'Bonds will hedge you against nothing' in the current market environment, says famed investor Nassim Taleb

• In a CNBC interview on Friday, Nassim Taleb told investors that bonds "have no upside" and "have run their course."
• Taleb pointed to negative interest rates as reasons investors could no longer count on bonds as a traditional hedge against market sell-offs.
• Taleb suggested that to protect investment portfolios, stock investors should have a tail hedge to protect against systemic risks.
• Taleb is an adviser to Universa Investments, which runs tail-risk-hedge investment strategies and posted a 4,144% return in the first quarter.
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The famed investor Nassim Taleb told investors on Friday that bonds "have run their course" and would no longer serve as a traditional hedge against a market sell-off.

In a CNBC interview, Taleb said that because of negative interest rates, "bonds practically have no upside structurally." Taleb said he didn't believe that bonds could really have negative interest rates, adding that the Federal Reserve had lost a weapon by dropping interest rates to near zero in response to the coronavirus pandemic.

Taleb suggested that investors hold on to stocks for upside and protect against downside by having a tail hedge. "If you don't have a tail hedge," he said, "I suggest not being in the market."

Taleb added that uncertainty loomed over the market because of the Fed's increased printing of money and lack of room to lower interest rates. And even if the coronavirus pandemic calms down, consumers will remain cautious, which will harm many industries, he said.

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Taleb said that while stocks could pick up if we enter an inflationary environment, any inflation would be hyperinflation, not mild inflation; on the flip side, we may be in a state of continuous deflation. He said that because of these uncertainties, investors needed to have an investment portfolio that's conservatively positioned and hedged for both scenarios.

Taleb is an adviser to Universa Investments, a hedge fund that specializes in tail-risk strategies. These strategies tend to perform well when volatility unexpectedly spikes in the markets: Universa posted a 4,144% return in the first quarter amid the coronavirus-related market sell-off.

"You need to be hedged for these two states, which makes things very delicate, and the first thing I would say is bonds will hedge you against nothing from here on," Taleb concluded.

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