Nassim Taleb

Tautology

"Black swan" is the metaphor Taleb uses for the trivially true observation that either a significant event will occur or it won't. This is the law of excluded third and a tautology, the very essence of language(Pattern or design). It becomes a mind numbing rhetorical tautology when the logically obvious is reformulated with excessive semantics, leading to any conclusion from such a Non sequitur.

An unintended consequence of Talebs tautology are that people are avoiding the taking of risk, waiting for an extreme event to occur. Either the markets will crash or it won't , either way you have to make a trivially true decision: take risks or don't. By stating the obvious in such a way that its obviousness is obscured, conclusions and decisions are made that don't derive logically.

Wikipedia article

".....Unlike the earlier and broader "black swan problem" in philosophy (i.e. the problem of induction), Taleb's "black swan theory" refers only to unexpected events of large magnitude and consequence and their dominant role in history. Such events, considered extreme outliers, collectively play vastly larger roles than regular occurrences.[1]:xxi More technically, in the scientific monograph 'Silent Risk',[2] Taleb mathematically defines the black swan problem as "stemming from the use of degenerate metaprobability".[2]...." black swan wikipedia

• Reduce 1: Taleb's "black swan theory" refers to events of traumatic(large magnitude) consequence. Such events, considered extreme outliers, collectively play vastly larger roles than regular occurrences. More technically, in the scientific monograph 'Silent Risk',[2] Taleb defines the black swan problem as "stemming from the use of degenerate metaprobability".[2]
• Reduce 2: Taleb's "black swan theory" refers to events of traumatic consequence. Such events, considered extreme outliers, collectively play vastly larger roles than regular occurrences.
• Reduce 3: Taleb's "black swan theory" refers to rare events of traumatic consequence. Such rare events, collectively play vastly larger roles than regular occurrences.
• Reduce 4: Taleb's "black swan theory" refers to rare events of traumatic consequence. Such rare events, play vastly larger roles than regular occurrences.
• Reduce 5: Rare events of traumatic consequences occur. Such rare events, play vastly larger roles than regular occurrences.
• Reduce 6: Extreme events occur rarely, but are more significant than regular events.
• Reduce 7: Either I will die(extreme event) or not tomorrow.
• Finally: What happens, happens.

The tautology part is "large magnitude" <=> "vastly larger" <=> "extreme outliers", it states the same thing twice to obfuscate that the trivially true observation: Either something dramatic will happen or it won't. Anything concluded from such is a Non sequitur. What happens indeed will happen to happen.

"......Such events, considered extreme outliers, collectively play vastly larger roles than regular occurrences....."

• Reduce 1: Extreme outlier events, play vastly larger roles than regular occurrences.
• Reduce 2: Extreme events are more significant than regular events.

Obviously events that are extreme are more significant that those that are not extreme, that is why they are called extreme!

Taleb's premises

Taleb seems to have the premise that money is wealth, a widely held belief that is wrong: Money is nothing else but the claim(bonds) to past , present and future energy production. Soon, advances in solar energy will collapse the price of energy and the vast swath of the sixty trillion dollars in bonds will grind towards negative yield, emulating a commodity. What we are experiencing with the crash in the price of oil is a paradigm shift, akin to how the industrial revolution lifted humanity out of the misery of the plague and black death. In this transition, society is attempting to Induction their experience of debt in the past, resulting in Non sequitur conclusions , because what differs now from the past, is that finally the cost of energy will collapse. The financial crises of 2008 is but static noise , obscuring the real structural change that is upon us.

(A UBI will prevent the demographic suicide of Europe. Technology relieves man from menial repetitive tasks and the energy cost collapse enables a consumer society created by the issuing of perpetual bonds, something Japan could soon do. The ECB is not a central bank like the Fed but actually a currency board. It doesn't have the power to take over Deutsche Bank's debt unto its books as the Fed did with US banks under programs called "Third term auction facility". Greece was forced to take hundreds of billions of loans, not to bail out Greece, but to bail out Deutsche bank. The collapse of which will mean the collapse of Europe itself. In addition the Greeks were cruelly made an example out of as a warning to Italy and Spain, Greece is the least of the ECB's problems. It is the inability of structural labor reform in Italy specifically that is the greatest impediment to Europe, not money. The trick is to implement free market reforms and at the same time provide a UBI, preventing what would amount to serfdom in the absence of labor laws. The goal of laboring isn't just working for the sake of working, but to acquire the means to purchase energy. When energy becomes unlimited, the need for labor much less.)

