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

Tyler Durden's picture

Set aside the stupidity about Taleb causing last week's sell off for a minute and you have 14 minutes of very relevant insight not only into last week's crash, but into the real events that precipitated it: namely market structure, European contagion and the precarious US economic situation. In a Bloomberg TV interview a thousand times more informative than Taleb's CNBC appearance (presumably it has to do with the absence of the Power "I love to hear my voice" Lunch brigade), the Black Swan author discusses what keeps him up at night: a failed auction. Once again, we differ in a slight nuance that not even a failed auction, but the impression that the auction status quo is changing will be sufficient to set off the treasury avalanche. Whether that means a dramatic change in the Direct Bidder regime, the Primary Dealer hit ratio, or some other metric, we don't know, which is why we log each and every auction to keep track of any potential outliers and aberrations.

Also, Taleb shifts his eyesight away from Rubin and Greenspan as the biggest perpetrators of the crisis and now focuses on any person who works for the Office of the Management of the Budget. Nassim also spares no words of kindness for Geithner, Summers ("he will do to us what he did to Harvard") and, of course, Bernanke, "who crashed the plane."

Taleb's advice: stay away from Treasuries (especially long-term), avoid both the euro and the dollar, have a collection of metals and agricultural land exposure, and "use the stock market as something for entertainment not investment." And definitely stay away from school and equations.

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Leo Kolivakis's picture

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.

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? 

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.

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.

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.

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.

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.

PeterSchump's picture

You obviously do not fear a failed auction.

Popo's picture

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

mephisto's picture

Excuse my ignorance, but why not?

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.

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?

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.

living on the edge's picture

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

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.

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.

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 

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.

sheeple's picture

Nero Tulip: I'm innocent!

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!


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...

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.

bada boom's picture

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


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 !!

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?

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?

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.

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.

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.

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


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.  :)

Hulk's picture

It beats wasting time in the gym, eh ColonelCooper?

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.

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.

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.

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.

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) 

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.

bada boom's picture

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

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).

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.

akak's picture

The unimaginable all too frequently becomes the inevitable.

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

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;-)

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!

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.

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.