Chart of the Day: The Turkey Problem Applied to Volatility

Nassim Taleb's Turkey Problem...

The Turkey Problem in Action... The volatility index, the VIX (last week)!

Facebook Posts of the Day: Socialism Sounds Great in Speech Soundbites, US Populist Vote Against the Establishment

The first post on socialism comes from Russian Chess Grandmaster and former World Chess Champion Garry Kasparov (hat tip Cato's Dan Mitchell)

The next post comes from iconoclast author and risk analyst Nassim Taleb

By the way, due to time constraints I haven't opened my facebook account for a number of months now, but such has not been a hindrance from reading great posts like the above.

Quote of the Day: The Difference between Businesspersons and Speculators relative to Forecasters

I've see rich businesspersons; I've see rich speculators; but I've never seen a rich forecaster.

Another splendid aphoristic gem from my favorite iconoclast author and mathematician Nassim Nicolas Taleb at his Facebook page*.

 

The bottom line is ‘skin in the game’.

While all three apply prognosis on the future, businesspersons and speculators implement demonstrated or revealed preferences: they take on risks by betting with their own resources (hence they get rich when their prognosis are validated). 

Or said differently, they put on personal stakes to profit from a (probabilistic) tradeoff in a given reward-risk environment.

On the other hand, while vociferous in public, the forecaster, hardly parlay their predictions with their own resources. Instead, they are usually paid shills for interest groups or they serve as mouthpieces to indoctrinate and or to confirm the biases of the gullible public. In other words, the forecaster's concerns have mostly been the filling up of the pockets of their sponsors/employers and have been mostly plagued by the principal agent dilemma (conflict of interest). 

Because they have little or no personal stakes, being wrong on their predictions hardly signifies an issue. That's because they will just most likely invoke Keynes' 'smart banker' escape clause of citing ignorance while taking cover with the crowd.

Basically, financial 'skin in the game' means the difference between action (investment and speculation) and (no stakeholdings based) cheap talk which usually have been garbed with technical gibberish (to sound and look sophisticated 'experts').

* I hardly open facebook (or tweeter), but I don’t need to open these to read pages or tweets of my favorite or followed authors.

Quote of the Day: The Illusion Called 'Change'

Humans have always lived under the illusion that: 1) they can change their spouse, 2) they can change markets, and 3) they can change human nature.

This incisive quote is from Nassim Nicolas Taleb posted at this Facebook page.

This behavioral blemish reminds me of the popular "change" rhetoric sold in the political arena.

Quote of the Day: Own More of the Good Type of Risk

Uncertainty should not bother you. We may not be able to forecast when a bridge will break, but we can identify which ones are faulty and poorly built. We can assess vulnerability. And today the financial bridges across the world are very vulnerable. Politicians prescribe ever larger doses of pain killer in the form of financial bailouts, which consists in curing debt with debt, like curing an addiction with an addiction, that is to say it is not a cure. This cycle will end, like it always does, spectacularly.

When it comes to investing in this environment, my colleague Mark Spitznagel articulated it well: investors are left with a simple choice between chasing stocks that have an increasing chance of a crash or missing out on continued policy effects in the short term. Incorporating a tail hedge minimizes the risk in the tail, allowing investors to remain invested over time without risking ruin...

To be robust, one must construct a portfolio as an engineer would a bridge and ask what your managers expect to lose should the market fall by 10%. Then ask them again what they’d expect to lose in the down 20% scenario. If that second number is more than two times more painful emotionally than the first, your portfolio is fragile. To fix the problem, add components to your portfolio that make the portfolio stronger in a crash, like actively managed put options. You will be able to build stronger, better bridges, with better returns, that will last for the long term.

By clipping the tail, you can own more risk, the good type of risk: upside with limited downside. And rather than helplessly watching your bridge collapse, you can be opportunistic in a crash, and take the pieces from others at bargain prices to increase the size of yours.

