““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 overvalued to undervalued.’“
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” Thursday, Taleb said 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 the markets. And it may also have potentially misled a generation of investors into underestimating how easy it is to make a living picking stocks.
He called “bitcoin” BTCUSD,
as one of those “tumors,” and perhaps also “property,” he said, possibly a reference to Starwood Capital CEO Barry Sternlicht, who was also on the show with Taleb and 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 haven’t really had to contend with the implications of a recession that could result from the rate hikes currently being orchestrated by the Fed. It is without a doubt the first time this has happened since the 1980s.
“Now people will discover that there is time value of money,” Taleb said, referring to 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 should not be,” he said. “You have to bring interest rates back to a normal level, and they can’t vary much.”
Asked what he would consider “normal,” Taleb said around “3% or 4%,” which is exactly where Fed funds futures traders expect interest rates could be later this year, according to CME’s FedWatch tool.
Stocks have fallen sharply in 2022, with the S&P 500 SPX,
in a bear market as the Fed aggressively raises interest rates in its attempt to bring inflation under control. The S&P 500 fell 0.6% Thursday afternoon, while the Dow Jones Industrial Average DJIA,
held close to the flat line and the Nasdaq Composite COMP,
fell 1%.
He also warned the Fed against reversing, saying “a generation of people” have made a lot of money investing using the “wrong methods” because of low interest rates and the Fed’s quantitative easing of bond purchases.
“I would be careful not to use monetary policy by lowering interest rates too much because that’s what got us here,” he said.
Towards the end of the call, as the credits began to roll, the conversation turned to Tesla Inc. TSLA,
and then to 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: If Musk were to gain control of Twitter Inc. TWTR,
and kicked Taleb off the platform, he could “always come here.”
