 Good day, fellow investors. Nikola Snass and Tel Aviv just made an interview with Bloomberg discussing the hottest topics in finance and it's always nice to see his view on things. They discuss the biggest risks from monetary policy-free, budget deficits, the market risk, how to invest and trade wars. So as they just talk and they don't explain and they don't go into the details of what's going on, what are the risks and where they accumulate, in this video I want to go more in depth, at least try, on Tel Aviv's thoughts and really give you the picture behind his words. At the end of the video we'll even discuss his investment strategy and what he advises to the population. Let's start. The biggest risk for Tel Aviv is deficits and no skin in the game. So if we look at just a headline from the Wall Street Journal, US budget deficit grew 15% in the first half of fiscal 2019. So in an environment with full employment, very low unemployment, thus with the economy doing great, budget deficits are increasing. So unemployment rate is very, very low, 3.6%, so historically extremely low. With a strong economy the logical thing should be to have budget surpluses so that when a recession or slowdown eventually comes, the government has the room to increase government spending, increase payments to unemployment and things like that in order to stabilize the economy. However, if we check the following chart from the Fed, the federal surplus or deficits as a percent of gross domestic product, we can see that after 2015 the government deficits in the US in this case increased, have started increasing even if the economy is doing that great. So politicians think now that that will be managed by printing money that we will discuss later as another big risk and simply everybody is focused on the now and there is no accountability, there is no skin in the game. Let's say that just not nothing against Trump, but let's say that Trump increases the deficits now and the United States have to pay that burden 10 years down the line. What is the accountability for politicians like Trump? Zero. Trump will be retired for a long, long time, whatever happens he has no skin in the game, he is backed by other things. And this is one of Trump's main concepts that politicians make decisions to get elected on the present situation and forget about the long-term consequences of what they are doing in this case the debt piling. If we just check the accumulating deficits, what they mean for the government and long-term in this case US citizens, but the things aren't different around the world, the total public debt in the US has doubled in the last 10 years and this doesn't even hold account of the future debt levels that will come from Medicare and all those things. So doubled has the debt. Higher debt leads to higher interest payments and despite historically low interest rates on government lending, if we look at interest payments on the debt that we have mentioned earlier, so the debt currently is above 21 trillion for the government, it was just 9.5 trillion in 2008, the cost of debt per year is now at $550 billion. When you compare the $550 billion with the low interest rates and with the budget deficit we can see that almost three quarters of the budget deficit go for interest payments not for the economy, not for improvements, not for education, just for interest payments. When you borrow to pay interest it resembles a Ponzi scheme and even the projections are that if the government continues doing like they are doing now, the projections are that the deficits will soon hit $1 trillion, which will create a spiral of even more borrowing even higher interest rates and this is an unsustainable situation. So you have very low interest rates and you have a strong economy, usually the Fed would increase interest rates to trim a little bit the economy and in the next recession to be able to lower interest rates. However, if you look at the $550 billion that the government is paying on the currently extremely low government interest rate, it's logical that the Fed cannot increase interest rates, that would be extremely detrimental for the government, for future budget deficits and that would create a spiral of doom and gloom. If we look at the five-year treasury, the yield on the five-year treasury, the average borrowing cost, the average maturity for the US government is somewhere between 5-6 years, so the interest rate on that debt on the $21 trillion is just 2.33% and we see the cost of $550 million. If this interest rate goes back to 5% as it was in 2006, 2008 then this would double just the interest cost would double to more than $1 trillion and that would be doom and gloom. However, nobody thinks about that. The media is focused on trade wars, everything short term, but the debts are piling, piling and piling and Taleb says we don't know whether this will break out in a crisis in a moment or in a few years. But the key message from Taleb is the risks are piling and that's something we have to keep in mind as investors, as normal citizens of the world. This debt issue is a big problem and politicians think that they will easily solve this debt issue by printing more money. We have discussed Ray Dalio's theory, he doesn't agree with that, he just says that it's very likely that governments and monetary politicians will simply print money to ease the debt burdens, which leads to another big huge risks for the economy and everything else. The issue is that inflation is