube into the broken pipe. I sure wish them luck but have my doubts. At that pressure will the robot be able to put the tube in without messing up.

Please save Key West and the Coral Reef !!

Thu, 05/13/2010 - 17:43 | 350243 JW n FL
JW n FL's picture

Drill Baby! Drill!!


Conservative Bush Voters Rock Bitches!!!!


heres your handy work!

Thu, 05/13/2010 - 18:23 | 350334 Jesse
Jesse's picture

Operation Catheter?

Thu, 05/13/2010 - 20:45 | 350643 Problem Is
Problem Is's picture

I was just reading whatsinaname's BP post...

It made me think of your Lloyd B. God and his big straw...

Then I scrolled down..Whoa...Jesse...
If Lloyd can reach over and drink up your milkshake Jesse, can't Lloyd put his big straw in and drink up the oil?

Fri, 05/14/2010 - 03:17 | 351102 merehuman
merehuman's picture

Odd that your plea for help would be junked.

Am i wrong to think this leak could have been closed days ago, were they to simply close it. But are in fact attempting to close it and still get the oil out and it aint working out for them.

At this rate all points of entry into the gulf ought to be monitored and perhaps blockaded so the entire ocean does not get poisoned. The size of the opening is 20 inches, thats the size of your average garbage can lid.

How much of florida will get the seabreeze? I mean oil fumes?

Thu, 05/13/2010 - 17:22 | 350185 Mongo
Mongo's picture

Cameron knows the problem?... ORLY?


I think they are all the same but lets give Caremon a chance and watch what he accomplishes.


The first politician in government position that says that stimulus is MADNESS gets my vote.

Fri, 05/14/2010 - 08:47 | 351387 Crime of the Century
Crime of the Century's picture

I think they are all the same

Chris Christie doesn't give a flip what his detractors think, or whether he gets reelected. Refreshing.

Thu, 05/13/2010 - 17:31 | 350205 Hansel
Hansel's picture

According to Taleb, is agricultural land that which is currently growing produce, or which could in theory grow produce?  IMO, everyone has become a rent seeker and no one wants to work, meaning no one is willing to put in the work growing crops.  Further, just about all land could grow something (even a backyard in suburbia, and actually some of the best land was turned into developments in the boom), but it takes work.

Thu, 05/13/2010 - 18:06 | 350303 Hulk
Hulk's picture

Depends on how much you want to spend. Producing ag lands can be expensive.Our approach was to buy land that had 60% of the timber removed 10 years ago, hog off the brush and convert to both pasture and crop land. Much cheaper that way and one can find great deals on land that has been timber harvested. Tons of work, I can't emphasize that enough, but we like the physical labor


Thu, 05/13/2010 - 20:23 | 350595 ColonelCooper
ColonelCooper's picture

10,000 square feet will grow more than enough food to feed 10 people under most circumstances, IF you can irrigate it.  Generally I plant half that, and keep about three times that amount sown into alfalfa and clover.  I rotate plots every 3-4 years.  That 5,000 feet grows enough four a family of four, and I probably give away a third.

As Hulk said, one cannot stress the amount of work, especially while you are establishing plots. (it gets easier)  If you enjoy hard physical labor, it's a hobby.  If you don't, buy some shit that I'm gonna need, and I'll trade you veggies.  :)

Thu, 05/13/2010 - 20:40 | 350645 Hulk
Hulk's picture

It beats wasting time in the gym, eh ColonelCooper?

Fri, 05/14/2010 - 00:56 | 350984 glenlloyd
glenlloyd's picture

That's an argument I made years ago, that the gym had actually just become a substitute for physical labor, a sort of "clean" way to stay in shape. Overall it doesn't have the same impact as cutting your own firewood or planting / cultivating / harvesting crops or tending livestock. You can get a nice physique but you don't learn much.

Fri, 05/14/2010 - 03:24 | 351107 merehuman
merehuman's picture


I shared with my neighbors also, and with the birds,bees, slugs and other bugs. Eggshells seem to keep the slugs down. I have REAL green shoots now and the taters are up 16 inches.  beer works on those slugs too as well as boards treated with a solution of sugar water. But you have to pick them off each day till they are all gone. Also have ground squirrels, there went the tulips. Deer jump the fence, leave tracks in the garden as they munch and the dogs wake the entire hood. Its a wonderful life.

