With the Federal Reserve looking to raise rates, investors seeking to protect their portfolio should look to cash, according to Nassim Nicholas Taleb. "People think cash gets eaten up by inflation. It happens in the long run, but initially cash rises in value when assets collapse after the rise of interest rates to fight inflation," the author of "The Black Swan" told CNBC's "Squawk Box" on Thursday. Investors can use cash to purchase assets that have fallen in value, he said. "We've seen in the last 50 years of history, every time, cash is king when they fight inflation, initially, and then later on you buy those assets and it rises," Taleb added. "For an investor who can't do tail-risk hedges, cash is important." Taleb's comments come as Washington debates the spending bill, but he said the U.S. has bigger problems than the deficit, with a swelling low interest rate environment that's caused asset price inflation and supply chain shortages that will inevitably be followed by gluts. He said that tail-risk hedging, which protects portfolios against extreme market turbulence, is difficult. "If you still think there could be upside to stocks you must do proper hedging, and hedging is hard," he said. "But don't stay in the market hoping to diversify with other assets like crypto or others like it." Taleb once called bitcoin "insurance" against government control over money but more recently pivoted his stance, saying the cryptocurrency is worth zero . "Crypto doesn't hedge anything — not inflation, not a stock market crash, nothing," he said Thursday. He also maintained he isn't bearish on crypto "yet."
Nassim Taleb, author of The Black Swan.
Adam Jeffery | CNBC
With the Federal Reserve looking to raise rates, investors seeking to protect their portfolio should look to cash, according to Nassim Nicholas Taleb.