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Taleb: "Every Single Human Being" Should Be Short U.S. Treasuries
Yet another supporter of the huge imbalance between bond supply and demand emerges, this time it is the ever controversial Nassim Taleb, who speaking at a Moscow conference today, the same place where Roubini said to get the hell out of the dollar, said that "every single human being" should bet USTs will decline "citing the policies of Federal
Reserve Chairman Ben S. Bernanke and the Obama administration."
From Bloomberg:
It’s “a no brainer” to sell short Treasuries, Taleb, a
principal at Universa Investments LP in Santa Monica,
California, said at a conference in Moscow today. “Every single
human being should have that trade.”
Taleb said investors should bet on a rise in long-term U.S.
Treasury yields, which move inversely to prices, as long as
Bernanke and White House economic adviser Lawrence Summers are
in office, without being more specific.
Zero Hedge has observed previously the roughly $700 billion demand shortfall in 2010 UST issuance which can only be filled by rates surging substantially higher. The alternative, as we have discussed extensively, an engineered stock market collapse. Today is looking pretty good so far in that regard. Then again, a race to the bottom for currencies and for general asset risk is probably not the stuff efficient investment decisions are made of.
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I heard his last name translated from Arabic means "attention whore".
Maybe, but it has the same 3-consonant root as the Pashto "Taliban" (T-L-B), plural for "Students". Taleb in Pashto is literally a student or seeker of knowledge. In Modern Standard Arabic it is Tilmidun.
Is the spelling of human a slow NewSpeak evolution? How about Hymen Boing?
How do you play that? Buy the TBT or the PST?
I think TBT is the best way to play it. Longer-term Treasuries will be hurt the most. I am selectively long TBT using my trading algorithm (i.e. I don't hold it long-term but I do have a timing algorithm running on it to optimize my risk/reward ratio on it).
I also have an algorithm. It finds comments of people that describe their trading strategy, in detail, and yet manage to provide no use to the reader.
Sorry, ML, I enjoy your comments, but I had to rip you a new one on that. I felt like I was on yahoo finance forums for a second there.
Having said that, I have dabbled with TBT myself, definately looking at that. Though, at the moment, the only holding I have right now is a bunch UUP March $24 calls. YeeHaw
Fair enough. I too get annoyed with folks who pimp their systems.
I was really only mentioning their existence because I feel in a market like this, a good timing / hedging / risk-reward management system is essential.
I'm not here to pimp anything; I don't give advice or offer my algos to anyone at any price, nor do I describe how they work (... though they did call the downturn at 10:15 AM Wednesday on the dot, keeping me in FAZ, SRS, FXP, and SKF overnight -- best trading day yet!).
Sounds good. On that note, let me know if you're hiring. ZH still doesn't have a job board on here. ;-p
Sounds like economic war cry from the russians...
[both nassim and roubini speaking from moscow, so surely pleasing the host country. thats what I mean]
Is that a contrarian clarion call or what?
SOUNDS LIKE SOMEONES BEEN WATCHING TOO MUCH CRAMER!!!!!
Just grabbed 2 more gold eagles, man they're giving it away free at those prices
that's a stupid thing to say - if everyone was short there would be no way they could go down
the biggest head fake of all is the bear flattener and while every human being is short the long bond it will rally as the front end gets hit. the front end is where all this cash is parked waiting for higher rates but the very nature of the trade is that there will be a constant large bid in the long end as this cash rolls out the curve
A) I don't think he was being literal...just making the point that you shouldn't hold those fkers
B) Even if everyone was short (except the Fed I imagine on the other side of the trade), US default/downgrade/hyperinflation will most certainly see them go down.
Taleb
had to close down his fund several years agao becasue his great idea that deep out of the money options were mispriced was wrong.
How much money did he make in the crash?
I guess Taleb is starting to get pissed over his P&L for the year. Poor Baby!
For real though, he just showed his absolute lack of ignorance in having read a substantial amount of economic history. He really should learn what Keyne's ex-post ante theory of interest is. Then he might shut the fuck up and realize what he's promoting.
In the meantime, calling a crash when everyone else was calling for it is not the making of a guru, nor is making the same call as every other fucking guru out there. Also, didn't this guy say he was going off the grid? Boy, I guess the call for having people listen to you is a huge drug addiction, like hookin for crack.
