CNBC interview with Nassim Taleb from earlier today. Of interest are the following observations:

1. Why trust the employment number forecasts being made? These forecasters did not forecast the downturn.
2. When the unemployment number has essentially doubled in less than a year, why worry about one monthly number? Error must be considered.
3. The current system is complex and fragile, and will eventually break and crash.
4. Instead of deflating debt, governments are trying to stimulate and inflate assets.
5. Monetary policy is out of control.
6. We need to convert debt to equity.

Source: CNBC Video

Universa Investments L.P., run by Mark Spitznagel (with no ownership, but a significant investment from Black Swan author Nassim Taleb), is opening a new inflation fund, named the "Black Swan Protection Protocol - Inflation" fund (see WSJ article). While worries that inflation will be caused by increased deficit spending are nothing new (see recent blog post), the fund is making bets on what is expect will be hyperinflation - similar to, and possibly worse, than what was observed in the 1970s. Investments in the aptly named fund will include options tied to what are believed will be volatile commodities, such as corn, crude oil, and copper, in addition to associated stocks, such as the gold miners and oil drillers. The inflation fund is also making negative bets on Treasury bonds in expectation of higher yields and lower bond prices. While most investors believe that the economy will have to deal with inflation at some point, the timing is still a matter of debate. Given the use of options in the fund, which in the past tended to be deep-out-of-the-money puts when looking for a sell-off, it would seem that Spitznagel and Taleb are looking for a much quicker and, in this case, higher move to the upside for assets tied to inflation.

There is an interesting article at Bloomberg.com on Nassim Taleb, author of Fooled by Randomness and The Black Swan. Highlights include:

"stress tests are inherently risky because they ignore rare but potentially devastating events ...",

"... we're all blind to rare events and routinely fool ourselves into believing we can predict risks and rewards."

"We're not interested in the small frequent payouts. We want the infrequent huge payouts.''

The article was an interesting read, as was Fooled by Randomness. The Black Swan is next on the reading list.