Say you are Nassim Taleb and hyperinflation hits

Discussion in 'Economics' started by milktruck, Feb 15, 2010.

  1. Say you are Nassim Taleb and hyperinflation hits. You have some super out of the money calls on commodities, equities (???) etc that are now in the money and your fat tail trade has paid off huge in nominal terms.

    Supposing we arent all defending our pantry with our rifle at this point and contract law is intact, where do you then put all of the toilet paper dollars your trading account now has in it via the call options? Do you think you will be able to withdraw this money and buy land/precious metals? Do you buy foreign bonds, shares of businesses that can survive currency regime change?

    This strategy of preparing for outlier events makes me wonder if the fat tail event will render your trading account and the currency it is denominated in worthless anyways. And holding options when the SHTF really puts a lot of faith in contract law and the government not confiscating whatever they can.

    Anyways been turning this over in my head for a few days since the near-failed 30 year auction, any thoughts are appreciated. Please keep gold bug rants on topic, everybody knows that position by now and I know this topic is in the danger zone for those type of tangents...
  2. Wow, I was wondering when this would happen. So this is actually interesting and I wonder if there is some predictive power to it. Right now people will hold short terms, but it seems 30 year is not on the map.

    So I am guessing the US is in trouble once they can't roll the short term. What am I doing? I have been using the USD strength to move out of USD. I am split between EUR, and CAD.

    I am keeping a basket of currencies and I think that is about the best that we can do.

  3. It depends on just the level of wealth one has.
    I'm assuming the wealth is less than 10 Million US Dollars
    just to simplify choices.

    There are 3 types of investing.
    Accumulation, liquidity and speculation.
    Clearly in your question ... the speculation produced volumes of liquidity that have accumulated.

    100% in TP Dollar bills would be stupid.
    100% in electronic "Ones and Zeros" in an account would be stupid.

    So lets assume one wants to leave 30% for continuing liquidity type of speculation
    of the same return type of instruments for future accumulation ratcheting.

    Lets also assume that of the remaining 70% balance that speculation for accumulation is long term security minded with hopes of capital retention, limited devaluation and possible long term value increases.


    I would certainly put some moneys into land.
    However I would shop for bank or Government auction pieces.
    I would be picky with location that is over 45 minutes from major cities, is reasonably remote with quality road access,
    either large forestation at lower altitudes or is sustainable for farming both rich in water resources.

    Obviously the trees are a standing asset that still is occasionally overlooked. Water rights have asset value. Land that produces
    either security, development or production has asset value.

    If not already located in a secure living environ respective of tough times ... I would relocate within reason and high speed internet capability. (Assuming that world connection and investing and media remains in ones interests.)

    I would also shop for a low mileage large quality Motor Home that runs on Diesel that has reached a maxim of devaluation or is just a plain steel for value. This would be a mobile office space. And they are fun !

    Beyond buying what you use several years out and being careful to have hard assets in their proper balance
    ... one simply needs accumulate what will insure the lifestyle they like and reduce possible interruptions of it.

    Having a complete power grid is a solid investment as well.
  4. TGregg


    Got a link for that?
  5. Not my opinion as I am not an expert on the degrees of failedness even though I get the concepts. Here is where I have gotten this idea. If "near failed" is too strong wording, it isnt mine:

    "nearly failed"

    "we just had as close to a failed auction as possible"

    "Which is why rick santelli called this a failed auction."
  6. TGregg


    Thanks, still checking it out.

    From the article: The fact that stocks RALLIED on this news tells you how disconnected stocks are from reality.

    People that claim the market is going the wrong way generally go broke.

    That needs reviewing in the morning when I'm awake, and not tomorrow.

    And the same here. Zerohedge seems to have some pretty good info. The chart also drives home the point that we've been doing a fair number of these auctions over the past few months.
  7. Hahaha, this cracks me up...

    A failed auction? 2.5bps tail, but a massive 24% indirects, and the bond started trading through the auction clearing price hours later. Yep, that's a resounding failure, if I've ever seen one.

    ZH seems to have gotten himself all confused. In the same sentence, he's suggesting both that China is buying as the "directs" and not buying as the "indirects". In general, it amazes me how much misinformation is out there on the internet.
  8. Here is the problem...the naked shorts will lose everything and not have enough money to pay. So even if he does make a bundle, there is a good chance the broker goes belly up if hyperinflation happens and then he gets nothing (well maybe a little bit, but not much) Then as hyperinflation continues down the road and you are suing the guy that had the naked shorts, 2 months later, hyperinflation is even worse and the guy pays you your 2 trillion dollars but you cant even buy a can of beans with it.

    I would put at least half your net worth in silver. I wouldnt buy gold because of all the counterfeit bars out there. Nobody is counterfeiting silver right now. If you have millions upon millions, then buy land, housing just to protect yourself from the hyperinflation.

    Dont keep anymore than 25k in your trading account either. Even if you have millions. So many people are going to lose everything with hyperinflation. Some are going to make out like bandits though. Those in debt will make out like bandits. Donald Trump will end up being one of the richest men in america by the time hyperinflation is over.
  9. I don't look at those numbers! Ever since I have worked on the OTC desk doing trade reconciliation I have learned a few things. And the biggest is that never believe the volume numbers. The only consistency that exists regardless of volume, and statistics is price action...

    And the price action is saying more yield and lower prices. Thus people are buying less long term, more short term.
  10. But that's exactly my point regarding this "failed auction"! If you only look at the price action, describing this auction as a "failure" is rather idiotic, IMHO. I would personally describe it as "sloppy", at worst, since, as usual, dealers played all sorts of games.

    In particular, you would have actually made money if you got filled in the auction. It cleared at 4.72% yield. A few hours later the bond was trading in the mkt at 4.67%. How is this a failure?
    #10     Feb 16, 2010