“‘Bitcoin, I call it a tumor. Real estate is another tumor. People have this notion that markets should behave the way they think they should behave. When you look at markets they swing from overvalue to undervalue.’”
— Nassim Taleb
Investors may appreciate easy-money monetary policy for the lift it has given markets since the pandemic in particular, but Nassim Taleb, the “Black Swan” author and risk-management guru, doesn’t think it has done them any favors.
In a freewheeling interview with CNBC’s “Squawk Box” on Thursday, Taleb said that the Federal Reserve’s decision to keep monetary policy so easy for so long until recently has created at least a couple of “tumors” in markets. And it may also have potentially misled a generation of investors into underestimating the ease of making a living picking stocks.
He named “bitcoin”
as one of these “tumors,” and perhaps “real estate” too, he said, possibly a reference to Starwood Capital Chief Executive Officer Barry Sternlicht, who was also featured on the program alongside Taleb, and who recently shared some of his own foreboding comments about the real-estate market.
As the longtime investor and author explained, the current crop of market participants hasn’t really had to grapple with the implications of a recession which may result from the interest rate rises currently being orchestrated by the Fed. It’s arguably the first time this has occurred since the 1980s.
“Now, people will discover that there’s time value of money,” Taleb said, referencing a popular economic concept that explains why a dollar today is worth more than the same dollar at some point in the future.
“They need to learn what economic policy should be and what monetary policy shouldn’t be,” he said. “You need to bring interest rates back to a normal level and they can’t vary much.”
When asked what he would consider “normal,” Taleb said around “3% or 4%” which is right around where Fed funds futures traders are anticipating interest rates may be later this year, according to the CME’s FedWatch tool.
Stocks have fallen sharply 2022, with the S&P 500
in a bear market as the Fed aggressively raises rates in its effort to get inflation under control. The S&P 500 was off 0.6% on Thursday afternoon, while the Dow Jones Industrial Average
held near the flat line and the Nasdaq Composite
He also cautioned the Fed against turning back, and said that “a generation of people” have made a lot of money from investing using “the wrong methods” due to low interest rates and the Fed’s quantitative-easing bond buying.
“I would be careful not to use monetary policy by lowering interest rates too much because that’s what brought us here, he said.
Toward the end of the conversation, as the credits started to roll, talk turned to Tesla Inc.
and then to its CEO Elon Musk.
“Elon Musk blocked me on Twitter,” he joked, a reference to a tweet from earlier this year.
“Squawk Box” hosts Andrew Ross Sorkin and Becky Quick responded with a joke in kind: if Musk should gain control of Twitter Inc.
and kick Taleb off the platform, he could “always come here.”