This excerpt is from iconoclast risk analyst and author Nassim Taleb at the Hedgefundintelligence.com

Quote of the Day: The fastest road to bankruptcy in foreign exchange was an economics degree

Thirty years ago economists believed that “purchasing power parity” determined the “long term” currency rate between countries. And economists who became traders kept blowing up by selling the “expensive” currency and buying the “cheap” one. And, if anything, the opposite held: Currencies that were expensive kept getting more expensive. So it became known that the fastest road to bankruptcy in foreign exchange was an economics degree. More analytically, saying “the long term” without attaching a period to it (six months, six years, six hundred years, etc.) is meaningless. The duration is more relevant than the idea that currencies “converge.”

This from Nassim Nicolas Taleb, who along with Mark Spitznagel discuss "inequality, free markets and crashes" at the NationalReview.com

Quote of the Day: Success in all endeavors is requires absence of specific qualities

Success in all endeavors is requires absence of specific qualities. 1) To succeed in crime requires absence of empathy, 2) To succeed in banking you need absence of shame at hiding risks, 3) To succeed in school requires absence of common sense, 4) To succeed in economics requires absence of understanding of probability, risk, or 2nd order effects and about anything, 5) To succeed in journalism requires inability to think about matters that have an infinitesimal small chance of being relevant next January, ...6) But to succeed in life requires a total inability to do anything that makes you uncomfortable when you look at yourself in the mirror.

This is from mathematician, philosopher, author and my favorite iconoclast Nassim Nicolas Taleb from his collection of Aphorisms, Maxims & Heuristics.

Let me add my two cents. I will piece together, like a jigsaw puzzle, anecdotally of what I think as interrelation from these variables.

#2 or the "absence of shame at hiding risks" would seem as not only relevant or applicable to much of the banking sector but generally (but with a few exceptions) to other financial market participants as well, including both sellside and buyside institutions. Think Wall Street (and their equivalents worldwide).

#4 I believe represents the essence of the mainstream “economics”. Shout enough statistics and or economic models (technical/econometric gobbledygook) for one to be reckoned as practicing “economics” by the uninformed public (who has little understanding of economics) overwhelmed by mathematical abstractions. Never mind if the practitioner/s have been entirely blind to the "risks" from "2nd order effects". 

Of course #4 is related or tied to #2; in the context that # 4 (the ideological foundation for the absence of risks) serves as justification for the actions of #2 (blatant hiding of risks). 

Think of "mania" or the frantic bidding up of asset prices regardless of risks of ballooning debt underlying such bidding binge, where "euphoria" has mostly been premised on statistical growth stories or from the prospects of more central bank support.

#5 (or the focus on the sensational rather than to the relevant) could most likely be part of the design to promote the interests of the entrenched political-economic order. When people see or tunnel at the sensational at the expense of the relevant then they are most likely to become complacent or dismissive of "risks". For instance, the mainstream have been oriented to see property booms as equivalent to economic growth, while disregarding the 2nd order effects of soaring property prices to the economy (via dramatic changes in relative price levels) and to politics (benefits the asset holders at the expense of to the non-asset holders that becomes part of the issue underlying the inequality controversy).

#2, #4 and #5 are linked in the sense that these sectors most likely constitute the central bank-banking-government cartel. 

Moreover, #3 is connected to #5 in that this represents the indoctrination process. The absence of common sense (and critical thinking) makes #5 (mainstream journalism) credible and reliable sources of information. And this applies, as well as, to the extent of ideas promoted by #2, #4 and #5 that becomes popular knowledge or mainstream dogma.

And finally, when a vast majority of the population becomes agreeable or complacent to #2, #4 and #5, then #1 appears easy to be implemented. This via social policies of financial repression (where inflationism is part of) which entails the (direct and indirect) redistribution of resources from society to the political class helped by their allies #2, #4 and #5 (also #3), who are also beneficiaries, in the "absence of empathy" transfers.  

And when a crisis occurs #5 blame such economic-financial malaise on "greed" from capitalism. But #2 and #4 gets a bailout from the government and or from the central bank, deepening further the financial repression policies.

#6 now depends on where you stand. 

So when Mr. Taleb in another quote (117th) from the same source says "there is this prevailing illusion that debt is a renewable source", then such illusion signifies a product of the 5 "absence of specific qualities" ingredients of "success".

Phisix: Will a Black Swan Event Occur in 2014?

2013 turned out to be a very interestingly volatile and surprising year. It was a year of marked by illusions and false hope.

