The Compound and Friends - Black Swans, Stock Market Crashes and the Chaos Kings

Episode Date: June 6, 2023

On this special episode of Live from The Compound, Scott Patterson, Financial Journalist and Wall Street Journal Reporter, joins Michael Batnick and Josh Brown to discuss Scott's new book, Chaos Kings: How Wall Street Traders Make Billions in the New Age of Crisis. Scott is a financial journalist, bestselling author, and Reporter for The Wall Street Journal. He has written two books about advanced computerized trading: Dark Pools and The Quants. Check out the latest in financial blogger fashion at The Compound shop: https://www.idontshop.com Investing involves the risk of loss. This podcast is for informational purposes only and should not be or regarded as personalized investment advice or relied upon for investment decisions. Michael Batnick and Josh Brown are employees of Ritholtz Wealth Management and may maintain positions in the securities discussed in this video. All opinions expressed by them are solely their own opinion and do not reflect the opinion of Ritholtz Wealth Management. Wealthcast Media, an affiliate of Ritholtz Wealth Management, receives payment from various entities for advertisements in affiliated podcasts, blogs and emails. Inclusion of such advertisements does not constitute or imply endorsement, sponsorship or recommendation thereof, or any affiliation therewith, by the Content Creator or by Ritholtz Wealth Management or any of its employees. For additional advertisement disclaimers see here https://ritholtzwealth.com/advertising-disclaimers. Investments in securities involve the risk of loss. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. The information provided on this website (including any information that may be accessed through this website) is not directed at any investor or category of investors and is provided solely as general information. Obviously nothing on this channel should be considered as personalized financial advice or a solicitation to buy or sell any securities. See our disclosures here: https://ritholtzwealth.com/podcast-youtube-disclosures/ Learn more about your ad choices. Visit megaphone.fm/adchoices

Good evening, Compound Nation. Special event Monday night. We have an author with us, one of our favorite authors, writing about the investment markets and finance. Everyone say hello to Scott Patterson. Scott is, we have your official bio. Can I read right off here? Is it accurate? I hope so.

I just want to make sure. All right. Scott has been a reporter for more than two decades, mostly at The Wall Street Journal in New York City, Washington, D.C., and London. His 2010 New York Times bestseller, The Quants, was about the rise of mathematical traders and their near destruction of the financial system. His second book, Dark Pools, about high-frequency trading. Of course, Michael and I have talked about both of those books on the show before and we're big fans of both of them. And so excited about Scott's new book called Chaos Kings, How Wall Street Traders Make Billions in the New Age of Crisis. Scott Patterson, welcome to The Compound. We're so happy to have you tonight.

How are things? Thanks for having me. Good, good. Your book is coming out tomorrow morning? Yes, it's out tomorrow. Okay. Trying to do this in my day job at the Journal at the same time. Understood.

I had a scare that we were going to run a page one story I've been working on for months tonight. Okay. But it got delayed, thankfully. Scott, is the book being released on every blockchain or just the Bitcoin one? Yeah, yeah, just the Bitcoin. It's the only way to read it. Hey, do you sleep the night before? You have like a big article coming out or a big book coming out.

Like are you – I don't want to say nervous, but like is there a lot of excitement that keeps you up? What's that like? I think after the second bottle of wine, then I'm good. So it can be nerve-wracking for sure. It's just a thing we have to live with as journalists. The book is – it's a little different because I've – all the work has been done months and months ago and it's done and dusted. So I'm just looking forward to people reading it and hearing what they think. Absolutely. Well, this is what the book looks like.

You will probably see it online in a bookstore, at an airport, et cetera. You will probably see it online, in a bookstore, at an airport, etc. But this is like, it's a manageable size and it's a story that I've never really heard before. Everyone, of course, is familiar with Nassim Taleb and everyone is familiar with the term Black Swan. But tell us in your words, what is the story that this book tells and why is it important for investors and traders to read it and understand what's in here? Yeah, so the birth of the idea of this book occurred to me in early 2020 when we all remember what was going down then. We had COVID, but we also had this incredible market collapse where the Dow was going down 2,000 points a day. Then it would go up 2,000 points.

