A Nassim Taleb Protégé on How to Prepare for the Coming Market Crash

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What do you do when the bond market is basically uninvestable and the stock market keeps hitting all-time highs and you know that none of this will end well? WilliamCohan called hedge-funder Mark Spitznagel

and then lowered interest rates. “They’re not stupid,” he says of central bankers. “They are reckless. But they are not stupid. And they realize that global economies are in a situation now where central banks can’t pull away. And they’re bluffing if they say they can.”He doesn’t know when the inevitable crash will come. But he knows that when interest rates start heading up again on their own, which is also inevitable, that “markets are going to crash. It won’t be pretty.

His solution is what he calls “explosive downside protection,” things like far out of the money bets that the stock markets will fall that cost very little to make and to hold onto but that will pay off big time when the shit hits the fan. “Really explosive downside protection is really the only risk mitigation that’s able to move the needle for people,” he says, “because it’s the only risk mitigation that doesn’t cost you as you are waiting for it to happen.

And even though he is betting there will be a crash—and offering protection for his clients if there is one—he doesn’t care if it happens or not. He’s all about freeing up his clients to make the big bets in the market and then protecting them if a crash comes. He’s the designated driver so that his clients can party like its 1999 and know they’ll have a safe ride home. “I don’t need the markets to ever crash again,” he says.

 

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