Mainstream’s Aldous Huxley Syndrome

The Philippine Phisix appears to be playing out what I had expected: the business cycle, or the boom-bust cycle. Business cycles are highly sensitive to interest rate movements.

At the start of 2013 I wrote[1],

the direction of the Phisix and the Peso will ultimately be determined by the direction of domestic interest rates which will likewise reflect on global trends.

Global central banks have been tweaking the interest rate channel in order to subsidize the unsustainable record levels of government debts, recapitalize and bridge-finance the embattled and highly fragile banking industry, and subordinately, to rekindle a credit fueled boom.

Yet interest rates will ultimately be determined by market forces influenced from one or a combination of the following factors as I wrote one year back: the balance of demand and supply of credit, inflation expectations, perceptions of credit quality and of the scarcity or availability of capital.

The Philippine Phisix skyrocketed to new record highs during the first semester of the year only to see those gains vaporized by the year end.

During the first half of the year, I documented on how Philippine stocks has segued into the mania phase of the bubble cycle backed by parabolic rise by the Phisix index (for the first four months the local benchmark rose by over 5% each month!) and the feting or glorification of the inflationary boom via soaring prices of stocks and properties by the mainstream on a supposed miraculous “transformation[2]” of the Philippine economy backed by new paradigm hallelujahs such as the “Rising Star of Asia”[3], “We have the kind of economy that every country dreams of”[4], underpinned by credit rating upgrades, which behind the scenes were being inflated by a credit boom. This romanticization of inflationary boom is what George Soros calls in his ‘reflexivity theory’ as the stage of the flaw in perceptions and the climax[5].

While I discussed the possibility of a Phisix 10,000 as part of the inflationary boom process, all this depended on low interest rates.

But when US Federal Reserve chairman suddenly floated the idea of the ‘tapering’ or reduction of Large Scale Asset Purchases (LSAP) global equity markets shuddered as yields of US treasuries soared. Yields of US treasuries have already been creeping higher since July 2012 although the ‘taper talk’ accelerated such trend.

Since June 2013, ASEAN equity markets have struggled and diverged from developing markets as the latter went into a melt-up mode.

Just a week before the June meltdown I warned of the escalating risk environment due to the rising yields of Japanese Government Bonds (JGB) and US treasuries[6].

However, if the bond vigilantes continue to reassert their presence and spread, then this should put increasing pressure on risk assets around the world.

Essentially, the risk environment looks to be worsening. If interest rates continue with their uptrend then global bubbles may soon reach their maximum point of elasticity.

We are navigating in treacherous waters.

In early April precious metals and commodities felt the heat. Last week that role has been assumed by Japan’s financial markets. Which asset class or whose markets will be next?

Anyone from the mainstream has seen this?

Since the June meltdown, instead of examining their premises, the consensus has spent literally all their efforts relentlessly denying in media the existence of bear market which they see as an “anomaly” and from “irrational behavior”. 

They continue to ‘shout’ statistics, as if activities of the past signify a guaranteed outcome of the future, and as if the statistical data they use are incontrovertible. They ignore what prices have been signaling.

My favorite iconoclast and polemicist Nassim Nicolas Taleb calls this mainstream devotion on statistical numbers as the ‘Soviet-Harvard delusion’ or the unscientific overestimation of the reach scientific knowledge.

He writes[7], (bold mine)

Our idea is to avoid interference with things we don’t understand. Well, some people are prone to the opposite. The fragilista belongs to that category of persons who are usually in suit and tie, often on Fridays; he faces your jokes with icy solemnity, and tends to develop back problems early in life from sitting at a desk, riding airplanes, and studying newspapers. He is often involved in a strange ritual, something commonly called “a meeting.” Now, in addition to these traits, he defaults to thinking that what he doesn’t see is not there, or what he does not understand does not exist. At the core, he tends to mistake the unknown for the nonexistent.

English writer Aldous Huxley once admonished “Facts do not cease to exist because they are ignored.” Thus I would call mainstream’s rabid denial of reality the Aldous Huxley syndrome

Mainstream pundits like to dismiss the massive increase in debt which had supported the current boom. They use superficial comparisons (as debt to GDP) to justify current debt levels. They don’t seem to understand that debt tolerance function like individual thumbprints and thus are unique. They treat statistical data with unquestioning reverence.