Fri, 05/14/2010 - 08:52 | 351394 Crime of the Century
Crime of the Century's picture

Sounds like a rural/suburban garden. I have had good luck with the motion sensor Scarecrow, although it is most effective in keeping cats from using my raised beds as giant litter boxes.

Thu, 05/13/2010 - 17:32 | 350206 Highrev
Highrev's picture

A Failed Auction? To whom? Between sovereigns, they're all pretty much the same, aren't they? Where's the money going to go? Into private debt? Perhaps, but that'll take a while.

Thu, 05/13/2010 - 20:23 | 350585 Bear
Bear's picture

Right on ... What CB, when asked would not buy Treasuries? It is long past the time when any legitimate buyers are still in the market. If push comes to shove the US Treasury will buy it's own bonds. That's how I got rich ... going into debt to payoff my debt ... a billionaire for a minute.

New market in personal CDS's ... kind of like the CCE (Chicago Climate Exchange) 

Thu, 05/13/2010 - 17:38 | 350217 Rogerwilco
Rogerwilco's picture

There will never be a failed auction in treasuries, for the same reasons the Treasury will never default on U.S. debt.

Thu, 05/13/2010 - 17:42 | 350236 bada boom
bada boom's picture

There will be some day.  The sun will not last forever;-)

Thu, 05/13/2010 - 17:48 | 350262 JW n FL
JW n FL's picture


Why will an Auction Fail?

Beucase the Banks with a 0% Fed Window will not support the Treasury?

O... Wait that would be printing out of thin air to print out of thin air and a lie?!

Yeah... whats your point... is the Fed out of Paper?

The Fed is not going to fail, the Sheepeople who don't know and don't want to know don't care that you know and you think that this time around its different...


First of all, let's talk about debt. While leverage works well when things are going up, it obviously magnifies problems when things are going poorly. In some sense, assets are contingent, but debt is forever. Here in America, total debt compared to GDP now stands at around 280% to 300%. (By definition, these numbers are estimates, since it's impossible to arrive at a precise figure, but the latter is not needed in order to get the gist of what's going on.)

This is the highest debt-to-GDP ratio that the country has ever seen. By my calculations, as we exited 1929, debt-to-GDP was about 200%, though it did rise pretty dramatically while we were in the Depression, to about 300%. But by 1950 or so, the debt-to-GDP ratio came in at about 150%. It rose to some 220% in 1990. So obviously, our current ratio of total debt outstanding to GDP is the highest it's ever been (the Depression excepted).

Thu, 05/13/2010 - 17:56 | 350285 bada boom
bada boom's picture

JW, are you responding to my comment or Taleb?

I don't think a treasury auction will fail.  The consequences would be unimaginable.

Thu, 05/13/2010 - 19:09 | 350445 akak
akak's picture

The unimaginable all too frequently becomes the inevitable.

Or have you not been awake for the last 2 or 3 years?

Thu, 05/13/2010 - 19:43 | 350510 bada boom
bada boom's picture

Go easy on me akak, I just got back on the wagon after a 10 year drinking binge.

I understand anything can happen, I just don't know all the consequences.

By the way, what's happened the last couple of years;-)

Thu, 05/13/2010 - 20:45 | 350583 akak
akak's picture

Sorry, I was smiting trolls here bigtime today, and maybe got a bit carried away!

No offense meant to you --- I was speaking more generally in my comment above.

After cleaning up trollturds behind JohnnyBravo ("MasterBates") and Jory and JayBayBaker, one's nerves do get a bit frazzled!

Fri, 05/14/2010 - 03:32 | 351111 merehuman
merehuman's picture

The rest of the world may lose their confidence in the dollar since the euro is setting a new trend.

All those dollars coming home would shake our remaining confidence via hyperinflation. A "perceived" failed auction could do it as i am sure china and others are watching also and will act according to their own interest.

Fri, 05/14/2010 - 09:03 | 351417 Crime of the Century
Crime of the Century's picture

Folks can argue whether an auction actually failed or not, but the inevitable hyperinflation makes the point moot. Currency fires will create a firestorm where all paper gets sucked into the vortex.

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