Black Swan events produce other black swan events, perturbations in the probability field create the possibility for other high improbability events. DUH, anyone who has read Douglas Adam's Hitchhiker's Guide to the Galaxy series know exactly that. So did Keynes if you read his laws of probability book. But then, that would require actually doing your homework.This call is so goddamn generic and the people calling for it have no idea of the implications of what will happen if our rates start to rise uncontrolled. What makes it so funny is that it is clearly laid out for anyone who has read Hicks debates with Keynes. I refer all readers to look for Keynes response to the Hicksian Liquidity trap (yes, Hicks had the theory, not Keynes, another misnomer)
God I hate overpaid megaphones. They need to live below the poverty line, like I have and continue to prefer to do. Besides, do Americans really want to listen to a Russian "guru" we got plenty idiotic american gurus to lose money to... Like Taleb is doing today.
Didn't he get $4 million up front to start writing a sequel to Black Swan? His P&L is fine, I'm sure. Even if his trading isn't.
Not if he put it in the market.
Oh the articles I refer everyone to are from 1937 Economic Journal
Before he writes another book. Can someone teach him first rule of trading. It's like sex. You have to have to have a trading partner. You can not have markets where everyone sells something and no one buys it. I think he must be involved someway in the creation of this mastubatory marketplace because these statements don't make sense to a child much less a real economist.
"...he just showed his absolute lack of ignorance..."
I don't think you meant it that way.
In economics? Yes, I meant it that way, just like I have meant it for so many others I respect in so many other fields.... if he's making economic calls without having read the necessary works, he's ignorant.
to be Socratic:
...and a lack of ignorance would be...?
lol, just really read that, you're right, complete ignorance or lack of homework. But I guess I have my own ignorance to deal with :)
Right...So long, and thanks for all the fish.
keynes' theory of interest is about as useful as three warts and a rash on my ass....keynes was a complete quack...anyone not having read his work is a better human being for it...
yahhhh... so listen to the other idiots who read the cliff notes and still don't understand it.
An interesting comment. I dont know this Taleb guy. Just see a few minutes video by him and as his english is terrible, he fails to convey his ideas properly.
But still, I think I got the idea of what he names a black swan event which are more than highly improbable events.
As far as I understand, a black swan event is a previously unwitnessed event whose magnitude is enough to reset a system.
A bit more than highly improbable events as those can happen repeatedly and then without resetting the entire system.
Still, if the books you recommended are about the black swan events as I understood them, I'll gladly read them.
An interesting comment. I dont know this Taleb guy. Just see a few minutes video by him and as his english is terrible, he fails to convey his ideas properly.
But still, I think I got the idea of what he names a black swan event which are more than highly improbable events.
As far as I understand, a black swan event is a previously unwitnessed event whose magnitude is enough to reset a system.
A bit more than highly improbable events as those can happen repeatedly and then without resetting the entire system.
Still, if the books you recommended are about the black swan events as I understood them, I'll gladly read them.
Guys, get consistent. ZH is the home of those persuaded the government is actively manipulating the markets. If there is ANY security they will actively manipulate it is the one that can cost them money if rates rise. They Will Not Let Rates Rise. It would be insane of them to allow that. They'd be paying more interest.
Be consistent. If you think there is manipulation, then bonds will not collapse. Bonds fall when there is inflation. I know ZH is also home to the hyperinflation crowd, but they also must be consistent. Housing is 30% of CPI. Until housing heads sharply upward in price, there can be no inflation. To be a hyperinflation guy you have to believe the housing collapse has ended and it's blue skies ahead.
You are probably one out of 100 here who understands these basic tenets. The rest? Helpless conspiracy nuts caught between hyperinflation, government manipulation and collapsing USD theories.
No kidding. But the Gold nut needs the dollar to collapse and hyperinflation take hold to substantiate their claim, otherwise, just another useless mineral.
To slice and dice all this for a moment:
1. No ZHer believes hyperinflation is preceeded by inflation, and that therefore if there is no sign of inflation, hyperinflation is impossible. To the contrary, hyperinflation is the outcome of currency collapse, as confidence in its ability to act as a stable store of value erodes and dissipates.
2. Is the USD likely to collapse into a pool of hyperinflation any day soon? Hardly. It is the world's reserve currency, and to add another pillar to its inherent strength, it is also looking pretty good as compared to the next tier of contenders.