I’ll point out one government statistical data which I recently discovered as fundamentally impaired. What I question here is not the premise, but the representativeness of the data.

The Philippine Bangko Sentral ng Pilipinas (BSP) recently came out with 2012 Flow of Funds report noting that the households had been key provider of savings for the fifth year[8].

Going through the BSP’s “technical notes”[9] or the methodology for construction of the flow of funds for the households, the BSP uses deposits based on the banking sector, loans provided by life insurances, GSIS, SSS, Philippine Crop Insurance and Home Development Mutual Fund, Small Business Guarantee and Finance Corporation and National Home Mortgage and Finance Corporation. They also include “Net equity of households in life insurances reserves and in pension funds”, “Currency holdings of the household” and estimated accounts payable by households, as well as “entrepreneurial activities of households” and “other unaccounted transactions in the domestic economy”[10]

But the BSP in her annual report covering the same year says that only 21.5 households are ‘banked’[11]. Penetration level of life insurance, according to the Philam Life, accounts for only 1.1% of the population[12]. SSS membership is about 30 million[13] or only about a third of the population. GSIS has only 1.1 million members[14]. These select institutions comprise the meat of formal system’s savings institutions from which most of the BSP’s data have been based.

Yet even if we look at the capital markets, the numbers resonate on the small inclusion of participants—the Phisix has 525,085 accounts as of 2012[15] or less than 1% of the population even if we include bank based UITFs or mutual funds and a very minute bond markets composed mainly of publicly listed entities.

So no matter how you dissect these figures, the reality is that much of the savings by local households have been kept in jars, cans or bottles or the proverbial “stashed under one's mattress”.

In the same way, credit has mostly been provided via the shadow banking sector particularly through “loan sharks”, “paluwagan” or pooled money, “hulugan” instalment credit or personal credit[16].

In short, the BSP cherry picks on their data to support a tenuous claim.

In fairness, the BSP has been candid enough to say, at their footnotes, that the database for the non-financial private sector covers only “the Top 8000 corporations” and that for the “lack of necessary details” their “framework may have resulted to misclassification of some transactions”.

But who reads footnotes or even technical notes?

The Secret of the Philippine Credit Bubble

This selective data mining has very significant implications on economic interpretation and analysis.

This only means that many parts of the informal economy (labor, banking and financial system, remittances[17]) has been almost as large as or are even bigger than their formal counterparts.

We can therefore extrapolate that the statistical economy has not been accurately representative of the real economy.

Yet the mainstream has been obsessed with statistical data which covers only the formal economy.

And in theory, the still largely untapped domestic banking system and capital markets by most of the citizenry hardly represents a sign of real economic growth for one principal reason: The major role of banks and capital markets is to intermediate savings and channel them into investments. With lack of savings, there will be a paucity of investments and subsequently real economic growth.

In short, the dearth of participation by a large segment of the Philippine society on formal financial institutions represents a structural deficiency for the domestic political economy.

Any wonder why the mainstream pundits with their abstruse econometric models can’t capture or can’t explain why Philippine investments[18] have remained sluggish despite a supposed ‘transformational’ boom today?

This also puts to the limelight questionable efforts or policies by the government to generate growth via “domestic demand”.

Yet the mainstream hardly explains where “demand” emanates from? Demand may come from the following factors: productivity growth, foreign money, savings, borrowing and the BSP’s printing money.

With hardly significant savings to tap, and with foreign flows hobbled by rigid capital controls, the corollary—shortage of investments can hardly extrapolate to a meaningful productivity growth or real economic growth.

So in recognition of such shortcoming, the BSP has piggybacked on the global central bank trend in using low interest rates (then the Greenspan Put) to generate ‘aggregate demand’.

As a side note; to my experience, a foreign individual bank account holder can barely make a direct transfer from his/her peso savings account to a US dollar account and vice versa without manually converting peso to foreign exchange and vice versa due to BSP regulations.

The BSP anticipated this credit boom and consequently concocted a policy called the Special Deposit Accounts (SDA) in 2006, which has been aimed at siphoning liquidity[19]. Eventually the SDA backfired via financial losses on the BSP books even as the credit boom intensified.

The BSP imposed a partial unwinding of the SDA which today has only exacerbated the credit boom.

