Chaos Kings
How Wall Street Traders Make Billions in the New Age of Crisis
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4.0 • 1 Rating
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- $18.99
Publisher Description
Written by a veteran Wall Street Journal reporter, this is a fascinating and “closely observed chronicle of the storm-chasing edgelords of finance and the critics with whom they clash” (The New York Times)—the billion-dollar traders and crisis predictors who strive to turn extreme events into financial windfalls.
There’s no doubt that our world has gotten more extreme. Pandemics, climate change, superpower rivalries, cyberattacks, political radicalization—virtually, everywhere we look there is mayhem bearing down on us, putting trillions of assets at risk.
And at least two factions have formed around how to respond. In Chaos Kings, Scott Patterson depicts how one faction, led by Nassim Nicholas Taleb, bestselling author of The Black Swan, believes humans can never see the big disaster coming. In their view, extreme events—so-called Black Swans—while inevitable, will always catch us by surprise. In 2007, Taleb’s longtime collaborator, Mark Spitznagel, launched the Universa hedge fund, which would go on to make billions protecting investors against unforeseen chaos in the market.
A second faction, which relies on complex formulas, believes looming chaos can be detected. Chief among these risk prognosticators is Didier Sornette, a colorful French mathematician who enjoys riding his motorcycle at speeds in excess of 170 miles per hour. When Sornette looks out from what he calls his Financial Crisis Observatory in Zurich, Switzerland, what he sees are Dragon Kings—punishing events that are unlikely to occur but have probabilities that can be predicted…and defended against.
Which faction is right? All of our financial futures may depend on the answer. “Detailed yet accessible, this will appeal to fans of Michael Lewis’s The Big Short” (Publishers Weekly).
PUBLISHERS WEEKLY
Wall Street Journal reporter Patterson (Dark Pools) delivers an illuminating investigation into those who profit from anticipating crises. Patterson outlines the two prevailing camps of catastrophe forecasters: there are those who follow trader Nassim Nicholas Taleb's "Black Swan" theory, which posits that world-changing events are often entirely unpredictable, and then there are those who follow French physicist Didier Sornette's "Dragon King" theory, which holds that events can be predicted if one has the right inputs. The author explains how Taleb positions himself to profit from sudden market crashes by purchasing put options (an agreement that obligates the option seller to buy back assets at a predetermined price should the option buyer decide to sell), which usually result in minor losses but have huge payoffs during market plunges. Sharp profiles of Taleb, Sornette, and other traders leaven the complicated financial discussions; for example, Patterson describes Sornette as a strong-willed risk-taker whose idiosyncratic thinking led him to predict the housing bubble of the mid-aughts. Additionally, the author has a knack for translating complicated financial maneuvers into easily comprehensible terms (he likens put options to "fire insurance that pays off triple the value of your mortgage... if your home burns"). Detailed yet accessible, this will appeal to fans of Michael Lewis's The Big Short.
Customer Reviews
Minting money when blood’s on the street
11 years since his last book, Dark Pools, Wall Street Journal reporter Scott Patterson is back with Chaos Kings.
In 2020 when Covid-19 became a pandemic entire cities were locked down, countries closed their borders and the stock market crashed. But a few savvy hedge fund honchos saw the writing on the wall and shorted the market making a windfall. One of them is Mark Spitznagel founder of Universa Investments. While he doesn’t possess a crystal ball he was prepared for a black swan, an unforeseen event that would cause stock markets to crash. He proceeded to buy out of the money S&P 500 put options that paid out big time when the market indeed crashed.
Once again Patterson takes us deep into an esoteric area of the capital markets where a select few venture. This is the story of how a select few managed cash out big time.