Nassim Taleb, author of "Antifragile" and "The Black Swan," shares his outlook for the U.S. economy, investment strategies and his thoughts on the heated conversation between Carl Icahn and Bill Ackman over Herbalife. In another segment, Nassim Taleb says that "This is not a healthy system. We have to address the core of the problem and we have not."
Both videos and a computer generated transcripts can be found below:
Cnbc.com's john carnie joins us with an exclusive interview with nassim taleb. he likes to call himself the ghost of talos. do you not like to call yourself that? that was not me. someone else started that. well anyhow, you are no fanof davos. let's get to that in a minute. but first, the thesis of anti-fragile. which is not only that you need to be less vulnerable it risk randomness, hiccups in the world, but you need to positionyourself, your portfolio, so that you take advantage of that. is that a fair -- is that a fair -- if i got one thing right today, is that fair?perfect. you cannot use randomness and disorder and volatility as fuel. you won't make it. so how do you do that in todntext as an investor? first of all, you have -- from being exposed to down side. you need to have a large segment of your portfolio immune from market movement. whatever that is. not cash, inflation hedge cash. or 20%, or whatever you're willing to risk, high number of diversified extremely risky bets. why? we have medium risk portfolio but you did a lot better than someone who has a hundred percent of the portfolio at medium risk. in your portfolio. you say, you feel only comfortable -- and i respectthat. i'm talking about the things that you a own. yes. in your world, what are those highly risky bets? i mean, i put it in stocks. i don't wanto say names of companies. i own stocks, i own diversified number of them, across things. i also own not well known stocks because you need to know a lot of these because they are the stocks of tomorrow. and also i'm trying to get into venture capital, although there is to much paperwork so i get a headache. one of the things that we used to talk about a lot was that you know, bet that would pay off gigantically. even though they were very unlikely to happen. are you still doing that? of course, option. my career was made -- i started in crash of '87. so i understand very well can you do well from randomness. but over all, my point isn't so much at the investor level as it is the economy level. these guys in davos take theidea of dynamic resilience, whatever it is, they are trying to have the world of tomorrow resemble the world of yesterday. where you have to be positioned to face the future that doesn't look like that -- they thought they were ripping off your idea of dynamicresilience. but when you talk about resilience, you areautomatically keeping about whawas there stronger in thefuture. exactly. instead of adapting. you have to break things.the whole point is the fragility is contriing to the health itself. so we need to break first is the banking system. because we have this that we have to protect banks, protect banks and look over the world we live in today. we add crisis, those who benefit four years later from it, the richer than when we started and super rich got richer from the economic policies, meant it save the money and asset prices. and middle class is poor. a lot of people say we had to do this because it ended up helpingeverybody. but you were talking about how it hasn't helped everybody. it did not help the american middle class. and they are afraid of breaking the bank. they want it go back to the world of yesterday. that what is the cause. america didn't get here to what it is today trying to -- right. by trying to replicate the world of the 16th century england. and the industrial revolution didn't happen like people try to replicate. so you need to be in anenvironment that accepts disruption willingly. something where you face a future that's different. that an environment that gainsfrom this order. let me t it out of the context of the big banks andwhether they got rich. let's take it down to the housing market where individual americans stood in danger of losing houses and many did. but there was a tremendous effort and it continues to this day, to keep people from foreclosing to protectindividuals from that. wouldn't we have been better off if that had been allowed to be as fragile as it was. no. there were alternative methods. in a good world you don't fragilize people by loading them with debt. second step, in a world where you have that problem, you don't solve it by -- by dealing with debt.you trim debt to equity. only good thing debt has, themechanism to turn to equity. banks could have gone tohomeowners and negotiate. but banks didn't want it write off equity. bhey would lose. on paper. we are still in the situationwhere banks have the market and government helping banks.so this is not a recovery. this is not a solution to a problem we had tp we have to setback the clock five years ago had readdressed the core of the problem. what is the problem? to dmucho ebt. too much centralization. anti-fragile system thatrecycles error for profit. just like i say, if you have a plane crash tomorrow, every plane ride would be safer. okay? no? that's how it should be. this is a good system. that not what we had.we made mistakes and remedy is not addressing the cause of the mistake and odds are the next mistake would be bigger.now we have a huge monster on, like a monkey on our back.very quickly. when people say that like bank bonds are rallying, doing well recently -- that's the government. but that because we have -- exactly. you're right. you are worried about why banks can borrow so cheaply. bank borrow cheaply because you lend them every april 15. you stop them up. this is not a healthy system. we have to address the core of the problem we have now. all right, nassim, thank you very much. as always, good to have you here.
very interesting segment coming up now. power lunch exclusive. author of black swan, welcome back to power lunch.thank you. i want it get up to the very wealthy individuals in a moment. i want it start in the marketplace today. people mistakenly define me as paramount, the stocks for 3 years now. why? i don't like stocks but i'm forced to own them because i don't trust treasury bonds, you see? and i'm forced to own them -- the least of all evils. yes. real estate and stocks, you get some yield and also, you're prainst hyper inflation that may or may not come. but i want it sleep at night. but some risks i'm not willing to take. do you have a view on u.s. equities versus global equities? let me specify. nail it down. it is against my ethics, and i write it in my book, to tell what you you should be doing. i can tell you what i'm doing. let's have it. if there is advice and prediction, it may harm other people. you cannot harm other people by harm yourself in your opinion. i can only tell what you i own or don't own. i do own foreign equity? yes.convincingly, no. why do i do the it? same problem. i don't know where i to put my money. cash can burn you. treasury bonds can burn you. why what do i earn more? u.s. domestic. why?partlecause i live here. partly because companies are doing well. let me bring bob and sue back in. seema, certainly perhaps grudgingly but what about europe and asia, do have you a large exposure in those parts of the world? let me tell you, asia i don't trust. i don't understand, so i stay out of it.simplifies my life massively. that's it. but within -- but europe, to me, one thing i like about europe, having exposure to the currency, i have exposure to the euro, for a reason, is that i want -- i don't like the fact that we have twice the deficit that europehas. right. you hear a lot of bad press about europe but europe has a deficit and i want to be exposed to the euro. mostly because i think that the policies of the federal reserve is identical to those of european central bank and euro has been doing very well. and i think, i smell, everybody is bearish on something. but the story doesn't match the numbers. bob pisani, good to see you again. in the 2008 crash, is risk in your opinion still underpriced. and if it is, how do you explain to people to protect themselves? unless people have beenburned, you can't convince them to get protected. il risks havetraditionally been cheap depending on which tail. and what people fail to understand is that owning tail protection allows me to take risk elsewhere. it is not like what i spend on the tail is the overall package. it is very favorable when you have equities more attractive than bonds and other things. you need spend premium. the money i get from dividend and hedges and that's why i henl myself and i don't have to worry about anything.deep out of the money puts. deep out of the money. very slow pay offs but not near at the money because these are very expensive. they stay expensive. you watched friday's dust upbetween ackman and icahn. what do you think? a lot of readers of my book emailed me startry. my reaction is, you shouldcommend these people. they speak in public the by they would do it in private. that's rare. it is refreshing. people don't have a lot of dignity on the air. wur /- /- bureaucrats cannot do that. this is rare. they are human. if you hate someone and you say it in private, you should say it number /- public. so you like the rawness of it. i don't like people to speak different in public than in private. i don't like people to speak different in print than atdinner. it is interesting what you see on world stage and on themarketplace as well. thank you very much. sue?