Given the insufficient level of participation by residents in the banking sector and the capital markets, thus the major beneficiaries and risks from the zero bound rate impelled domestic credit boom meant to generate statistical growth have been concentrated to a few bank account owners, whom has accessed the credit markets. This in particular is weighted on the supply side, e.g. San Miguel

The credit boom thus spurred a domestic stock market and property bubble.

This has been the secret recipe of the so –called transformational booming economy.

Yet, the large unbanked sector now suffers from the consequences of a credit boom—rising price inflation.

Well didn’t I predict in 2010 for this property bubble to occur?

Here is what wrote in September 2010[20]

The current “boom” phase will not be limited to the stock market but will likely spread across domestic assets.

This means that over the coming years, the domestic property sector will likewise experience euphoria.

For all of the reasons mentioned above, external and internal liquidity, policy divergences between domestic and global economies, policy traction amplified by savings, suppressed real interest rate, the dearth of systemic leverage, the unimpaired banking system and underdeveloped markets—could underpin such dynamics.

My point is that these bubbles have been a product of the policy induced business cycle.

Also these can hardly represent real economic growth without structural improvements in the financial system via a financial deepening or increased participation by the population in the banking sector and in the capital markets. 

The chart from a recent World Bank report[21] represents a wonderful depiction of the distinctiveness of the distribution credit risks of ASEAN and China.

From the Philippine perspective, households indeed have very small debt exposure basically because of low penetration levels in the Philippine financial system. Whereas most of the insidious and covert debt build up has been in the financial, nonfinancial corporations and the government.

Ironically, Indonesia whom has very low debt levels has been one of the focal point of today’s financial market stresses which I discuss in details below.

This only shows that there are many complex variables that can serve as trigger/s to a potential credit event. Debt level is just one of them.

Why a Possible Black Swan Event in 2014?

I say that I expect a black swan event to occur that will affect the Phisix-ASEAN and perhaps or most likely the world markets and economies.

The black swan theory as conceived by Mr. Taleb has been founded on the idea that a low probability or an ‘outlier’ event largely unexpected by the public which ‘carries an extreme impact’ from which people “concoct explanations for its occurrence after the fact”[22]

The Turkey Problem signifies the simplified narrative of the black swan theory[23]. 

A Turkey is bought by the butcher who is fed and pampered from day 1 to day 1000. The Turkey gains weight through the feeding and nurturing process as time goes by.

From the Turkey’s point of view, the good days will be an everlasting thing. From the mainstream’s point of view “Every day” writes Mr. Taleb “confirms to its staff of analysts that Butchers love turkeys “with increased statistical confidence.””[24]

However, to the surprise of the Turkey on the 1,001th day or during Thanksgiving Day, the days of glory end: the Turkey ends up on the dinner table.

For the Turkey and the clueless mainstream, this serves as a black swan event, but not for the Butcher.

For me, the role of the butcher will be played by rising interest rates amidst soaring record debt levels.

Global public and private sector debt from both advanced economies and emerging has reached $223 trillion or 313% of the world’s gdp as of the end of 2012[25]. This must be far bigger today given the string of record borrowings in the capital markets for 2013, especially in the US (see below).

Moreover, recent reports say that there will be about $7.43 trillion of sovereign debt from developed economies and from the BRICs that will need to be refinanced in 2014. Such ‘refinancing needs’ account for about 10% of the global economy which comes amidst rising bond yields or interest rates[26].

While I believe that the latest Fed tapering has most likely been symbolical as the outgoing Fed Chair’s Ben Bernanke may desire to leave a legacy of initiating ‘exit strategy’ by tapering[27], the substantially narrowing trade and budget deficits and the deepening exposure by the Fed on US treasuries (the FED now holds 33.18% of all Ten Year Equivalents according to the Zero Hedge[28]) may compel the FED to do even more ‘tapering’. 

Such in essence may drain more liquidity from global financial system thereby magnifying the current landscape’s sensitivity to the risks of a major credit event.

And unlike 2009-2011 where monetary easing spiked commodities, bonds, stocks of advanced and emerging markets, today we seem to be witnessing a narrowing breadth of advancing financial securities. Only stock markets of developed economies and of the Europe’s crisis afflicted PIGS and a few frontier economies appear to be rising in face of slumping commodities, sovereign debt, BRICs and many major emerging markets equities. This narrowing of breadth appears to be a periphery-to-core dynamic inherent in a bubble cycle thus could be seen as a topping process.

