Black Swan's Taleb Says Nvidia Rout Is Hint of What's Coming

https://www.bloomberg.com/news/articles/2025-01-28/black-swan-s-taleb-warns-nvidia-rout-is-hint-of-what-s-to-come

by pera • 1 year ago

37 63 1 year ago

bloomberg.com

pera• 1 year ago

https://archive.is/2F5hT

abe94• 1 year ago

I like Taleb's books, but he does predict doom and gloom all the time - a broken clock is right twice a day after all

vixen99• 1 year ago

On this particular prediction: we know that China graduates more science, technology, engineering and mathematics students each year than the rest of the world combined. According to World Population Review, the highest IQs are found in Asian countries including Japan, Taiwan, Singapore, Hong Kong, China and South Korea (Taiwan is top at an average of 106). Why would it be surprising to see China with its capital and human resources catch up with the West and surpass it?

Maybe we should treat predictions as messages ('do something if you don't like it') not certainties.

lelanthran5• 1 year ago

According to World Population Review, the highest IQs are found in Asian countries including Japan, Taiwan, Singapore, Hong Kong, China and South Korea (Taiwan is top at an average of 106).

Careful there. Implying that some cultural norms are superior to others are going to get you into trouble in the wrong crowd.

Why would it be surprising to see China with its capital and human resources catch up with the West and surpass it?

Because the message that diversity === strength is a powerful one. Plenty of people simply cannot wrap their heads around how positive an effect homogeneity can have on results; their built-in PC filters cut in before they even get to the thought.

I've observed decades of how, in the west, not only can you simply not say something, but any insinuation that you are thinking it is liable to result in consequences for wrong-think.

I think the east is going to catch up and surpass the west in science and technology. The best way to prevent this is to seed their society with the same ideological tarpit that the west finds itself in and hope like hell it catches on so that they too can have enforced inclusivity training on company time.

graemep3• 1 year ago

This is not particularly about China though. its about overvaluation of a particular wave of businesses in one technology.

its VERY like the dotcom boom.

ethagnawl• 1 year ago

Why would it be surprising to see China with its capital and human resources catch up with the West and surpass it?

Racism

ahartmetz2• 1 year ago

we know that China graduates more science, technology, engineering and mathematics students each year than the rest of the world combined

What is probably more important is their quality. Though higher quantity tends to help with getting more of the world's best, too.

anothertroll456• 1 year ago

Not only that. His company makes money by betting on downturns. So... it's not like he doesn't have a vested interest in markets tanking.

makeitdouble• 1 year ago

I see your point, but that same logic is ignored for most other companies so I'm not sure how we should take it.

YCombinator makes money betting in startups, it sure has a vested interest in disruption. Would we be up in arms at YC regularly pointing out potential disruption paths ?

aitchnyu• 1 year ago

How good is his company reaping money based on his philosophy?

buzzdenver• 1 year ago

He is such an interesting character to me. I've read a few of his books and some principles he brings up are super interesting and overlooked imo, while majority of the stuff he writes about uses the most handwave-y explanations.

kqr• 1 year ago

I don't think "predict doom and gloom" is a fair characterisation. He cations us against assuming the optimistic scenario will unfold ("it's not flawless" to quote the article), and asks us to hedge our bets -- something he has made significant money doing.

Being prudent is appropriate every hour, not twice a day, even if someone who is reckless can be lucky 11 hours of the day.

short_sells_poo3• 1 year ago

I wouldn't read this as Taleb predicting a crash. The gist of his advice is generally that for the classic equity investments (ie buy the Nasdaq), your return distribution is heavily negatively skewed. You make money most of the time, and occasionally you suffer a fairly significant drawdown - ie a market crash. Nobody knows when the drawdowns will happen. His thesis is that by their nature, they cannot be predicted.