3. Does the government in the form of the PPT or some other shadow organization support the equity markets? Does a bear defecate in the woods? Of course it does. Is that bad? Probably, but maybe the consequences of not doing it are worse. Who knows? Many ZHers would say it is a bad idea, as it has been used to sustain economic organisms that should have expired, with new, more sustainable organsims growing in their place. Keeping TBTFs alive is kind of like propping up dead sequoias, which then deprive the next generation of trees the sunlight they need (and are entitled to) to survive and succeed the old dead trees.
4. The mounting U.S. deficit is no casual matter, since if the debt cannot be sold, FRNs will be printed. If there is no other action taken, see #1 above as printed notes mix with earned notes in ever higher proportions. When? Who knows - see no. 2 for reasons why this can go on for quite a while, but not forever.
Not all ZHers wear tin hats, or are gold bugs.
Treasuries SHOULD collapse; whether they will or not depends on the level of cooperation that exists / continues to exist between the major foreign powers' central banks and the US. That is something no one can predict, except they themselves.
Housing is 30% of CPI. Until housing heads sharply upward in price, there can be no inflation. To be a hyperinflation guy you have to believe the housing collapse has ended and it's blue skies ahead.
Hyperinflation is not a bad case of inflation; hyperinflation is a currency collapse. Inflation and hyperinflation are two totally different events. Most of us stopped quibbling about definitions many many months ago. Some of us have also embraced a willingness to think outside of the conventional B school economics box. You should try it.
I don't think I've ever before seen anyone use the words "hyperinflation" and "blue skies ahead" in the same sentence.
what he said
You're still comparing one really crappy currency to another really crappy currency.
Let's look back over the past 30 some years. How did electronics, food, and other durable goods drop in price while asset values (securities, R.E.) increased? There is more going on here than just monetary and fiscal policy.
Global wage arbitrage, offshoring/outsourcing and technological improvements in Agriculture and Manufacturing made many things drop in cost, despite a dollar losing value. However, those same production factors could not affect asset valuations such as Real Estate. Now the time has come for many over priced assets to dis-inflate while the cost of other things will begin in inflate.
Serious inflation can only be manipulated/targeted to affect asset values for so long. Eventually, there will be a correction. We are witnessing that right now.
+++1000
they can hold housing, etc head above water but the other daily essentials will continue to climb in their markets
"To be a hyperinflation guy you have to believe the housing collapse has ended and it's blue skies ahead."
No, you don't. A currency can collapse even when people are poor and can't afford to buy anything. All that's required is a loss of faith, or an awakening.
It's not inconsistent to believe there is manipulation that will eventually fail.
Ok if every human being is short US treasuries. Does this make this some kind of weird attempt to get cats to buy treasuries. Cause IF it is. I gotta say you can't force cats to take that evolutionary step. They will still use the gift mouse currency.
Maybe Taleb is implying Treasuries are being held by machines, or other faceless entities.
Also, it's just an expression.
His domain expertise is prop desk option trading. He didn't take directional positions. He hedged delta and gamma to maximize living off the skim.
But the respect I have for the quality of his mind is reason for pause IMHO.
TBT is a double ETF(negative treasury prices). But since it is a double,it carries the risk od decay. Of course one can always do it through the futures to short tb. But I kinda reluctant to go the way, for I don't think TG and BB will run out of a covert qe. Not untill bonds vigilante finish their business in Wurope,and shift their attention to the US in a couple of months probably.
did Taleb..promise not to speak to anyone..or similar?
Eventually all the lemmings will run out of things to short and will have to jump into the pit of fire. It's fun watching all the lemmings march on the road to doom.
hogwash.. thats like telling a kid not to play once the game is over. nothing new here move along.
the question is when b/c traders have been getting burned trying to time the decline. i've said it once and say it again. your a stupid man to go short the treasury. they make the rules and so far we have all played by them. still waiting for the turn in the tide when this changes but so far its their game.
I am not skeptical about this thesis long term. Surely rates will go up. But if you look at Japan the same warnings were thrown around. Not much of a rate increase there lately. Also, if the government (or whomever) can engineer a stock "rally" then surely they can engineer a Treasury rally.
The global economy is in a total mess and there is simply no way to muddle through. The Fed sees deflation as the greatest threat but knows that rising inflation creates the risk of crippling bond yields, so will use the excuse of needing to combat powerful deflationary forces to keep on buying as many Treasuries as necessary to keep the yield down. The Dollar's role as global reserve currency means the currency and the bonds are decoupled with the real risk of the issuer. There was a no brainer, which was shorting the long bond at the end of last year, but now, the opportunity has gone (unless China and or Japan decied to start a new economic war.)
