Tags: taleb | bonds | stocks | us | black | swan

'Black Swan' Author Taleb: US Bonds Will Collapse, Avoid Stocks

By Dan Weil   |   Thursday, 12 Aug 2010 03:01 PM

Investment author Nassim Nicholas Taleb isn’t buying the government-bond rally that has sent the 10-year Treasury yield down to a 16-month low of 2.68 percent.

Investors have turned to Treasuries as a haven amid a global economic recovery that is fading. Given the explosion in government debt, that isn't a smart move, Taleb says.

The Congressional Budget Office forecast that the debt burden will total 62 percent of GDP by Sept. 30.

Taleb warned of unexpected events upsetting financial markets in his popular book “The Black Swan: The Impact of the Highly Improbable,” which predicted the financial crisis of 2008.

Now the New York University professor is “betting on the collapse of government bonds," he said at a conference in Johannesburg, Bloomberg reports.

He also urged investors to avoid stocks. “I’m very pessimistic. By staying in cash or hedging against inflation, you won’t regret it in two years.”

Individual investors are both following Taleb’s advice and rejecting it.

Experts estimate that Americans have parked up to $9 trillion in bank accounts, certificates of deposit, Treasury bills and money-market funds, CNBC reports. So in that sense, investors are toeing Taleb’s line.

But they’re also choosing Treasuries — among other bonds — over stocks.

In the most recent week, bond mutual funds enjoyed a $13.25 billion inflow, while stock funds suffered a $3.85 billion outflow.

Hedge funds aren’t shying away from Treasuries either. They now account for about 20 percent of trading in the $10 trillion market, up from 3 percent last year, according to a new study from Greenwich Associates, MarketWatch reports.

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Investment author Nassim Nicholas Taleb isn t buying the government-bond rally that has sent the 10-year Treasury yield down to a 16-month low of 2.68 percent. Investors have turned to Treasuries as a haven amid a global economic recovery that is fading. Given the...
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