Another way to think about this is that returns are linear, and drawdowns are convex. 90% of your returns are going to be a normal distribution, but the tails become something like a pareto. The simplest thing to do is to hold convex payoff assets - ie buy puts. The devil is in the detail of knowing enough about options to determine what to buy to avoid bleeding all your profits away. This is the business model of Universa - they know what to buy, how much of it, and to a lesser degree when to buy it.

blackeyeblitzar• 1 year ago

Not sure what this prediction is based on. Sure a further crash is possible. It could also go the other way. We might see OpenAI applying some of the optimization that DeepSeek used and coming out with something amazing.

im_down_w_otp• 1 year ago

That would still mean the resources required for training and maintaining these models would become more efficient/reduced over time, not increase forever. The market value of the AI supply-chain currently depends on these models having a voracious and endless need for more and more underlying resources. Once diminishing returns on model size become evident and/or shrinking & efficiency become the competitive focus, then the jig is up for a number of current players.

throwway120385• 1 year ago

If you lower the resource requirements by an order of magnitude, you'll simply see more players using it more commonly. You can see that in the way private spaceflight companies have, simply by reducing launch costs by an order of magnitude, made spaceflight and satellite swarms more than a pipe dream for solving classes of problems that require line of sight to large parts of the planet. There are a lot of applications of these floating point processors beyond LLMs and generative AI, and we're probably going to see more of that in the near future.

lostmsu• 1 year ago

But what about even stronger models?

blitzar• 1 year ago

Is he saying the recent past (litterally as recent as yesterday) is the bias through which we should expect the future to be?

Sounds very un-Taleb like to me.

m3kw9• 1 year ago

He has bias from writing the book regarding black swans which almost always implies market explosions. So there is 2 valuable cents you can take

short_sells_poo3• 1 year ago

I'm all for some Taleb bashing, particularly in the midst of a massive tech bull market case around AI, but I wouldn't read this as him predicting a market crash.

The gist of his advice is generally that for the classic equity investments (ie buy the Nasdaq), your return distribution is heavily negatively skewed. You make money most of the time, and occasionally you suffer a fairly significant drawdown - ie a market crash. Nobody knows when the drawdowns will happen - that's exactly his thesis. Don't try to time the market, that's a fool's game. Structure your portfolio such that when the crash happens, you cut this convex downside.

Another way to think about this is that 90% of your returns are going to be a normal distribution, but the tails become something like a pareto. The simplest thing to do is to hold convex payoff assets - ie buy puts. The devil is in the detail of knowing enough about options to determine what to buy to avoid bleeding all your profits away. This is the business model of Universa - they know what to buy, how much of it, and to a lesser degree when to buy it.

bubbleRefuge3• 1 year ago

yeah. good points. mandlebrot wrote about this as well. that portfolio theory is based "normal" curve returns but crashes occur with much higher probability than a normal distribution would assume. he made a case for fractals.

managing options is hard. when do you close the hedge after it gives you a profit? when do you put it back on.

short_sells_poo3• 1 year ago

crashes occur with much higher probability than a normal distribution would assume.

This is probably the most intuitive way to reason about it, but there's a subtlety there that relates to the magnitude of the crashes and their probability of happening. Intuitively, if the normal distribution was correct in estimating market behavior, you'd not expect to see 10 sigma events ever (we are looking at something like 1/10^20 of this happening). And yet, these events happen with some regularity when you try to use normal distributions for market returns.

So there are two aspects to this: one is that the normal distribution and people underestimate how often crashes can happen, and they also underestimate how big those crashes can be. It's the latter that is arguably more dangerous, because if you lose money more frequently than expected, you might end up earning less, but if you underestimate how bad a drawdown can be, you can be easily wiped out before you can react.

So why do we use the normal distribution so often in finance? Because it is convenient. It works fine for 99.99% of the cases, and it is easier to deal with the tails as a special beast rather than always having a complicated model to look at. There's also an element of lottery. Significant crashes happen once every 10 years roughly, so you don't need a great deal of luck to make a lot of money without seeing one :D

managing options is hard. when do you close the hedge after it gives you a profit? when do you put it back on. It is definitely quite hard. Options are nonlinear instruments with a significant complexity to their behavior. This is why people pay Universa and other, lesser known tail risk funds to handle this complexity. You also have instruments like Variance Swaps, which allow one to easily lock in convexity pnl - considerably removing the timing aspect. You can construct these instruments synthetically using options, but this is not for the faint of heart.