Treasuries seem a lousy investment, but then so do all the others... and TPTB know enough secrets about the likes of Italy, Spain and Portugal that they can throw investors diversionary bones from time to time to scare them back into the "safety" of Uncle Sam.
"Treasuries seem a lousy investment"---yeah, tell me about it. It's what I'm long in in my 401-K, because it seems to be the devil I know.
There's a problem with Treasuries this year. The problem is, Timmay MUST sell, successfully, several billions worth every week and month, with plenty of over-subscription. He has no choice. Failure is not an option. You would think that clever schemers would figure out a way to game it to their advantage, knowing (simply) that each auction must be successful or there will be holy hell to pay.
So who's the new direct bidder? A trump card, to ensure that auctions go their way, maybe? So the counter-play would be to scheme out an auction failure, and mop up the debris that ensued.
NO BRAINER
EVERY HUMAN
coming from the man whose claim to fame is that things happen in unexpected, statistically improbable ways... but every person should do the exact same thing according to obvious ness.
just another example of I don't even know... but I think it adds weight to the idea that smart folks don't know much more than idiots.
Seems the last two Long Bond Bulls standing are Van Hoisington and Robert Kessler (Though Stephanie Pomboy of Macro Mavens dropped a plug on BB TV the other day).
For a fellow who made his name describing outlying (i.e. non-consensus) opportunities, Taleb is way out of his league on this trade.
What we anticipate seldom occurs: but what we least expect generally happens. Benjamin Disraeli
Gold is dropping like a lead balloon... now if you were the Chinese, sitting on a bucket load of USD that you want to diversify out of... well what a heaven sent opportunity.. lets see what happens..
looks like a fork in the road soon.. will China play their hand now and we have a trader war over the price of Gold with them?
Mr Taleb is not a trader is he? Does he know that timing is the difference between rags and riches in this game?
All ye Fed fighters short long term treasuries prepare to get it up the butt - and that includes the brilliant Mr Taleb.
(Hey I ain't saying I disagree with their point, I'm just saying their the suckers at the poker table)
Place your bets.
I see that Hugh Hendry was sitting beside Talib as he spoke, and was looking a little fidgety. What did he have to say?
poor hugh hendry. he was sooo wrong in 2009. Maybe things will turn around for the chap.
ummmm..if every human being is short treasuries, who has the other side of the trade? Turtles?
maybe he is assuming that martians are running the Fed. besides, there's nothing with turtles either: http://www.youtube.com/watch?v=CMNry4PE93Y
The Chinese Commies... close enough
Ok if I don't want USD, where should I park my money? Can anyone answer that. Should I buy EUR (STUPID PIIGS), or RMB (unknown valuation and not accessible), or Real (volatile), or ....
Someone might say gold - ok I have some but I am not going all in. So the rest has to be in some liquid currency. Please tell me which one is it.
In terms of currencies and/or short term liquidity:
UST's (only 30 or 90 day bills) unless yields go
negative again w/regard to the new SEC ruling on permitting Money market redemption halt for unspecified time. Then
run like hell from UST's. Stay away from UST notes/bonds.
Canadian dollar. Banks there did not gorge on bad debt
and they have been relatively stable currency. Plus you
can drive or walk there if need be!
Swiss Franc. Still has relative stability and despite
their bank's screw-ups and bailouts (Credit Suisse & UBS),
banks did not gorged on Eastern Europe or "STUPID PIIG" or
debt to my knowledge unlike the Austrian, French and
German banks.
Best I can do for you outside of physical gold or your
mattress...
The players who built, own and operate the Enigma Machine end up with the equivalent amount of marbles each started with; over a cycle. Plus a share of our marbles.
Crack the code (stay under their radar!) and you too will become fabulously wealthy (marbleous, dahling).
40muleteam borax
One of the biggest reasons Taleb may be right is
we no longer have capitalism with Constitutional
rights protected by law, legislation or executive
branch. The pigs are running the farm.
Prima facie evidence: Ford preferred so
far in arrears it may be cheaper for Ford to
buy it back. F common's not had a dividend
for some time. Yet Ford felt comfortable giving
each union worker $450 profit-sharing. Oh yes,
and higher taxes for those who produce, with
bonuses for those who destroy.
No markets anymore, only shearing and
dumping places for grey and blackwater...
http://www.jubileeprosperity.com/
Outstanding comment, ATG, you are reading all the variables.
