Taleb’s Thanksgiving Turkey

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I’m still in a tryptophan coma, but here’s a timely mention of the story of the turkey from Nassim Taleb’s book The Black Swan which I am (supposed to be) reading. The following excerpt is taken from the transcript of a Charlie Rose interview.

CHARLIE ROSE: And what is the story of the turkey?

NASSIM NICHOLAS TALEB: In the book, I have the story of a turkey that is fed for 1,000 days by a butcher, and every day confirms to the turkey and the turkey’s economics department and the turkey’s risk management department and the turkey’s analytical department that the butcher loves turkeys, and every day brings more confidence to the statement. So it’s fed for 1,000 days…

CHARLIE ROSE: Gets fatter and fatter and fatter.

NASSIM NICHOLAS TALEB: Fatter and fatter. On the day when its comfort will be at its maximum, there is going to be a surprise. There will be a surprise for the turkey.


NASSIM NICHOLAS TALEB: There will be a surprise for the turkey’s economics department, all those Ph.D.’s. Will it be — after all, there’s maximum (inaudible)…

CHARLIE ROSE: But it’s not a surprise for the butcher, is it?

NASSIM NICHOLAS TALEB: Not a surprise for Charlie Rose as well. Not a surprise for humans. It’s a surprise for the turkey. So the whole idea here is we are not to be a turkey.

Who or what might be the next turkey?

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  1. Those people who are bullish on gold.

  2. Sounds like China buying our debt… year after year…

  3. Definitely the golden calves, I mean bulls. When the people on AM radio say “buy” you should be thinking “sell.”

    I think it’s China, too. When you owe the bank $1 million, the bank owns you. When you owe the bank $100 million, you own the bank. That’s our relationship with China, scaled up by a few factors of ten. If we default on those debts, it screws us, but it screws China way worse.

    Shorter term, I think the next turkeys are the FDIC (corporate real estate defaults at mid-sized banks) and the FHA. A mortgage broker friend of a friend told me “in 2007, business didn’t slow down much; all the action just moved to FHA.”

  4. Mr. Lebowski says

    I’m one of those Buffett groupies that you made some reference to before. Here is a quote from his last Annual Report that I’m surprised I haven’t heard anyone else talking about.

    “Moreover, major industries have become dependant on Federal assistance, and they will be followed by cites and states bearing mind-boggling requests.”

    Why has no one else talked about these cities and states that he seems to think will need mind-boggling bailouts? If he’s right the taxpayers will be the turkeys again.

  5. Be careful reading that book, because it can change your brain. After I read it, I no longer found financial commentary entertaining. I never put much store in it, but I at least used to find the glossy quarterly reviews from T Rowe Price, TIAA, etc. mindlessly pleasant to read.

    Now I can’t help but cynically feel they’re full of crap. There’s no fun in it any more.

    Who’s the turkey? That’s a tough call.

    1. “Everyone” is expecting inflation, hyper-inflation even. Except the market isn’t; check the spreads between TIPS and long term bonds. Someone’s the turkey here, and I don’t know who.

    On the one hand, inflation tends to be created by two things: changes in the money supply, and the expectation of inflation. The exact cause and effect is elusive to say the least though. A lot of people look at the actions of the fed and say inflation is coming, but there is a lot happening that decreases the money supply too–a lot of deflationary pressure.

    Eventually the gold bugs will be the turkey I expect, but I have no idea when.

    2. We’re either going for a W recovery… or not. A lot of people think we are, which means they might be turkeys. On the other hand, the exact causes of recessions, their beginnings and their ends, are kind of like the causes of inflation. The collective actions of a lot of people make them happen.

    Someone’s been running the stock market up this year. If it isn’t a W recovery and you’ve been out, you’re the turkey. If it is a W recovery and you’ve been in, you’re the turkey. Unfortunately only time will tell who’s what.

    I haven’t felt this uncertain since the beginning of the 2003 bull market. So my instinct is that things are going up from here or at least staying flat (i.e. square root sign recovery).

    But what do I know? You’re reading Taleb’s book, so I don’t have to tell you. I don’t know crap.

  6. Dubai seems to fit the bill…and right in time for Thanksgiving too. Looks like one giant turkey of sand now!

  7. LargeTalons says

    What a pointless analogy. Is the basic point that things are generally good, until something bad happens? Wow, what a revelation. Unless the point is that all financial analysts are the butcher. That is probably true.

  8. @LargeTalons It isn’t much of a revelation at all, but everyone seems to completely forget the “bad” when things are good. This post might be obvious now, but in 3 or 4 years, when the economy has recovered, and there’s growth we would do well to remember it.

  9. Just taking a look back to at some numbers:

    Gold price November 2009: about $1,200/oz

    Gold price November 2012: about $1,700/oz

    S&P 500 November 2009: about 1,100

    S&P 500 November 2012: about 1,400 (excludes dividends)

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