Byrne's Eye View

Nassim Nicholas Taleb runs a portfolio that makes outsize bets on low-probability events. This is a good way to be absolutely right and never make any money from it. The most recent specific article I can find is from 2005; it claims that he

is betting that the price of oil, now at $61 a barrel, will be at either $10 or $400 in three years. He admits that he does not know which one it will be, but he believes it's possible that it will reach either extreme. Since most traders don't think such extremes are possible, he can buy options ... that would profit from either scenario for a cheap price

The problem is, of course, that he paid cash up front in exchange for a promise that in the event of unprecedented economic upheaval, someone will give him substantially more cash back. What he's really doing is making a loan that the other party will only have to pay if it gets severely traumatized by the market. Six months ago, my instinct would be to wonder if he bought credit derivatives to account for this risk -- now I'm pretty sure that would be doubling down.

This is actually fairly similar to my dispute with the investment strategy of "Mencius Moldbug", who advocates investing in GoldMoney, GLD, and the like, but not in physical gold (too expensive) or gold futures (could be invalidated in the event of a crash). I suspect that if you rank political instability on a scale of 1 to 10 (where gold prices are something like 10 to the power of the ranking), gold contracts are invalidated at about 5.5, GoldMoney is shut down at about 5.7, and physical gold gets physically confiscated at maybe 5.8. So there's a very narrow window in which this is a good trade, after which you would have been better off accumulating directly usable goods and political influence.

More sensible: a 'portfolio insurance' system, in which you buy gold futures, roll the profits over into gold coins, and periodically sell those coins to buy canned food and shotguns.

(As far as objections to the gold standard itself, Nick Szabo's blog post covers about the same territory as an email I sent to Mr. Moldbug, but with more examples and less theoretical handwaving).