Nassim Taleb, of “Black Swan” fame, was asked, “What are the biggest risks out there right now?” He replied:
The fact that the world, as a result of quantitative easing, has seen an asset inflation that benefited the uber-rich, and that nothing has been cured. One cannot cure debt with debt, by transferring from private to public sectors. The markets will ultimately crash again, although this time it will hurt a lot more people.
Taleb suggests investors ought to be “tail hedging” their portfolios as a result. So ‘what is tail hedging?’ you might ask. The “tail” part of it simply refers to the ends of a normal, bell-shaped distribution curve. These represent events in the market that very rarely occur. In this case, it refers to a stock market crash.
related: Marc Faber Rings the Alarm Bell, Predicts a 50% Near Term Correction in Stocks