It is doable on your own, but not without understanding options in depth and having tools that allow you to manage an option portfolio. These days, a person who is decent at freshman math and knows how to use python+pandas can easily manage this entirely on their own with a handful of scripts, but they'll likely need to spend a few months learning the theory and then it can take a year to build the neccessary intuition.

blablabla123• 1 year ago

I mean Nvidia has also so far been priced for perfection, things just continuing like this. Also considering the future value being priced in already.

At this point I'm thinking AI is here to stay. But reliance on CUDA or a small set of companies probably not.

tqi• 1 year ago

I wonder if AI valuation bubble will continue to grow because there is nowhere else for investor money, and until interest rates go up again OR something better comes along, firms will continue to chase shakier and shakier investments because they need to deploy capital in order to collect their carry...

francisofascii• 1 year ago

until interest rates go up again

Aren't they high now? Or do you mean 1980's high?

lubujackson• 1 year ago

TINA is a great idea until the Boomers hit the corner and start withdrawing in retirement faster than investing. The shittiness of income growth during these decades of asset growth implies that once we turn that corner we won't be turning back any time soon.

snowwrestler• 1 year ago

We can always rely on Taleb, when an unexpected thing happens, to point out that unexpected things can happen and will happen again.

It’s a neat little PR headspace he’s gotten himself into. Basically any time a reporter is surprised they can call him and get a quote along the lines of “people should not be surprised when they are occasionally surprised, and they should anticipate being surprised some more in the future.” Really helps fill out the word count for the day.

mrweasel2• 1 year ago

In the article he does mention that this is more like a "gray swans" situation. I take that to mean that he is in agreement with many that this wasn't entirely unpredictable.

It may not have been obvious to a certain type of investor, but many here on HN have said that Nvidia is overvalued. Also given the speed of which many others have court up to OpenAI, it wasn't unreasonable to expect someone to overtake them or find an alternative path.

LiquidSky• 1 year ago

It's not even a "gray swan" event, it was entirely predictable. Google was internally explicitly predicting this a year and a half ago* and they can't have been the only ones.

*"Google 'We Have No Moat, And Neither Does OpenAI'" - https://semianalysis.com/2023/05/04/google-we-have-no-moat-a...

jetrink• 1 year ago

And they didn't just say that NVidia was overvalued, but that it was overvalued for precisely this reason. I've also read people here and elsewhere warn that export controls could quickly become ineffective as Chinese researchers find clever ways to train models with lower-end hardware. I think if there had been a prediction market, this outcome would have been given a better than 50% probability here, though maybe the speed it happened has surprised people.

jncfhnb• 1 year ago

Don’t forget the chance for him to shit on domain experts for having models that fail to account for everything as if that’s supposed to be a gotcha

bugglebeetle• 1 year ago

“people should not be surprised when they are occasionally surprised, and they should anticipate being surprised some more in the future.”

It’s mildly hilarious that you’re deriding Taleb for thinking (and investing) at a level that all of bubble-chasing investment houses are incapable of achieving. He’s made so much money precisely because this thing you’re describing as so stupidly obvious, is actually, not, stupidly obvious to people.

djyaz12002• 1 year ago

The stock market is overvalued historically, but Deepseek's pause of new user registrations seems to validate the bull case for Nvidia.

https://techcrunch.com/2025/01/27/ai-startup-deepseek-pauses...

I don't believe it was a cyber attack; I think it's just usage overload. If I'm right, the next steps will be for them to throttle usage by price increase or some other method. Or they will have to find another order of magnitude of efficiency, and then that will be gobbled up and maxed out days after they introduce it.

The theme here is the demand for AI is nearly limitless and the supply (for now) is constrained by Nvidia.

