Submitted by Taps Coogan on the 15th of May 2020 to The Sounding Line.

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Legendary trader, risk analyst, and author, Nassim Taleb, recently spoke with the Economic Times of India about his view on the economy and markets, and what he is invested in. He says one of the most counter-intuitive thing he has learned in 37 years of trading is that recessions end up being good for stocks and that booms end up being bad for stocks. He also discusses his view on the appropriate policy response to contagious diseases like Coronavirus.

Some excerpts from Nassim Taleb:

“The Federal Reserve has lost one weapon, interest rates, because at zero you can’t really go negative… but the monetary policy arm is not just lowering rates. They can print money to buy your commercial paper. The commercial paper of a Maltese bank in New York they will buy. Anything they see that’s on sale, they will buy. That will definitely prop up the market for a while. But remember, nothing is permanent. When they stop buying or if they realize that what they are doing may be inflationary, things go back to normal. One thing that I have learned in 37 years since I started trading, very counter-intuitive, is that recessions are very good for stocks because the reaction to recessions makes stocks rally and booms are very very very bad because they make stocks volatile and, of course, you’ve got to raise rates and people have substitution into bonds. So this is one reason why stocks are not collapsing. But if you walk outside the stock-market… you see nothing but businesses closed. You have entire sectors that will not come back…”

“Even if we have a cure (to Coronavirus), people will still be paranoid and will not gather in bars, young people maybe, but reasonable people will not gather in bars, go to crowded places, get in crowded elevators… if they have the chance (to avoid them)… There will be permanent losers, even if we have a semi-cure for the virus… It will take a long time for people to truly believe…”

“It’s a false dichotomy (between the economy and lockdowns). Even if you don’t have a lockdown, there is a drop in economic activity and you are prolonging the effect of the disease. So I think that… India, Taiwan, Hong Kong, New Zealand, Australia, many countries had very reasonable policies. They acted early, they acted wisely, they acted accordingly to precautionary principles…”

There is much more to the interview, so enjoy it above.

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