Famed investor Nassim Taleb warned investors on Friday that bonds "have run their course" and will no longer serve as a traditional hedge against a market sell-off.Taleb said due to negative interest rates, "bonds practically have no upside structurally." Taleb said he doesn't believe bonds can really have negative interest rates, and the Fed lost a weapon it had by dropping interest rates to near zero in response to the coronavirus pandemic.
Taleb suggested investors hold onto stocks for upside, and protect against downside by having a tail hedge. "If you don't have a tail hedge, I suggest not being in the market," Taleb said. Taleb added that uncertainty looms over the market due to increased printing of money by the Fed and lack of room to lower interest rates. And even in the scenario that the coronavirus pandemic calms down, consumers will remain cautious, which will negatively impact many industries, he said.A high-growth fund manager is tripling her peers' returns in 2020 while targeting non-tech industries like beer and restaurants. She breaks down how she picked out 5 of the most innovative companies.
Taleb said stocks can pick up if we enter an inflationary environment, but any inflation would be hyperinflation, not mild inflation. On the flip side, we may be in a state of continuous deflation. Because of these uncertainties, Taleb said investors need to have an investment portfolio that is conservatively positioned and hedged for both scenarios.
Taleb is an adviser to Universa Investments, which is a hedge fund that specializes in tail-risk strategies. These strategies tend to perform well when volatility unexpectedly spikes in the markets. Universa"You need to be hedged for these two states, which makes things very delicate and the first thing I would say is bonds will hedge you against nothing from here on," Taleb concluded.Disclosure: TD Ameritrade is a partner of Insider, Inc.
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