Black Swan Author: For the average investor, cash is the right choice to hedge market risk

Nassim Taleb, author of the best-selling book Black Swan, said investors seeking to protect their portfolios should cash out as the Fed seeks to raise interest rates.

Taleb said Thursday that "people think cash will be swallowed up by inflation." This will happen in the long run, but the value of cash will initially rise when interest rates rise to fight inflation and cause assets to collapse. ”

He said investors can buy assets in lost value with cash.

Taleb added: "We've seen in the last 50 years of history that every time in the early days of the fight against inflation, cash is king, and then you buy those assets and then they go up. Cash is important for investors who are unable to hedge tail risk. ”

Taleb's remarks come as Washington is discussing the spending bill, but he said the U.S. faces bigger problems than deficits, with an inflating low-interest-rate environment leading to higher asset prices and supply chain shortages, followed by oversupply.

Hedging tail risk to protect portfolios from extreme market turbulence is difficult, he said.

"If you still think stocks might have upside, you have to do proper hedging, and hedging is hard," he said. "But don't stay in the market with a view to diversifying through crypto assets or other similar assets."

Taleb had called Bitcoin "insurance" against government control over the currency, but he recently changed his stance, saying the cryptocurrency had zero value.

"Cryptocurrencies don't hedge against anything — inflation, stock market crashes, nothing," he said On Thursday.

He also insisted that he was "not yet" bearish on cryptocurrencies.

This article originated from the Financial Circle Network