It was this insane period. We had the entire financial markets around the world were freezing up. And then reports came out that this hedge fund called Universa had posted a return of more than 4 thousand percent uh in the first three months of 2020. um that hedge fund is the one that's associated with nassim taleb um i've known i actually first reported on its launch in 2007. um so i've known these guys i've known these guys. I've known Nassim. I've known the manager at Universa, Mark Spitznagel, for, you know, 15 years. And I've kept in touch with them over the years. So I just thought, you know, how did they do that, first of all? It's an amazing thing. And, you know, when everybody else is in total chaos and losing money, they are reaping these huge rewards.

So I went to them and I said, hey, do you think I could write a book about you guys and also about Nassim? Nassim had also done an interesting thing in early 2020. In January of that year, he wrote a paper analyzing COVID and warning that this was a serious threat to the world and people needed to take these extreme precautions about what's happening. So you had at the same time these two guys, one using his expertise on black swans and exponential events and the nature of those events, is able to see the risk coming way before most people in January of that year. I remember January, I think I'd heard about COVID, you know, kind of dismissed it as something that, you know, I didn't have to worry about. I think most people felt that way. Even the WHO up through March was saying, don't take this too seriously. Well, you make the point that COVID is exponential,

but people live their real lives in a linear way. And it's very difficult to get people to think in an exponential fashion. And exponential meaning two people get, one person gets COVID, then it's two people, then it's four, then it's eight, then it's 256. So you make that point very well that some of the people

who were most involved with this type of trading, where they're focused on crashes or protecting themselves from crashes, those are the people that seem to understand exponential better than anyone else, which put them in a unique position to number one, understand the threat of COVID, but then also number two, arrange a portfolio

so as to benefit. If in fact, the disease got got out of control, which of course it did. Can you talk a little bit about why these guys think the way they do? And what makes them special versus everyone else? Yeah, so the first, the opening scene of the book is Bill Ackman, who in early 2020, like Nassim, saw what was happening in Wuhan and became obsessed with it and was just tracking it day to day

and realized that this thing had exponential potential to spread. And he really freaked out about that. And I don't know, you know, people may remember that he called into CNBC in early March and just kind of went on a tirade. I was there. Yeah. Yeah. And the market crashed when he was saying like, you know, hell is coming.

This is going to kill everybody. This is going to kill everybody. But unbeknownst to most people, he had earlier in the year purchased a whole bunch of credit default swaps on bond indexes at an extremely cheap price before other people were pricing into risk. He spent like $26 million. So it was a relatively cheap bet. And he made something like two and a half billion on that trade. And that's the exact kind of trade that I'm talking about in this book is

you have an exponential risk. You also can have exponential returns in these kind of crash events kind of crash events because the kind of like what Universa does, they don't buy CDS. They buy far out of the money put options that are insane bets. There are things that nobody else would ever buy because what they're betting on is never going to happen, at least so they think. It's a bet on a 20% decline in the S&P 500 within a month, which never happens. They're willing to lose dollars every day with the expectation that someday something chaotic would emerge where they would make back everything they lost and then make so much more that it would more than offset the cost of all

that wasted protection that they had bought all along. And that could go on for years before that kind of exponential risk shows up. Ackman is more of a long-term investor. He owns stocks like Hilton and Chipotle, and he doesn't want to sell them, so he buys this very cheap protection on an index of bonds thinking that this will allow me to hold my stocks and profit from this thing I see coming. And that actually worked out really nicely. But that's a big difference between a traditional black swan fund versus what Ackman was doing. It's very different. What Ackman was doing was more like speculation, making a gamble. Whereas Universa, they're more like an insurance company.