Meanwhile the Turkey’s role will be played by momentum or yield chasers, punters and speculators egged by the mainstream worshippers of bubbles and political propagandists who will continue to ignore and dismiss present risks and advocate for more catching of falling knives for emerging markets securities.

And the melt-up phase of developed economy stock markets will be interpreted by mainstream cheerleaders with “increased statistical confidence”.

The potential trigger for a black swan event for 2014 may come from various sources, in no pecking order; China, ASEAN, the US, EU (France and the PIGs), Japan and other emerging markets (India, Brazil, Turkey, South Africa). Possibly a trigger will enough to provoke a domino effect.

I will not be discussing all of them here due to time constraints

Bottom line: the sustained and or increasing presence of the bond vigilantes will serve as key to the appearance or non-appearance of a Black Swan event in 2014.

As a side note: the dramatic fall on yields of US Treasuries last Friday due to lower than expected jobs, may buy some time and space or give breathing space for embattled markets. But I am in doubt if this US bond market rally will last.

[update: I adjusted for the font size]

---

[1] See What to Expect in 2013 January 7, 2013

[2] See More Media Spin on the Philippine Statistical Bubble Economy December 5, 2013

[3] See Phisix 7,000: Why Asia’s Rising Star is a Symptom of Mania April 29, 2013

[4] See Phisix: The Myth of the Consumer ‘Dream’ Economy July 22, 2013

[5] George Soros The Alchemy of Finance John Wiley & Sons page 58, Google Books

[6] See Phisix: Will Abenomics trigger a “Sell in May”? May 27, 2013

[7] Nassim Nicolas Taleb Antifragile: Things That Gain from Disorder Random House New York, p.9 Google Books

[8] Bangko Sentral ng Pilipinas 2012 Flow of Funds Reports Savings Across Sectors; Household Sector Remains as Top Net Funds Provider January 3, 2014

[9] Bangko Sentral ng Pilipinas Revised Technical Notes on the Philippine Flow of Funds

[10] Bangko Sentral ng Pilipinas FLOW OF FUNDS SUMMARY MATRIX, BY SECTOR 2012

[11] Bangko Sentral ng Pilipinas Annual Report 2012 p.50

[12] Yahoo.com Philippines Has The Least Insurance Penetration In Asia – Philam Survey, January 3, 2013

[13] Domini M. Torrevillas Garbage collectors are now SSS members Philstar.com October 17, 2013

[14] Government Service Insurance System GSIS prepares for UMID-compliant eCard enrollment

[15] see Phisix: Will the Fed’s Spiking of the Punchbowl Party Be Sustainable? September 23, 2013

[16] See The Flaws of BSP’s Real Estate Monitoring and Banking Stress Tests May 20, 2013

[17] See Shopping Mall Bubble: Will Remittances, BPOs and the Informal Economy Save the Day?, January 21, 2013

[18]Agnes Isnawangsih, Vladimir Klyuev, Longmei Zhang The Big Split: Why Did Output Trajectories in the ASEAN-4 Diverge after the Global Financial Crisis? October 2013

[19] See Phisix: Escalating Risks from the Region and from Internal Bubbles December 9, 2013

[20] See The Upcoming Boom In The Philippine Property Sector September 12, 2010

[21] World Bank EAST ASIA AND PACIFIC ECONOMIC UPDATE Rebuilding Policy Buffers, Reinvigorating Growth October 2013 p.46

[22] Wikipedia.org Black Swan Theory Background

[23] See Dealing With Financial Market Information February 27, 2011

[24] Nassim Nicolas Taleb Op. cit p93

[25] Wall Street Real Time Economics Blog Number of the Week: Total World Debt Load at 313% of GDP May 11, 2013

[26] Bloomberg.com Bond Tab for Biggest Economies Seen at $7.43 Trillion in ’14 January 6, 2014

[27] See The Fed Tapers, Tremors on China’s Debt Market December 20, 2013

[28] Zero Hedge Chart Of The Day: The Fed Now Owns One Third Of The Entire US Bond Market December 3, 2013