Robots cannot replace consumers, as our economy isn't a perpetual motion machine. Rather robotics have relieved us from suffocating repetitive actions and coupled with unlimited energy will enable an era of unprecedented prosperity. All of this is based on the Premise that money is only a claim to energy production. In other words this writeup avoids spouting arbitrary beliefs in the cybersphere but attempts deriving conclusions from such premise logically. Whether the conclusion turns out to be true or not isn't even the point, but that a conclusion was derived in such a way that it wasn't an arbitrary belief.

Taleb

Taleb book p 21, 25 http://www.amazon.com/Antifragile-Things-That-Gain-Disorder/dp/1400067820 Taleb quotes one of his friend's summary of this book: "Everything gains or loses from volatility. Fragility is what loses from volatility and uncertainty."

Comment: Fragility derives its meaning as law of excluded middle negation of 'robustness' ( toughness, engineering redundant, strong). The synonym of robustness is anti-fragility. "..fragility is what loses from ... uncertainty ..." which means that in his view robustness is what gains from uncertainty. Robustness in this context is dissimilar term for certainty, he commits semiotic inversion with "certainty gains from uncertainty". It can't become more illuminated by becoming darker. See http://falkenblog.blogspot.com/2012/11/taleb-mishandles-fragility.html . If a system expresses favorable attributes due to an action we thought was abuse,then it falsified our theory. The action we labeled abuse now is labeled preserving.

Amazon book reviews

http://www.amazon.com/Antifragile-Things-That-Disorder-Incerto/product-reviews/1400067820/ref=cm_cr_dp_qt_hist_one/192-0492820-4197042?ie=UTF8&filterBy=addOneStar&showViewpoints=0 ".....An old Polish proverb notes that "one cannot sell from an empty cart." Nicholas Nassim Taleb, has one item in his cart: there are situations in which severe disruption can lead to a competitive advantage for those who are not entrenched in the established order, and Taleb spends considerable effort trying to convince the reader that Taleb himself is a living example. These severe disruptions are known as "Black Swans" thanks to Taleb's previous book of the same name about discontinuous change. In that context, it is interesting to note that Diderot wrote: "Swans have an air of being proud, stupid, and mischevious--three qualities that go together. Given that so much of Antifragile is based on Taleb's experience, it is quite possible that Taleb's experiences describe Taleb himself...." "

http://www.amazon.com/Antifragile-Things-That-Disorder-Incerto/product-reviews/1400067820/ref=cm_cr_pr_btm_link_3/192-0492820-4197042?ie=UTF8&filterBy=addOneStar&showViewpoints=0&sortBy=helpful&reviewerType=all_reviews&formatType=all_formats&filterByStar=one_star&pageNumber=3 "..... As I read this book I really wish (for my own sake) that Taleb could just put ideas into Dynamical Systems terms. I end up doing the mental translating myself. I have to ask myself whether each idea is novel or just a restatement of what is already known in mathematics. In this sense, I agree with your review. But complex (high-dimensional, nonlinear, non-autonomous) dynamical systems are not well understood. There are plenty of examples of systems that could fool any mathematician as chaotic but have no positive Lyapunov exponents. It's not unheard of to fool an `everything-interesting-is-nonlinear' mathematician that some complex time signal comes actually from linear dynamics. I could construct a dynamical system that fits Taleb's definition of robust yet has no stable fixed points or even limit cycles. I think Taleb is adding useful language to our approach of complex systems...."