Ekaros• 1 year ago

Or it is usual cycle of demand spiking when something is new and/or on news and then normalizing later. Usually if you over invest in capacity at these times you won't be using it long term. Often seen with games and servers there...

djyaz12002• 1 year ago

Sure, that may be true and is a good analogy, but what I find interesting here is that they have restrictions on increasing their capacity. So if this increased demand endures, what then?

woah2• 1 year ago

Or move the whole outfit to the US and get access to plentiful chips and electricity... unfortunately I think the CCP might have something to say about that

nemomarx• 1 year ago

plentiful tariffed chips? I feel like the US supply is going to get harder soon if the Taiwan tariffs are real.

ziddoap2• 1 year ago

I don't believe it was a cyber attack; I think it's just usage overload.

Can you explain what information you're basing this on? Is there a particular reason not to believe them?

Typically, from a public relations standpoint, you'd be better off saying "we're super popular and haven't scaled enough yet" over "we got hacked".

But I don't really know much about DeepSeek. Do they have a pattern of lying?

touristtam• 1 year ago

Let's put it that way; It's been days since its been in the public eyes and everyone is talking about it like it is the new ChatGPT. When your non techies friends and family members are coming to you with question about it, you know the reach is wide already. All those people have been primed by months of using ChatGPT or similar /ai/.

So it does come as a plausible explanation.

alecco2• 1 year ago

Not OP, but it's been topping app downloads everywhere. A lot of non-tech people are trying it.

Note they offer a free reasoning model while OpenAI charges $200. And the reasoning is a lot more transparent.

My opinion is probably both an attack and an unmanageable surge right on Spring Festival (Chinese NY).

It's been red all day:

https://status.deepseek.com/

But I had no issues today with web. Yesterday night it was spotty.

MrSkelter• 1 year ago

Most people have little use for LLMs. The spike is curiosity plus the system being slammed by corporations and governments doing intelligence. Open AIs impact on their servers could easily overwhelm them.

They will recover and I am sure this is more than user interest. Look at how much is being claimed by competitors already. They are absolutely hammering them right now.

blindriver• 1 year ago

Taleb was right once and wrong ever since. The financial world is littered with people exactly like that but journalists are so lazy they just go for whoever has the name brand. I don’t think he has anything useful to offer besides the occasional black swan warning, much like Peter Schiff.

openrisk2• 1 year ago

Regular swings of +/-0.5 trillion in market value for an entity that is a material fraction of the entire market are not normal, in either mathematical or colloquial sense. The question is, what do they really reveal about the condition (risk appetite) of markets.

too many investors have been bidding up prices of firms related to AI without properly knowing the details of how it functions or is able to succeed

There is no investment without risk. The question is why are there so many investors that appear to be grossly insensitive to gargantuan levels of risk. And the answer is probably: its all funny money to them. We live in the era of 100K bitcoin after all.

woah2• 1 year ago

In your opinion, what "money" is not "funny"? Land? Gold?

openrisk2• 1 year ago

Anything that works as money is bootstraped as a value token within society.

"Serious" money simply reflects a serious society: transparent books, reliable social contracts, diversified undertakings, resilient people and nature, truthful and lawful character, stable and boring. Money that reflects real economic exchanges rather than speculation.

The inverse attributes produce funny money: obfuscation, debasement, double books, smoke and mirrors, exploitation, captured institutions, subversion of the law and rampant speculation.

There is no easy way to good money. No secret sauce. The entire society must be behind its value.

feverzsj• 1 year ago

The market just loses patience on "profitable AI". The end is near.

bubbleRefuge3• 1 year ago

a bigger concern to me is if the current regime pulls the rug out from fiscal policy. This will certainly crash the market. They seem to be doing this as we speak.

alecco2• 1 year ago

TL;DR https://x.com/INArteCarloDoss/status/1884217440189702194

Guess what Nassim is trying to say is that given the absurd amount of concentration on the US market, over a third of SPX is Mag, it will take a long painful ride to shake off the moronic crowding in positioning

Black Swan's Taleb Says Nvidia Rout Is Hint of What's Coming

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