You pay for this insurance, and nobody says put all your money into a Universa hedge fund. They've actually had very good returns over the years, over the lifetime of the hedge fund, but what they recommend is their clients put in about 3% of their assets to Universa. They take that money and they put it into these portfolios of options systematically, and you have that insurance. In their case, if you have this insurance, what you really want to do as an investor is protect yourself from crashes. The strategies that try to smooth out returns, they claim are mistakes. What you want is something that's really explosive upside in a crash.

And then the rest of the time, you experience the up and down of the market, but you don't waste a lot of money putting that extra cash into bonds. So you vastly amplify your exposure to stocks, to the S&P 500. So you have ideally 97% in the S&P, 3% in Universa. in the S&P, 3% in Universa. You may have a bit lumpier returns than if you have a traditional 60-40 stock bond portfolio, which is what a lot of pension funds do. But this gives you a lot more of the market upside. And over the long term, the market does go up more than bonds. So you benefit dramatically in the portfolios that they analyze. Scott, in the book, you talk about how, and I'm only up to page 120, so maybe you get to this. In 2007, when they went out to launch the fund or somewhere about that,

they couldn't even raise any money. And then of course they had massive success. And then Black Swan Strategies became a whole, became a strategy, became a whole thing. Category. A category. A category. And now there's – Which they created. Yeah. And now there's tail risk funds. And so you mentioned the success of the strategy and systematically buying insurance, which has become very popular, which has pushed up the price of these options.

So is there success? Has that been like a negative? And Taleb has argued with a lot of the quant guys about, you know, asked us in particular about systematically buying these and they're expensive and you don't actually bleed 3%, you bleed a lot more than that. And then there has to be a lot of discretion involved, but they claim to do it systematically. Can you talk about what their success has done to their potential future success or maybe lack thereof? Has it been a headwind instead of a tailwind?

They say that it hasn't affected the success of the strategy because it's a very hard strategy to keep doing year after year. So you see these sort of fads where there's a crash like 2008 or 2020, then a bunch of firms come out and say, we've got these tail risk hedge funds. Every time. Right. And then they bleed for five years and investor interest wanes. And then right at the moment they have no money under management left, the next crisis starts. Well, so it meant that like emotionally it's very hard to stick with. But my point was,

right, because if you bleed for five years, eventually like, all right, I'm done bleeding, like 4% of your whatever the number is, it's enough bleeding, like give me my money back. But when you explain it in the way that you did in the way that they explain it is take two or 3% of your assets and protect against tail risk, because really the theme of the book is tail risk, right? Like fat tails rule everything. Like everything is in the tails. That concept makes a lot of sense. If I could just take a small percentage of my assets, my portfolio and protect it. And again, therefore, because everybody wants this insurance, now the cost of the insurance has gone up. I understand that they might say that it hasn't

impacted this and I can't refute them because I don't know the math, but how could it not? I think that they've calculated that a lot more money would need to go into the strategy to have a significant effect on the options that they buy. And I think another thing is they're buying stuff that even other tail risk funds don't. They're buying a very unlikely event, a 20% decline in the S&P 500. You'll see, and this is, I think, where AQR and their analysis might go off a little bit, is if you look at those studies, they're looking at put options

that are for a 5% decline in the S&P 500, and those are a lot more expensive. Because everybody's buying that. Because, yeah, I mean, that's a very common trade. 20% is, you know, I think a lot of people think you're just throwing your money away because it's not going to happen. So, Scott, I want to get into Spitznagel and Taleb's trading strategy. And I know only Mark Spitznagel actually runs the fund. But I want to go into just their big idea

because it's very different than the way a lot of people think about hedging risk or actually hedge risk in practice. So this is you. You wrote, the guiding philosophy behind Spitznagel and Taleb's trading strategy is threefold. One, the future dominated by big impactful events is very hard, if not impossible to predict. Anything can happen,

black swans. Two, extreme events are more devastating than many assume because standard risk metrics like the bell curve don't capture them. That means in financial markets, extreme events are usually underpriced, which is a money-making opportunity. It also means most other investors are taking on more risk than they realize. And then three is that drawdowns matter more than wins. Spitznagel years ago realized an essential truth for anyone betting on a future outcome.