http://www.amazon.com/Antifragile-Things-That-Disorder-Incerto/product-reviews/1400067820/ref=cm_cr_pr_btm_link_6/192-0492820-4197042?ie=UTF8&filterBy=addOneStar&showViewpoints=0&sortBy=helpful&reviewerType=all_reviews&formatType=all_formats&filterByStar=one_star&pageNumber=6 "... Taleb has succeeded in writing a book full of promise. It is called Antifragile, a concept he has innovated in the absence of any clear contrast to Fragile. You might think, What about robust? No, no, no. You are just not getting it. Robust simply avoids being fragile. Antifragile actively benefits where fragile suffers damage. The opposite of Handle with Care would be, Handle with Destructive Intent. And the theory is that some things benefit from this, that is to say they benefit from being handled with destructive intent, as opposed to merely remaining unaffected, and that these things can be called Antifragile. So the conclusion is, oh, spoiler - people who have trouble managing money would benefit from being handled with destructive intent. Anyone who is dyslexic or depressed would benefit from being handled with destructive intent. You might imagine that this is some brilliant contemporary version of Swift's Modest Proposal, but the sheer parroting mindlessness of his style betrays otherwise.

Undoubtedly the ensuing circumlocution is a parade of Taleb's self-appointed status as an autodidact. Anyone with any taste will immediately be suspicious of such a word, and positively alarmed at anyone appointing themselves as... an autodidact. Of course I'm not saying that Taleb sounds like a delusional dope-smoker alternating between self-aggrandizement and paranoia. I'm not saying he sounds like a recalcitrant girl-friend, screaming at you to be decoded and loved. I am not saying he's a jock trying on the expressions of civilized men, putting a false interpretation on them and drawing the queerest conclusions. And I am certainly not saying or going to get bogged down in saying that he is a child of privilege, purveying unphilosophical, parochial ultra-conservatism clothed ill-fittingly in a confused adolescence spent guzzling the fashionable (read toe-curling) literature of the french left without really thinking about it.

It is worth getting bogged down in this idea that David Cameron not only claims allegiance to this character, but is actually basing policy on this drifting, disjointed parade of quotations. Is that possible? He is claiming to base policy on the ideas (or is that too strong a word?) of Taleb......."

Amazon review by Eric Falkenstein

bankofnotes

from http://bankofnotes.com/2012/01/04/fooled-by-randomness-nassim-nicholas-taleb/

“(T)here are Monte Carlo generators designed to structure such texts and write entire papers. Fed with ‘postmodernist’ texts, they can randomize phrases under a method called recursive grammar, and produce grammatically sound but entirely meaningless sentences that sound like Jacques Derrida, Camille Paglia, and such a crown.” (73)There developed a social model for a stoic person, like the gentlemen in Victorian England. Its tenets can be summarized as follows: The stoic is a person who combines the qualities of wisdom, upright dealing, and courage. The stoic will thus be immune from life’s gyrations as he will be superior to the wounds from some of life’s dirty tricks.” (248)“Economics is a narrative discipline, and explanations are easy to fit retrospectively.” (257)

It is know as the Retrospective determination fallacy, multiverse theory suffers from it.

“It took me an entire lifetime to find out what my (core framework) is. It is: We favor the visible, the embedded, the personal, the narrated, and the tangible; we scorn the abstract. Everything good (aesthetics, ethics) and wrong with us (Fooled by Randomness) with us seems to flow from it.” (262)

• reduce1 :“It took me a lifetime to find out that we favor certainty and scorn the abstract. Everything good (aesthetics, ethics) and wrong with us (Fooled by Randomness) with us seems to flow from it.” (262)
• reduce2 :“It took me a lifetime to find out that we favor certainty and scorn the abstract. Everything good (aesthetics, ethics) and wrong with us (Fooled by Randomness) with us seems to flow from it.” (262)
• reduce3 :"We favor certainty and not uncertainty". Which is a truism.

http://falkenblog.blogspot.com/2010/12/nassim-taleb-imitates-kanye-west.html an opponent of the ideas of Taleb wrote:

• ".....The last thing most people need to think is that criticism is mainly from fools who misunderstand genius...."
• ".... Modesty is a virtue not because it implies servile humility, but because it implies a combination of honesty and knowledge. Using self-righteous anger to justify immodesty just highlights one's immaturity ...."

notes on Taleb

Taleb has setup hedge funds where out of the money options are bought based on the inductive inference that because financial crises were in the past (Russian debt, Lehhman, 911, Emerging market debt) they will occur in the future. Instead what has taken place is that because of these crises and their traumatic effects and the increase in information, the governments have gained enough control and insight that we might not have another major crises in our lifetimes.  While Taleb's funds have been tanking the SP500 made new highs. See http://www.newsmax.com/finance/StreetTalk/Nassim-Taleb-Shorting-Treasuries/2010/02/04/id/348993/ for his failed predictions on inflation and bonds.

Our crises is not a financial one, but an energy one. Cheap, virtually free energy can be made available to mankind, but this will not happen as the Democrats won't allow Alaskan oil and nuclear power station construction and the unnecessary construction rules to be revoked. California has a water crises because the Democrats won't allow two dams to be constructed for storage of the melted winter snow. With unlimited energy we will have deflation and the interest rates on debt will collapse to near zero on any nominal amount. Russia will develop arctic energy, where about 80% of the worlds oil is locked up, this will prevent starvation for mankind because the Democrats will not allow US companies to develop these interests. 

Christine Lagarde phoned Paulson, the treasury secretary in 2008, pleading with him not to let Lehman go broke. A human being made a decision, this has nothing to do with mathematical models, no mathematical model could have predicted how Paulson, George Bush, Lagarde and personal petty frictions that Paulson must have had against Richard Fuld were to play out. Taleb wrote: ".....At let's face it: use of probabilistic methods for the estimation of risks did just blow up the banking system ..." https://web.archive.org/web/20130204160647/http://www.edge.org/conversation/the-fourth-quadrant-a-map-of-the-limits-of-statistics . Philosophers are tasked with unearthing the hidden assumptions and premises. A major premise that defines world views is the belief as to the lack or abundance of resources. Usually a person concerned with the implosion of the world economy has the premise that there is a lack or resources. Rather there is a lack of insight . Enron, 1991 Savings and Loans were fraud enabled by lack of applicable legislation, learning from our mistakes gave us https://en.wikipedia.org/wiki/Sarbanes%E2%80%93Oxley_Act which will probably prevent another Enron from ever taking place again.

Because of the Great Depression, Bernanke flooded the world with over $15trillion in liquidity which found its way into the shadow banking system, making it impossible for Janet Yellen to raise interest rates as it will collapse the Indian and Chinese economies. Had Taleb or https://en.wikipedia.org/wiki/Rick_Santelli been head of the Fed, China would have probably imploded , igniting a global war. Obhama's preference was for Lawrence Summers to take the helm, but this was canned because the markets viewed Summers as to abrasive. 

China retaliated against the White house meddeling in the Fed,  by allowing the Yuan to devalue, as it is impossible for China to absorb hte shock of declining exports and the withdrawl of funds from what amounts to a massive property Ponzi scheme, funded by the shadow banking system. It is this shadow banking system that the Fed must prevent from imploding, it survived the Lehman shock due to Fed infused liquidity, but it is uncertain how it can survive without such.   Obhama even openly fired Bernanke in public and on television as he insisted that Yellen take the helm. But the US cannot stop the deflationary spiral in Europe, which prevents the Fed from raising rates. 

Mario Draghi(ECB) attempt at lowing interest rates forces the Fed to keep rates low. This is creating a political and pension fund crises in the US as these funds cannot make pension payments from low interest bearing securities and can't even purchase equities as there isn't enough free float available. http://www.zerohedge.com/contributed/2014-04-15/pensions-timebomb-85-pension-funds-will-go-bust "...Yet another report shows that the public pension system is in dire straits. This one comes from renowned investment manager Bridgewater Associates. The study estimates that public pension funds will earn an annual return of 4% or less in the coming years due to near zero percent interest rates and financial repression. That, in turn, would cause bankruptcy for 85% of the pension funds within 30 years, the study warns...."