Why Nassim Taleb Disdains the Economic Profession

My favorite Iconoclast author and philosopher Nassim Nicolas Taleb disdains the economic profession

The Businessinsider compiled 12 vitriolic quotes by Mr. Taleb on them (hat tip EPJ)

1. An economist is a mixture of 1) a businessman without common sense, 2) a physicist without brain, and 3) a speculator without balls.
2. A prostitute who sells her body (temporarily) is vastly more honorable than someone who sells his opinion for promotion or job tenure.
3. The artificial gives us hangovers, the natural inverse-hangovers. The joys of post-exercise, breaking a fast, meeting a friend, helping someone in trouble, or humiliating an economist are examples of inverse hangovers. Antifragility = series of earned inverse hangovers. They don't come for free.
4. Those with brains no balls become mathematicians, those with balls no brains join the mafia, those w no balls no brains become economists.
5. To have a great day: 1) Smile at a stranger, 2) Surprise someone by saying something unexpectedly nice, 3) Give some genuine attention to an elderly, 4) Invite someone who doesn't have many friends for coffee, 5) Humiliate an economist, publicly, or create deep anxiety inside a Harvard professor.
6. A trader listened to the firm's "chief" economist's predictions about gold, then lost a bundle. The trader was asked to leave the firm. He then angrily asked him boss who was firing him: "Why do you fire me alone not the economist? He is too responsible for the loss." The Boss: "You idiot, we are not firing you for losing money; we are firing you for listening to the economist."
7. Discussing growth without concern for fragility: like studying construction without thinking of collapses. Think like engineer not economist.
8. OPEN DISCUSSION: Back to skin in the game. It looks like skin in the game does not necessarily work because it makes people more careful, rather but because it allows the risk taker to exit the gene pool and stop transferring the risk to others. A bad driver exposed to harm would eventually die and stop killing people on the road; shielded from harm he would keep killing others ad infinitum, as if he were an economist a la JS or PK.
9. Success in all endeavors is requires absence of specific qualities. 1) To succeed in crime requires absence of empathy, 2) To succeed in banking you need absence of shame at hiding risks, 3) To succeed in school requires absence of common sense, 4) To succeed in economics requires absence of understanding of probability, risk, or 2nd order effects and about anything, 5) To succeed in journalism requires inability to think about matters that have an infinitesimal small chance of being relevant next January, ...6) But to succeed in life requires a total inability to do anything that makes you uncomfortable when you look at yourself in the mirror.
10. [On his greatest disappointment]: That I am unable to destroy the economics establishment, the press.
11. Friends, I wonder if someone has computed how much would be saved if we shut down economics and political science departments in universities. Those who need to research these subjects can do so on their private time.
12. Being nice to the wicked (or economist) is equivalent to being nasty with the virtuous.

Here is the latest (from Mr. Taleb’s Facebook) 

The problem is that academics really think that nonacademics find them more intelligent than themselves.

For instance when the economic mainstream holds that savings is bad and debt based spending is good, ignoring the fact or reality that ALL financial crisis has been a function of debt, then I share most of Mr. Taleb's sentiment.

Quote of the Day: Experience is a continuous exit exam

Experience is not much of a teacher; it is, rather, a continuous exit exam. For we are not very good at "learning" from events.

- You are told that experience is accumulated knowledge when it is largely a survival filter, a fitness test. Those we call "experienced" are simply those who had the traits that allowed them to survive in a given function in order to be able do it for a long time: what we call on this forum absence of fragility.

- This confusion is similar to mistaking the Lamarckian for the Darwinian. There is some direct learning (Lamarckian) in experience, but it has to coexist with a stiff selection test.

- The consequence is that "experienced" people should limit their teaching to avoidance of fragility.

- And our preferences show that we get the point (intuitively): we tend worship old people when they are successful, and despise (and neglect) them when they are ordinary. Yet both have, technically, the same "experience".

This is from my favorite iconoclast theorist, mathematician-philosopher and author Nassim Nicolas Taleb at his Facebook page

I think that this "experience is not a teacher" observation seems highly relevant to the stock market industry. 