A single large drawdown matters far more than a long series of small wins. And the example is, say you invest $1,000 in a stock for some reason, if there's a bad earnings report or an executive scandal, or people stop buying the widgets the company makes, that stock falls 50%. You now have $500.

To make your money back, you need the stock to rise one hundred percent, not just the 50 percent that it fell. So those are like the three main premises behind why they invest the way they do. And I really shouldn't say invest why they protect the way they do based on those three ideas. What can a regular investor take away from that? The kind of person who maybe doesn't have the ability to invest this way or invest in a hedge fund that does? Yeah. Well, that's a problem that my editor and I struggled with for the entire period of writing this book is, what does the regular investor take away from this? And the fact is, there is nothing like it that a regular investor can do. And I wouldn't ever want to

recommend that, you know, a regular investor go out and buy put options, because they're going to lose their money. They're not going to, you know, because there are nuances to this strategy that they apply that makes it cheaper than you would think. Okay. So I think, you know, when Mark has done some analysis of various strategies that he's written about in Barron's and elsewhere, where he looks at, say, the 60-40 bond strategy or gold or Swiss francs, another safe haven strategy. And really, nothing does better than buy and hold. And that's really what I would tell investors is don't try to time the market. Be smart.

Don't freak out because over time, things come back. As a regular investor, you're not really looking at the risk of a complete blow up that, say, a hedge fund could because you're hopefully not using leverage. So don't use leverage. You might want to put a little bit in bonds. Every investor has his own risk. So who are the investors in this? What do you know about the types of funds or family offices or whomever are using these

types of strategies or Universa to reduce their risk? I'd say it's family offices, it's endowments, it's some pension funds. And this is a story I get into towards the end of the book, is how CalPERS decided to put a lot of money into Universa several years ago. And it's a really kind of a sad story because CalPERS was very excited about it. They had plans to put in billions and billions, maybe as much as 20, 25 billion. But then new management took over in 2019 and made the decision to eliminate the tail risk strategy. So in January of 2020, the CalPERS black swan hedge was sold by Universa and they eliminated it. The timing is incredible on that. Obviously not the best timing.

They could have saved their pensioners a lot of money. I think a pension fund like CalPERS says, well, these strategies are too niche and they can never be made big enough to really matter to a portfolio as big as ours. They were looking at a $25 billion allocation to Universa, and that would move the needle in a crash. And what it really helps a pension fund do is be able to manage their risk in these very

stressful times and not be forced to sell stocks. Couldn't they clean out? So that's the question. If they did something, I don't know how big CalPERS is, but $25 billion, you picture a return in the thousands of percent during a crash on a number like that. It's a ridiculous number. But just hypothetically, let's say the market were big enough for them to do that. Wouldn't that enable them to clean out all of the mediocre hedging that they're doing that is really just designed to lower volatility or smooth returns and is not really designed to produce upside and mostly has the effect of forcing them to lag the asset classes? Couldn't they just say, you know what? We don't need all this other stuff now.

We're going to be S&P 500. We're going to be maybe Russell 2000. We'll own the Qs. And let's clean out 50 of these 2 and 20 shops that are kind of dancing around the edges. And then let's put in this massive insurance contract in the form of Universa that will offset all of the beta from the rest of the portfolio.

Wouldn't that be more cost effective? That's what they were looking at doing. The managers at CalPERS that were implementing the strategy, they thought it really could help them lower that bond allocation, increase their stock allocation, get more of that upside. And that's really what they need because they're underfunded. And there's so many pension funds that are underfunded because they're trying to reduce their volatility. They've got these big 60-40 strategies. Many of them are getting into private equity and they're using borrowed money to get into

private equity. And they're using borrowed money to get into private equity. They're putting leverage on leverage. And that's just, that's going to end in tears one of these days. So yeah, I think you're right. These strategies make money when the VIX blows up effectively, right? Whenever there is something that you don't see coming that rattles, that shocks the system, is something that you don't see coming that rattles, that shocks the system, that's when these strategies make money. And they are usually not fans of the Federal Reserve for the primary reason. Well, there's a few reasons, but one of the main ones that I'd love to hear your thoughts is because the Fed has effectively has been for the last decade suppressing volatility with all of their easing and what they would call money printing.

