Professor tells investors to sell shares and bonds

Professor tells investors to sell shares and bonds

The New York University professor, Nassim Taleb, who made his name predicting the credit crunch, has told investors to dump equities and government bonds and buy 'hard assets'.

By James Phillips, citywire.co.uk
Published: 10:55PM BST 18 May 2010

The New York University professor, Nassim Taleb, who made his name predicting the credit crunch, has told investors to dump equities and government bonds and buy 'hard assets'.

He has poured scorn on the economic recovery, claiming that the global economy is in worse shape than it was during the subprime crisis and warns that the US could yet lurch into a Greek-style meltdown.

In an interview with Bloomberg TV, Taleb said the fragility in the banking system that he spotted in 2007 is still there and the bail-out of the financial sector has encouraged bankers to continue their 'casino' operations by increasing moral hazard.

"Look at all of the money they made with our backing- it is like they spat in our faces," he said.

His main concern is that the transferal of debt from the private to the public sector has seen the risks within the financial system increase and 'take a much more vicious form.'

Western governments have been issuing record levels of debt to keep the recovery afloat, but Taleb says that it is inevitable that at some point they will struggle to find buyers of these assets.

"It is clearer than ever that we are going to have a failed auction [of government bonds here in the US that will cause contagion," he said. "There will not be enough buyers of Treasuries and the government will have to print money and before you know it you wake up with hyperinflation without having had any inflation."

So how should investors position their portfolios for such a doomsday scenario? Taleb, who made millions betting against financials during the credit crunch, recommends investors dump long-term government bonds and only hold short-dated debt. He also warns against viewing the dollar as a hedge against the ailing euro, pointing out that both currencies face the same underlying problems.

He dismisses the stockmarket, which would be expected to perform badly in a period of hyperinflation, completely,
"I recommend not thinking about the stockmarket," he said. "It is a big hoax that has disappointed people over the last decade making their retirement plans, thinking it would appreciate."

"Use it as something to play with for entertainment and nothing more."

He favours moving into hard assets and advises investors to build exposure to a basket of metals rather than try and second guess which individual hard commodity will outperform. He also likes agricultural land, but said avoid 'speculative real estate'.

Taleb is certainly a controversial figure in investment circles, but he is always intriguing and even if you do not agree with his outlook, he is difficult to ignore.


http://www.telegraph.co.uk/finance/personalfinance/investing/7737050/Professor-tells-investors-to-sell-shares-and-bonds.html