In an interview with CNBC’s Squawk Box, author of “The Black Swan” Nassim Nicholas Taleb said that the last 15 years has been “Disneyland” and has ruined economic structure with its lack of interest rates, which the Fed overshot by lowering rates too much. And because the Fed overshot so much on the downside, they now need to overshoot in the opposite direction in an effort to eventually bring interest rates back to a “normal level” of 3% to 4%. Once there, Taleb told CNBC, they need to stay put and not vary too much from that point. That way there is room to go up or down from there.
The environment of the last 15 years created bubbles like Bitcoin, and newer investors who had no previous experience in the market developed wrong instincts and methods. Those who made the most money are actually the least fit to invest in the current market, Taleb said. The Fed needs to be careful to not loosen monetary policy too much, because “that’s what brought us here,” he reiterated. And lower rates cause bubbles that are not helpful to the economy.
Wall Street has been pricing things at a discount rate next to zero, and those discount rates cause multiples to come down on nearly everything. That needs to happen, Taleb stressed, but the issue arises when those multiples don’t come down in an orderly way, which is what we’re seeing now. This volatility is typical of bear markets, but “we’re still far away from uncle points in portfolios,” Taleb stressed to CNBC.