How do you interpret their attitude towards the Fed? Not fans, to say the least, especially Mark Spisnagle. I think Taleb shares the disdain for the Fed. And partly, you know, I think like many on Wall Street, they kind of they hew to the libertarian side of political philosophy. Any kind of government intervention is seen as something that's just going to make things worse. Especially if they're intervening with the VIX. Yeah. Yeah.

So they think that they're, you know, kicking the can, basically. Their idea is that they're kicking the can. And Spitznagel now is arguing that so much risk is built up in the system. He calls it a mega tinderbox time bomb. Risk in the form of increased leverage. Increased leverage, debt. There's so much debt that it's unsustainable and the Fed is not going to be able to do anything.

Kind of like we saw in 2008, the Fed did do some extraordinary things. They say they wanted the businesses to fail. They wanted everything to go down, no intervention from the Fed. I take the opposite view of that. I personally think when you're looking at General Electric about to be not able to pay its bills because the money market funds were frozen. They couldn't pay their employees if things had kept going. You kind of I think there's a good argument for doing something in that situation. They take the other side. You know, they're pretty absolutist about that.

Do you know a they're pretty absolutist about that. Do you know a lot of libertarians? I've met in my job covering Wall Street, I've met quite a few, yeah. So, and this is no disrespect to libertarianism, but one of the things that you hear repeatedly is that if they took the deck of cards, threw it up in the air, and it landed on the floor and completely reshuffled and you started from scratch and you randomly took all the cards off the floor and put them back in the deck, no matter what, eventually the same people who are winning now would be winning three years from now. No matter where they started from. And that is the crux of that argument of wipe it all out. It was built wrong anyway. There's too much human intervention.

There's too much debt. It's unnatural. It's artificial. Wipe it all out. The people who belong back on top will eventually get there by way of their own superiority and greater intellect. I think there's some element of that on Wall Street in general beyond just this type of attitude.

Yeah, I don't know. I mean, one of the things about libertarianism, and I've talked about this with Mark, is we've actually never seen it anywhere, you know, tried. And Mark will admit that, that it's kind of a pipe dream. Governments are going to do things when there's chaos and crisis to try to help out. A lot of times they make things worse. You know, one interesting thing about Taleb is that he's, post-COVID,

he's kind of turned anti-libertarianism because he, you know, he became very, you know, upset about some of the people in his circle who became anti-vax, you know, criticizing the vaccine or saying, you know, anti-vax, criticizing the vaccine or saying anti-vax mandates. And a lot of that came from this idea that the government should not be intervening in our lives. He was a strong advocate of the vaccine and of taking pretty extreme measures to protect against the risk, I think because of his understanding of the risk, the compounding of it and how it could really be systemic for humanity. I want to ask you – so I very much – you've got two camps in your book.

These are both – there are two camps that are trying to profit from these types of events. One of them, the Taleb Spitznagel camp I agree with, which is that this is not predictable. And the idea that you can predict it is fantasy. Therefore, the systematic approach, not speculating, but just always having these bets on for the inevitable randomness is the right approach. You've got another camp represented in your books where they believe in this idea of profiting from these outlier events, but they actually think they can see them coming. And that's not the Black Swan camp. That's the Dragon King camp. Could you explain that side of this a little bit better? Because it's the part of your book

that I was least familiar with. Yeah, I mean, it's taking, you know, on Wall Street, there's always been systems that people use to try to predict things. And usually it's hocus pocus. This stuff is a little bit more sophisticated, because it's coming from a very smart physicist. And the one I talk about or write about the most in Chaos Kings is Didier Sornet, who was a French physicist. He's in a way sort of a Renaissance man. He's skilled in many different sciences. in many different sciences. He likes to race motorcycles at 175 miles an hour in California.

