• Pivotfarm
    04/18/2014 - 12:44
    Peering in from the outside or through the looking glass at what’s going down on the other side is always a distortion of reality. We sit here in the west looking at the development, the changes and...

Nassim Taleb

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Guest Post: How I Renounced My US Citizenship And Why (Part 2)





The following is Part 2 (Part 1 here) a firsthand story of how and why a former US citizen - who kindly shared this information on condition of anonymity - decided to renounce his US citizenship

 


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Guest Post: Obamacare’s Many Negative Side-Effects Should Surprise No One





Government intervention, no matter what its form or intention, causes iatrogenics — unintended negative consequences that hurt the very people they’re intended to help. Nowhere is this better exemplified than with Obamacare, a policy intended to bring insurance to all that has in effect taken it away from many. Perhaps the growing coalition of people recognizing this paradox will take this revelation and apply it to other policy arenas as well. For the affected classes, we can only hope.

 


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Taleb Blasts Bernanke & Greenspan, Warns "Debt Raises The Risk Of Catastrophe"





"Debt increases tail-risk," warns anti-fragility expert Nassim Taleb, "whether it's personal, corporate, or governmental." A rise in debt, he warns, implies nothing less than a rise in "the risk of catastrophe," and Taleb chides,  governments "should be focused in risk-management... instead of creating these risks." This brief Bloomberg TV clip cuts to the chase as the normally circumlocutory Taleb unloads on the perils of central banks, "Mr. Greenspan created tail risk by eliminating the business cycle," and since then tail-risks have accumulated with debt the "number one creator of these risks." In a fascinating phrase, Taleb notes, "corporate debt is benign," since in failure it turns into equity, "but government debt is another matter... for it turns into inflation or worse invasion..."

 


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One Person's Case For Chairman Larry Summers





With the case for the next Fed chairman having devolved to the most ridiculous of decision trees, such as Nancy Pelosi's "it would be great to have a woman", because apparently gender diversity trumps everything in the eyes of the California democrat, the choice of Bernanke's successor is now more nebulous than ever. It has certainly not been aided by the periodic floating of the Larry Summers trial balloon, especially as originating from the Fed's WSJ mouthpiece who one week presents Summers as the favorite and the next skewers his chances. However, one person for whom the Summers vote is essentially a done deal with 90% odds, is Scotiabank's Guy Haselmann. Here is his logic.

 


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Guest Post: Why Centralization Leads to Collapse





A system that suppresses dissent is fault-intolerant, ignorant and fragile. Any event that does not respond to centralized, rationalized policy creates unintended consequences that throws the centralized mechanism into disarray. Lacking dissent and redundancy, the system piles on one haphazard, politically expedient "fix" after another, further destabilizing the system. The event that triggers crisis and collapse isn't important; the system, rendered unstable and fragile by centralization, is primed for crisis and collapse. The dry underbrush is piled high, and if the first lightning strike doesn't start the fire, the second one will. With dissent and the inefficiencies of redundancy and decentralized pathways of response gone, there is nothing left to stop a conflagration that consumes the entire forest.

 


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In Spain, The Bitcoin Run Has Started





Something extreme is happening in Europe. Since Sunday, Bloomberg Businessweek reports a trio of Bitcoin apps have soared up Spain's download charts, coinciding with news that cash-strapped Cyprus was planning to raid domestic savings accounts to pay off a $13 billion bailout tab. “This is an entirely predictable and rational outcome for what’s happening in Cyprus,” says ConvergEx's Nick Colas. "If you want to get a good sense of the stress European savers are feeling, just watch Bitcoin prices." The value of the virtual currency has soared almost 30 percent in the last two days. "One hundred percent of that is due to Cyprus," says Colas. "It means the Europeans are getting involved." As German economist Peter Bofinger warned in an interview with Spiegel Online: "European citizens must now fear for their money." The same apps download data, however, showed that Italians aren’t ready to abandon commercial banking, remarkable as many Italians still recall that black day in 1992 when they woke up to a levy on their savings accounts to prop up the nation’s teetering finances.

 


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Taleb On "Skin In The Game" And His Disdain For Public Intellectuals





Nassim Taleb sits down for a quite extensive interview based around his new book Anti-Fragile. Whether the Black Swan best-seller is philosopher or trader is up to you but the discussion is worth the time as Taleb wonders rigorously from the basic tenets of capitalism - "being more about disincentives that incentives" as failure (he believes) is critical to its success (and is clearly not allowed in our current environment) - to his intellectual influences (and total disdain for the likes of Krugman, Stiglitz, and Friedman - who all espouse grandiose and verbose work with no accountability whatsoever). His fears of large centralized states (such as the US is becoming and Europe is become) being prone to fail along with his libertarianism make for good viewing. However, his fundamental premise that TBTF banks should be nationalized and the critical importance of 'skin in the game' for a functioning financial system are all so crucial for the current 'do no harm' regime in which we live. Grab a beer (or glass of wine, it is Taleb) and watch...

