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'Black Swan' Author Nassim Taleb: Be 'Vastly More Careful' About Market Risks

'Black Swan' Author Nassim Taleb: Be 'Vastly More Careful' About Market Risks
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By    |   Friday, 26 June 2020 05:05 PM

“Black Swan” author Nassim Taleb warns that both individual and institutional investors should be preparing their portfolios to withstand big swings in economic conditions.

“Today, you need to be vastly more careful about what portfolio you have and make sure your downside risk is protected,” he told CNBC.

High inflation or deflation are both risks to the market, Taleb said, saying that the idea that the U.S. can sustain mild inflation is “lunacy,” CNBC reported.

The former options trader said he would advise people not to be in the market if they didn’t have a tail hedge to protect against the downside, CNBC said. Bonds, a traditional hedge against stocks, won’t be effective in a low-interest rate environment where debt is already trading at historically low yields, CNBC said.

“Fixed income instruments have pretty much run their course, so you are no longer able to hedge using fixed income instruments,” said the economist and author whose popular 2007 book “The Black Swan” predicted the 2008 financial crisis.

Meanwhile, the International Monetary Fund warned that markets for stocks and other risky assets could suffer a second swoon if the coronavirus spreads more widely, lockdowns are reimposed or trade tensions surge again.

Equity markets tailspinned into bear market territory in record time earlier this year as the virus and related lockdowns pounded sentiment, but they have broadly rallied from their March 23 low, Reuters said.

Renewed concerns over the novel coronavirus pandemic have threatened to derail a strong rally for Wall Street that has erased much of the S&P 500's steep losses from March. The benchmark index ended below its 200-day moving average, an indicator of long-term momentum.

The uptick in coronavirus cases likely triggered a test of that technical level, said Jim Paulsen, chief investment strategist at The Leuthold Group in Minneapolis.

For the week, the S&P 500 fell 2.87%, the Dow lost 3.31%, and the Nasdaq shed 1.87%.

"A disconnect between financial market optimism and the evolution of the global economy has emerged," said the IMF in its Global Financial Stability Update. The disconnect "raises the risk of another correction in risk asset prices," the IMF said, adding that valuations across many equity and corporate bond markets appear "stretched."

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“Black Swan” author Nassim Taleb warns that both individual and institutional investors should be preparing their portfolios to withstand big swings in economic conditions.
black swan, author, nassim taleb, market, risks
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2020-05-26
Friday, 26 June 2020 05:05 PM
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