It's a great character for your book. Yeah, and I talk to Didier a lot for the book. And he uses a method that he actually initially discovered in the 90s trying to predict the explosion of rockets. What he was doing was detecting these sort of little very rapid ripples, signals coming from the rockets that would lead to something what he would call super exponential. And then he started taking that method and using it to look at markets and stocks and indexes, commodities, and claimed to be able to detect bubbles, which, you know, as we know, Pete, you know, Alan Greenspan, his family famously said we can never predict a bubble until it's popped. He predicted that he could, or he said that he could predict bubbles. He, in 2007, I think it was, around then, he opened, he went to Zurich at a university called ETH and opened up what he called the Financial Crisis Observatory and started running

these experiments using his model, looking at trying to predict bubbles. And he's been doing it ever since. And he's had some success. I've looked at some of the predictions that he's made. What he seems to miss is he can predict there's a bubble in something, in some stock or asset class uh he seems to be pretty good at that but predicting when it is going to pop is really hard so he's made predictions that something is in a bubble and it's just where the money is yeah exactly that's what that's what matters so you know he's predicted that something could pop like, you know, sugar. It goes down 10 percent, but then it'll go up another 50 percent.

You know, so that's and I came across this YouTube video of Nassim and Didier having a debate in New York City a couple of years ago. You know, it's really interesting because what Nassim is trying to explain to Didier is that, I have no problem with what you're doing. It's pretty interesting and it might work. And maybe if you showed me something like that, I might buy some options, but it's not risk management. And so you can't, if you're saying that you're managing a risk of a portfolio using the sophisticated method and putting your insurance on from time to time based on your concern that there might

be a crash, you're going to miss it. You're going to totally miss it. You're going to get wiped out. What you need to do is just constantly, at cost effectively effectively apply the risk management. And Nassim was saying what's important is not looking for some kind of signal or some kind of economic data point that you can hang your prediction on. Don't look at any of that. Of course, we all know that's what Nassim says. He has disdain for economists.

Ignore all that. But to his his point covid was not an economic you would not have picked that up if you were looking for signals in the economy in 2019 the stock market was a u.s stock market was up 30 we were coming we were coming out of a tightening cycle and we were coming out of a trade war with China, and the economy was okay. That wasn't really the thing. So to Taleb's point, look at this crisis that came out of something that no economic signal would have prepared you for. And it just seems so obvious to me that that's the right approach, the systemic versus the prediction. You mean systematic. I think – Systematic versus the prediction. You mean systematic?

I think – Systematic versus – right. Yeah. The whole deal is that value at risk and bell curves like work most of the time. But if you rely on them to work all of the time, you're going to blow up. Yeah. Yeah. Yeah, and it's interesting.

Value at risk – I remember after the global financial crisis, it was widely panned. Everybody said, oh, this risk management model doesn't work. I guarantee you, look at every single bank, look at their earning statements in their annual reports, and they will show you their VAR numbers and it's gonna be the same exact stuff that they're using in 2007 they just I think it's part of the point that Nassim tries to make is as much as you know the quads all say we all knew about fat tails and black swans or whatever that's it's not new and that's true you know I get it that in the book the problem is

when you start putting those into your models, the models don't work anymore. So that kind of is a problem. You know, if everything that you're running is based on a model that's assuming, you know, that, you know, tomorrow is going to be just like it was yesterday. You're going to run into a steamroller. I thought about the scene in Jurassic Park where Jeff Goldblum has the dot of water on his hand, and one time it rolls one way and one time it... And I guess that's the book, is that chaos eventually comes to roost, and no model can capture it, getting back to the point we keep making. If you're going to manage risk on the downside, you have to do it systematically. Yeah, because it's unpredictable. But you also have to be aware that there are very huge events that can cause a huge downturn in your portfolio. It's another thing. I think that they try to, a lot of hedge funds and bank risk managers try not to think about that fact. And so you can't predict it and it's going to be worse than you think.