Nassim Nicholas Taleb (a k a "The Professor") is a great thinker. Anyone who recognizes that the Heisenberg Uncertainty Principle is a complete crock is a rare thinker indeed (not to mention his excellent grasp of mathematics).
Alas, anyone paying attention may have noticed the financial backing of ELX Futures by Goldman Sachs, Morgan Stanley and JPMorgan Chase (Ye Usual Suspects). Gee, would they be planning on shorting Treasuries???
Go figure.....
Thanks again for your much appreciated comments.
It s one or the other. Can't kick the can too much further down the road.
But you know they are gonna try like hell to.
Taleb got very rich leaning the right way in the '87 crash and I believe he did just fine in the '07/'08 crash. The whole point of betting on high impact/low probability events is that most of the time they don't pay off...until they do - and handsomely if done right. So go ahead, take the other side of his trade. Sold to you.
My personal advice... DO NOT LISTEN TO TALEB!!!
IS HE INSANE? Short treasuries?
In essence, that's what the repo market already does, but shorting treasuries is a potentially catastrophic recommendation! Sure, we all know rates will rise, so in theory it makes sense... but like I said last year when the TPMG placed new fines for treasury fails, there would be potential for market shortages. Going and shorting this market would in turn create real market shortages, and potentially freezing up the most liquid market in the world!!!
...while at the same time, incurring a fine (EVERY DAY) that is greater percentage-wise then the spread on the rate increase. To boot, in freezing that market, you wind up increasing the value of that T since its demand increases.
PLEASE, PLEASE, PLEASE someone find out more about what Taleb said, and see if there is something I am missing?
From my article last year, I talked about this: http://www.roubini.com/usmonitor/256591/where_is_superman___is_he____dee...
In specific, this is what I said:
Naked Short Selling vs The US Government
One has to wonder how the entire financial community was able to deny this practices existence. It is comical to see the captured regulatory agencies scurry to put in place safeguards to protect against something they swore up to 6 months ago didn’t exist.
It has gone so far that the US Treasury is set to make a massive industry change on May 1st. On the 1st the TPMG (The Treasury Market Practices Group) will put into affect a sizeable charge on failed deliveries of US Treasuries. Although they may deny this as their main reason for the charge, I will be willing to stand out on a ledge and state that I believe this is a move by the treasury to essentially protect themselves against the naked Short Selling equivalent of US Treasuries. It is a move to protect the “quality” of the asset, because they can NOT afford to have these securities subject to potential manipulations. That would rock the foundation of its status as a “flight to quality” and bring about a potential collapse.
Sure they may say this isn’t the case, and that they are just trying to free up liquidity, but the fact is that the broker dealers know that with rates so low, it is cheaper to fail on a delivery, rather then pay the cost of borrowing the collateral for the repos they finance themselves with. (This move by the TPMG could become dangerous as they may actually cause market shortages in the long run?)
Don’t believe me??? Here are their words along with the website to check out the changes that go into effect this week:
“Market participants with large short positions should make deliveries in good faith. Market participants with a particularly large short position in an issue should ensure that they are making a good faith attempt to borrow needed securities in order to make timely delivery of securities. Market participants should avoid the practice of “strategic fails”—that is, the practice of selling short a security in the repo market at or near zero percent with little expectation of being able to obtain the security to make timely delivery.”
www.newyorkfed.org/tmpg.
WOW!!! This is a pretty amazing about face for the practice of Naked Short Selling that didn’t exist just six months ago!!!
All the best,
Miss America
Don't bother taking Nassim "the dream" literally and then attacking it.
He is attempting a rhetorical tool to make his point.
I believe that he would agree that the market wouldn't function if everyone actually shorted UST.
No one wants doelarrs except day traders.
Before y'all soil yourselves over the big jump in rates please note that there are $600 trillion in interest rate swaps out there , 80 % of which are held by American banks.
Instead of which algorithm, trading strategy or economic theory makes you the smartest guy on the block / blog you may want to consider having food, fuel, ammo & medicine stockpiled for a couple of years and a place outside of urban America to retreat to.
Urban America is about to canibalize it's self.
Treasuries can go down plenty without the aid of naked short selling. Treasury prices can go down plenty on their own without ANY short selling. And I'm sure any temporary mechanical supply crunch of treasuries can be ameliorated simply by....issuing more treasuries.