These guys are too smart; they see deeper into the complexities of what COULD occur. They see how bad it COULD get. But fortunately for us, what we fear most never happens and a black swan is just another bird.

Consider Roubini who is about as negative as any economist and seems to revel in the prospect that this is the end of American leadership in the world, even he is not predicting a depression, of any sort. In fact today on Bloomberg he commented that the recession would probably end by the end of 2009.

Worst thing since the American Revolution? Hardly.

http://www.bloomberg.com/avp/avp.htm?N=av&T=Roubini%20Says%20S%26P%20May%20Fall%2030%25%20More%20Over%202-Year%20Recession&clipSRC=mms://media2.bloomberg.com/cache/v.8Wcra7zbSE.asf

if you ever want to bust out with your take on ‘the network effect’–that Taleb, briefly, alluded to in the clip, feel free :)

though, simply, it has a lot to do with the same(Hedge/Levered) ports following similiar strategies learned at similiar schools teaching the same equations..

Not always…under some circumstances they
can LOCK UP.

To be clear, I am not saying r=.9 across ALL asset classes still as the deleveraging goes on, it may[be?] return[ing]… although anyone who bought the decoupling theory between emerging markets and the States in equities lived it… And look how uncorrelated [joking] commodities have been v. equities…

Think of Taleb’s approach: The financial system – its adherents, its MBAs, its VAR professionals – misprice risk. Taleb proposes that you bet against “them.” He buys a whole slew of low-probability derivatives at a price that mis-calculates their outcomes.

So… he’s up 50-60% when the rest of the market is down 50-60% because the “rest of the market” mispriced things. And they misprice things consistently. In epochs like 2003-2006, he’s down a little… now he’s up.

He’s not betting with the Paulson’s and Lahde’s he’s betting against the financial orthodoxy. (FYI anagram of mispriced is empirics, LOL)

@Andrew

With all due respect [BTW, i have a background in neural network and genetic algorithm prospective predicative modeling, but prefer to avoid the mathematical diatribes], my quote says what your mathematical treatise does–the fact that we have imperfect knowledge, and what knowledge we have is based on deductive [historical] knowledge, leads to imperfect models [unknown variance]. My quote is much better for cocktail talk, as well…

I am intrigued at applying hybrid techniques like neuro-psych theories etc…

Until they don’t.

I think that is the kind of the point of Black Swan. Unknowable events can occur that break the statistical models.

“I believe his fund is up 50% YTD. Paulson & Co made 591% last year betting against subprime and Andrew Lahde returned 1000%”

Getting lucky in betting on a downturn, does not a long term strategy make. If Taleb can beat the market consistently while providing protection or even profit in a bad environment would be quite an achievement. Taleb’s management of low probability high impact risk, is kind of the point.