Many (if not most) "experienced" industry participants (veterans) never really seemed to have learned from their "experience". They are often swayed by other matters, particularly social influence (status signaling) or industry interest (principal-agent problem). 

While they have "survived" the sharp vacillations of the marketplace over the years (experience), their survival "filter test" must have come or emanated from other means or source for them to disregard or become oblivious to the lessons of their previous episodes of life. In short, they lack the skin in the game.

And yes, in general, the public loves winners or the "visible" and almost completely disregards the "unseen" alternatives. That's because the survivorship bias, which aside from the innate impulse to adhere to the law of least efforts has largely been ingrained to us by media. 

Survivorship bias effuses an aura, or even a delusion of hope. Such hope feeds on the optimistic 'feel good' bias of the general public.

Unfortunately much of the optimism channeled via the survivalship bias are bereft of real circumstances. And this is why superhero themes (one or a few protagonists saving the world) have constantly been a bestseller whether in the movies or in politics. Superhero themes embodies the visible, emotive values and short term gratification.

Note: I made additions (in italics) to my original comment

Quote of the Day: Anger is a Convex Heuristic

Anger is a convex heuristic; it is not a reaction to be judged by its small mistakes, but by the total payoff, assuming you direct it at things that offend your sense of ethics. Forget the dictum that anger is madness, to be controlled, etc. If you systematically vent your anger at things that offend you deeply, you may have small regrets, but the upshot is that you will never feel corrupt, hypocritical, or unprincipled. This is the only life worth living. (ANTIFRAGILE HEURISTICS)

This is from Black Swan theorist and inconoclast Nassim Nicolas Taleb at the Facebook

Quote of the Day: Sins to Remember

Muscles without strength, friendship without trust, opinion without risk, change without aesthetics, age without values, food without nourishment, power without fairness, facts without rigor, degrees without erudition, militarism without fortitude, progress without civilization, complication without depth, fluency without content; these are the sins to remember.

This is from Black Swan theorist and author Nassim Nicolas Taleb at Facebook

Quote of the Day: A Letter of Advice

Erudition without bullshit, intellect without cowardice, courage without imprudence, mathematics without nerdiness, scholarship without academia, intelligence without shrewdness, religiosity without intolerance, elegance without softness, sociality without dependence, enjoyment without addiction, and, above all, nothing without skin in the game.

This terse but stirring “letter of advice to a younger person” is from Nassim Nicolas Taleb at Facebook.

Quote of the Day: Standing Up Against Prevailing Beliefs

Would you rather be an honorable person perceived to be a fraudster, or a fraudster mistaken for an honorable person? The answer can help you understand why otherwise good people do devious things to avoid standing up against prevailing beliefs.

This is from Black Swan author Nassim Nicolas Taleb at Facebook

Quote of the Day: The Necessary is Not to be Confused with the Causal

A drivers license is something binary: Pass/Fail. Nobody is foolish enough to try to get high scores in it to improve his CV with a "drivers license from the prestigious center X, summa cum laude". We understand the nonlinearity there; and we get the point that failing the test makes one a bad driver on the road, but better grades at the test won't necessarily make one a better driver. It is an entirely via negativa statement; failing (the negative) is where the information resides, where school knowledge may map to reality. The necessary is not to be confused with the causal.

Now try to translate the idea into other areas of education. The statement "failing to get a degree is bad for you" does not necessarily mean that "better grades are good". It may even mean that higher grades might indicate a sick mind. This is the difference between SATISFICING and OPTIMIZING. An ecologically calibrated person, aware of the fuzziness of the mapping betwen education and skills, should be able to aim for just pass, and not be penalized by the nerd wasting time on fitting his brain cells to the exam at the expense of other skills and activities, such as street fights, reading Montaigne, or meditating under a tree. Given that university knowledge does not map to true knowledge, to protect people from themselves, university degrees should never be anything but binary, without the fluff "honors, shmonors", etc.

This is from Nassim Nicolas Taleb on Facebook expanding his thoughts from Book IV of his latest book, ANTIFRAGILE.

Satisficing and optimizing has been likewise a dilemma to most participants in the financial markets where the mainstream mostly adheres to conventional tools and methodology to satisfy accepted social norms rather than investigating unorthodox perspectives to attain the optimal.

In short, crowd thinking versus critical thinking.