low, everybody thinks they can print as much money as they want to solve all the issues they want, keep interest rates low, subsidize the economy and everything will be well. Taleb says that inflation, yes, has been low, but inflation works in a non-linear way, so it can be very, very low and then you can have huge spikes and at some point inflation will ramp up, that will make things not manageable and then you have to think of countries like Venezuela, Argentina, Zimbabwe, etc. So Taleb really agrees with Charlie Munger on these issues. On where to invest? He says that explicitly avoid long-term bonds. So pension funds love long-term bonds but those are terrible, terrible investments, especially as the risk of inflation is that high. So everybody's talking about low risk, low interest rates forever, low inflation forever, so it might be really time to start thinking about, oh my god, something big is going to happen because the environment is too complacent with what's going on and if monetary policies lose control, which eventually will happen, it doesn't matter for us if it happens tomorrow or in 10 years, the problem is that the consequences will be catastrophic whenever it happens. Taleb also says don't invest in equities if you don't know how to hedge against long tail risks. I always look at ways how to hedge myself, but I always look at those put options, long term this and that and then I always see okay, this is expensive, this is expensive, this is expensive, especially going against so much stimulation in the market from fiscal stimulation from lower taxes. So I have to say I don't know how to hedge myself, so I always hedge myself with the cash position that I manage around my portfolio and positions. So as long as I have cash, if there is a crash and Taleb says that if there is a crash he'll be the first to buy, not now, so I have the cash and I have assets of value that give me some protection. I'm not completely hedged like Taleb is, but I'm going to look into this tail risk hedging to see how it's done probably and if I find something interesting I'll share it with you. If not, we'll leave it to Taleb and we'll try to focus on value investing and hedging with balancing our cash and hedging by no wing and I'll make another video how I prepare and prepared if a crash comes. So please subscribe to this channel to learn more about this kind of mindset investing because it's crucial when it comes to potential crisis in the future and we see the risk spiling. On how to invest if you look at Taleb's books, it's always for him about the barbell and it is about being safe, not investing to make money like most people chase income, chase yield, chase profits. For him investing is about protection, just keeping it safe, protecting your wealth and not doing crazy things and then not being in the middle with I don't know dividend yielding stocks or blue chips or something like that but really one of 10% of your portfolio putting it to high risk investments of course smartly probably he will do it smartly that give you high risk but also exponential rewards. He is such an investor so not really what we value investors do but a very, very interesting message. He mentions how unfortunately pension funds are in a terrible situation especially the defined benefit pension funds because they chase those yields of 7-8% that they have promised if there is a crash they have to double those yields to 15% take too much risk and there goes the pension in smoke. He owns gold what he says from previous interviews I know he owns some land and he says he is in financial instruments and derivatives that give him protection so we don't know what that is that's complicated because he is one of the most complex investors out there so that's something we'll have to live for him but what we can take out from his message is there are huge risks those risks are piling and one should be really, really fair to himself look at the risk reward out there especially these long-term risks that Taleb is discussing and he see what is he exposed to what not and then focus his life make his investment decisions to be happy you never know when Taleb's risks will materialize but if they do and when they do things will be ugly. The moral of the story is the debts are piling it is unsustainable currencies will probably be debased so stay away from bonds there might be hyperinflation if people around the world lose control of monetary policies and money printing and we have to be prepared for that in one way or another. On trade wars to finish on trade wars the hot topic now he says that he usually talks about things that takes him 20 years to think first and then have something to say about trade wars he just made a laugh that next year they will be talking about something else if in 20 years they still talk about trade wars then he'll have something to tell you about that so on that terrible disappointment I'll finish this video I'm looking forward to your comments please subscribe will dig deeper into this macro policies because I'm looking at okay how much should I have portfolio exposure for me it's simple okay I have if I see value I have to buy it and if I can protect myself by buying value real assets below book value profitable things that will always be used things that will benefit of hyperinflation then I'll be relatively protected and who knows perhaps even make some money in between thank you for watching looking forward to your comments and I'll see you in the next video