Well, to that point, you said earlier, like, what should the individual investor take away from this? And for me and everyone listening has lived through as an investor 2020, right? We all live through that. So to me, the big takeaway is it's easy to overestimate your risk tolerance, especially in a bull market. But all of the mistakes, all of the big mistakes are made when the fat tails happen. And they happen way more than they should mathematically. And so I think just not overestimating your ability to stomach a 25% drawdown in five days is probably like the right posture for most investors.

Yeah, I sold half my stocks in March 2020, you know, because it seemed to me like this thing is just going to keep getting worse. And as we all remember, but not for long. I mean, the market over the next year to, you know, my great surprise and a lot of my colleagues at The Wall Street Journal, entered an unprecedented bull market. Oh, things got a lot worse, just not in the stock market. Well, that's a really important point. People's lives got worse. People's health got worse. People's employment situation got worse But that's not what you got When you invest or trade the stock market That's not That's not actually what you're investing in It's not linear

And it's not a mirror image Of those things It's its own thing And that's the lesson that we get to learn every year No matter what's going on in the economy Hey Scott I want to ask you one more thing And then we'll let you run. And I know tomorrow is a really exciting day.

Hopefully everybody picks up a copy of Chaos Kings in bookstores, online. You're on Amazon, obviously. What was the most surprising thing you got out of your process in writing the book? Maybe it's a relationship. Maybe it's a story that you heard. process in writing the book. Maybe it's a relationship, maybe it's a story that you heard. And how important do you think it was that you had had that background of dark pools and the quants? Like, in other words, I don't know if you could have written this, had you not done those prior two books, just given the subject matter and the context that you need to have. Do you agree with that idea?

Yeah. I mean, you know, going back to writing the quants, you know, I think Nassim was an influence. I was talking to him back then. He was a critic of those models. And, you know, he wasn't the only one. There were other people who had, you know, written interesting books or, you know, analysis of the false and quant models. But he obviously comes from the other side of most of Wall Street.

He's a big critic of how it works and maybe he overdoes it. He can be quite vitriolic obviously and makes a lot of enemies. It's effective. Hey, Scott, that anecdote about like a driver chasing him down after he flipped him off, like I was laughing out loud. Yeah, because you can see it. I think he was driving around in Delaware or something. Was that with Kahneman? Yeah, he was driving with Danny Kahneman, who's a very gentle, soft-spoken man.

And they're definitely two odd characters who developed a friendship. Yeah, I mean, one thing I try to do, and I get more at it towards the latter part of the book that I guess I found surprising was how the way they look at the world, you can expand it to all sorts of other things. And I talk about a little bit in the beginning of the book is how things seem to be kind of running off the rails in the world today. They're getting, we're seeing more extreme events. And certainly when I started writing this book in 2020, that felt very visceral. Like things just were, you know, falling apart. We had the, you know, riots in the streets,

you know, COVID. January 6th. Yeah, January 6th, what was going on in our politics. Yeah. So, you know, it seems like all of these things are interacting in ways that are making things more chaotic. Scott, let's send you off with one with one quote from the book. You said market crashes, pandemics, terrorist attacks, riots, megafires, superstorms, extreme destructive, often deadly events seem to be happening across a planet with greater frequency and greater harm they happen suddenly and strike widely and I think that's a night everyone that's a great that's a great synopsis of off it's a great it's a great synopsis of of your excellent book chaos case congratulations yeah Scott

and thank you so thank you so much for joining us and we hope the book does really well I would love to watch this on Netflix so I hope they buy the rights from you and I'm picturing the casting of Taleb being very difficult for them

but I think the subject matter would make for a great show alright this has been Scott Patterson please check out Chaos Kings wherever fine books are sold Scott thank you so much for joining us. Everyone watching, we appreciate you coming to the live. Be sure to do the likes and the subscribes and all the things.

And we will be back with you tomorrow night on an all new What Are Your Thoughts? Good night, everybody. you