 


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Guest Post: The Real 2013 Cliff





There’s a much bigger cliff than the so-called fiscal cliff. The absolute worst result of the fiscal cliff would be a moderate uniform tax increase at a bad time, resulting in a moderate contraction. It is an obvious - but ultimately rather cosmetic - stumbling block on the so-called “road to recovery”. The much bigger cliff stems from the fact that the so-called recovery itself is build on nothing but sand. This is a result of underlying systemic fragilities that have never been allowed to break.

 


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2012 Year In Review - Free Markets, Rule of Law, And Other Urban Legends





Presenting Dave Collum's now ubiquitous and all-encompassing annual review of markets and much, much more. From Baptists, Bankers, and Bootleggers to Capitalism, Corporate Debt, Government Corruption, and the Constitution, Dave provides a one-stop-shop summary of everything relevant this year (and how it will affect next year and beyond).

 


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Quote Of The Day: SNB's Jordan "Base Scenario Doesn't See Euro Collapse"





While Nassim Taleb sees Switzerland as the poster-child for what Europe should become, the quote above from SNB's Jordan begs the question - which scenario does include the Euro Collapse (and remember, as he tells us, the Franc cap is 'not' currency manipulation).

 


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Why Risk-Free Assets Are Risky





We all know shorting volatility is dangerous. We learned our lessons from the financial crisis. We all meticulously read “The Black Swan” and then watched the scary movie adaption of the book starring Natalie Portman. We all know that this method produces a steady stream of smooth returns making people think you are a genius until the inevitable disaster forces you to pawn off your Nobel Prize. We all know that shorting volatility will cause you to go insane with a twisted psycho-sexual obsession to master the art of ballet. It’s picking up pennies in front of a convexity steamroller. Knowing these facts we would like to pose a question...Which is riskier right now? Shorting a collateralized far out-of-the-money S&P 500 index put or buying a “risk-free” US treasury bond? Hint: Now the market for safety has an efficient frontier on par with the penny in front of the steamroller trade? If you don’t find that scary then you’re not paying attention.

 


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"Trade-Off": A Study In Global Systemic Collapse





And now a little something for everyone who consistently has a nagging feeling that at any second the world is one short flap of a butterfly's wings away from complete systemic disintegration: according to David Korowicz of FEASTA, and his most recent paper: 'Trade-Off: Financial System Supply-Chain Cross-Contagion: a study in global systemic collapse." that just may be the case. Think of the attached 78-page paper as Nassim Taleb meets Edward Lorenz meets Malcom Gladwell meets Arthur Tansley meets Herman Muller meets Werner Heisenberg meets Hyman Minsky meets William Butler Yeats, and the resultant group spends all night drinking absinthe and smoking opium, while engaging in illegal debauchery in the 5th sub-basement of the Moulin Rouge circa 1890.  To wit: "Something sets off an interrelated Eurozone crisis and banking crisis, a Spanish default say, which spreads panic and fear across other vulnerable Eurozone countries. This sets off a Minsky moment when overleveraged speculators in the banking and shadow banking system are forced to unwind positions into a one-sided (sellers only) market. The financial system contagion passes a tipping point where governments and central banks start to lose control and panic drives a (positive feedback) deepening and widening of the impact globally. In our tropic model of the globalised economy, the banking and monetary system keystone hub comes out of its equilibrium range, crosses a tipping point, and is driven away by positive feedbacks to some new state.... it is very clear that we have learned almost nothing general about risk management as a societal practice arising from the financial crisis. We have merely adopted a new consensus, with a questionable acknowledgement that we will not let this type of crisis happen again. However, the argument in this following report is that we are facing growing real-time, severe, civilisation transforming risks without any risk management."

 


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Mark Spitznagel: The Austrians And The Swan - Birds Of A Different Feather





What is a black swan event, or tail event, in the stock market?

- It depends on who’s asking.

- To those familiar with Austrian capital theory, the impending U.S. stock market plunge (of even well over 40%)—like pretty much all that came before in the past century—will certainly  not be a Black Swan, nor even a tail event.
- Nonetheless, the black swan notion is paramount—in perception: Market participants’ failure to expect a perfectly expected event—that is, they price in only Anglo swans despite the  Viennese bird lurking conspicuously in the weeds—much like what is happening today, brings tremendous opportunity.

 


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