South-Africa is one of the few countries in the world that will be able to pays its pensions as F.W de Klerk insisted on PIC pension rules prior to the ANC transition.

Inflation will not be problem and perhaps never will be, thus the bizarre attempt by the Fed to raise rates can only be due to impending pension fund collapses and pressure from the White house. If the Fed continues to purchase bonds at the present rate, then by 2019 no bonds will be available. The demand for collateral to short bonds spiked June 2013 forcing the fed to announce tapering. China is balking at the insistence to raise rates and if the US pushes to hard the unwinding of the Yuan carry trade could catapult it through key levels(6.25) dropping a deflationary tsunami of cheap exports on Europe. Shorting the Yuan was a sure bet by hedge funds, if they were to unwind their positions then it is unclear how the fallout will be contained.  Internet demagogery like http://www.infowars.com and a general malaise of irrationality as the American mind is absorbed into some sort of intimate cartoonish universe of intellectual fluff are reasons for concern, as politicians are unable to force through reforms. The Second world war bonds were converted into 30year bonds, we are all paying the interest on this debt for the privelage on not chanting in Latin and being tortured by the Inquisition. What is Europe willing to do, preventing all its women from being dressed like dragon Ninjas 50 years from now? World War One was an attempt to prevent Germany under a Catholic Kaiser from laying a rail road to Baghdad Iraq. Combining German industrial strength with unlimited oil would have gutted US industry and led to a Vatican take-over of the world. With World war two the Vatican's attempt to re-establish her Dark Age power was thwarted yet again. Serbia and its ally Russia's invasion by the Kaiser was an attempt by the Vatican to settle a score with the Russian Orthodox institution , dating back to the 11th century http://en.wikipedia.org/wiki/East%E2%80%93West_Schism. Note how History channel never mentions the religious belief of the German Kaiser. As a good Catholic he would not have started the first World War if the Pope had forbidden him from doing so. Both the first and second world war were religious wars between Catholics and Protestants.

•  http://www.zerohedge.com/news/2013-05-01/desperately-seeking-112-trillion-collateral-or-how-modern-money-really-works
• http://www.zerohedge.com/news/2013-06-21/chart-scared-bernanke-straight
• http://www.zerohedge.com/news/2013-04-28/chief-advisor-us-treasury-set-become-jpmorgans-second-most-important-man
• http://www.zerohedge.com/news/supercommittee-really-runs-america-presenting-november-1-tbac-minutes
• http://www.zerohedge.com/news/verge-historic-inversion-shadow-banking
• http://www.zerohedge.com/news/2012-09-23/fed-has-another-39-trillion-qe-go-least  Shadow banking, as we have explained many times most recently here, is merely an unregulated, inflationary-buffer (as it has no matched deposits) which provides the conventional banking credit transformations such as maturity, credit and liquidity, in the process generating term liabilities. In yet other words, shadow banking creates credit money which can then flow into monetary conduits such as economic "growth" or capital markets, however without creating the threat of inflation - if anything shadow banks are the biggest systemic deflationary threat, as due to the relatively short-term nature of their duration exposure, they tend to lock up at the first sing of trouble (see Money Markets breaking the buck within hours of the Lehman failure) and lead to utter economic mayhem unless preempted. Well, preempting the collapse in the shadow banking system is precisely what the Fed's primary role has so far been, even more so than pushing the S&P to new all time highs. The problem, however, as we will show today, is that even with the Fed's balance sheet at $2.8 trillion and set to rise to $5 trillion in 2 years, it will not be enough.

Zerohedge publishes some insightful arguments, marred by sarcasm and questionable logic in many articles. Separate the good from the chaff. They have been predicting the collapse of the US market for months, only to have the SP500 make new month on month highs. 

The developed world has 800mil people to which the other 7.2billion must export minerals, services and goods to survive as the reserve currencies are denominated in dollars and euro's. Money is a letter of credit by a sovereign nation state and the perception that reigns as to its ability to enforce its will. The US and Europe are excluding the developed world from building Boeings and Ipads through a thicket of patents. Prevented from selling high tech gear to the developed world and forced to import such goods denominated in dollars, the developing world such as South-Africa cannot develop its mining interests with robotics as they are prevented from building high tech robots by patents held by Google, Ibm etc. 

When China, Russia and India emerged from isolation they created an excess of supply that will never allow inflation to become an issue, it is actually deflation which is the problem. India and China's isolation allowed the developed world labour force to live in a fools paradise and like Taleb make the mistake of thinking that because things are the way they are, they will repeat themselves in the same manner in the future. 

Only massive Chinese style public works programs can prevent a deflationary collapse in the US and Europe and demand for cheap developing world products. The stakes are high as any social, political and economic implosion in China might trigger a global war as a desperate ,choking, starving China tests US resolve and invades Africa. Russia will implode if oil prices were to go below $80.  Prevented from building Ipads, BMW's and Boeings by patents the Russian's desperation in holding on to the very means of their surivival - natural gas - resulted in the annexation of Crimea. 

South-Africa

The previous head of Mossad warned Israel against a strike against Iran and replacing Hamas. His view is that one can't bomb technological knowledge out of existence and removing Hamas will create a power vacuum filled by an even more irrational actor. Taking out Gaddafi has led to uncontrollable illegal immigration into Europe. Removing Mugabe will create a power vacuum to be filled by Isis. Mozambique, Botswana and Zimbabwe are buffer states against Jihad terrorism against South African shopping malls. Kenya is becoming a failed state as it can't reply to cross border Jihad attacks with suitable reciprocating brutality because it will be charged with war crimes. US removal of the Ethiopian dictatorship has been replaced by a Jihad dictatorship and piracy on the high seas.

Zuma's naivety towards the EFF's Julius Malema led to Malema's expulsion form the ANC. This was a tactical mistake as the discontented youth Malema gave a voice inside the ANC created their own political party , accelerating the day the ANC will be forced into an alliance with the DA. Dawie Roodt from http://www.efgroup.co.za/ made the point to the EFF that there isn't anything to nationalize as businesses constitute networks, trust , relationships and knowledge. Confiscating plant and equipment is like taking away the pen from the writer, it will destroy these networks and not lead to higher rates of participation.

Eskom's impending downgrade to junkbond status will seal the ANC's fate, forcing them to sell Eskom and thus cutting free electricity to their supporters and forming an alliance with the DA. An alliance with the EFF is unthinkable, but probably not impossible. It would though lead to a Venezuela style collapse. The major demand of the DA will be that affirmative action be watered down. A vast black middle class have been created by preventing whites from being employed. Financing of a social engineering experiment only lasts as long as the money lasts, as Venezuela found out.

Fed tapering or not?

http://www.zerohedge.com/news/2014-04-15/shocking-buying-spree-americas-mysterious-third-largest-treasury-holder-ramps-higher

rehypothecation

http://www.zerohedge.com/news/2014-07-03/meet-decheng-mining-chinese-firm-which-rehypothecated-its-metal-least-three-times and zerohedge warned in 2013 that something was not right http://www.zerohedge.com/news/2013-05-23/bronze-swan-arrives-end-copper-financing-chinas-lehman-event

notes

• Taleb essays
• http://quixoticfinance.com/empty-statistics/ Pinker decline of violence issue.
• https://web.archive.org/web/20130204160647/http://www.edge.org/conversation/the-fourth-quadrant-a-map-of-the-limits-of-statistics
• http://www.sisabianovenia.com/LoLeido/NoFiccion/DrownedWorshippers.htm
• http://www.bloomberg.com/news/2011-10-23/many-black-swans-make-metaphor-meaningless-commentary-by-alice-schroeder.html
• http://www.zerohedge.com/news/nassim-taleb-occupywallstreet-and-his-updated-views-global-banking-system
• http://www.chapwoodindex.com/, http://www.shadowstats.com/alternate_data/inflation-charts Actual cost of living around 10% inflation