Last month, in our February 2023 Update, “Sharpe World is Nefarious”, we posed this question: “If a bank loses money in accrual books and can continue to fund the losses with government guaranteed deposit support, does it make a sound? https://convex-strategies.com/2023/03/16/risk-update-february-2023-sharpe-world-is-nefarious/ Apparently, the answer is yes. Eventually. Way back in our August 2021 Update, “Self-Organised Criticality”, we laid out how we saw “solvency” as the core fragility of the system and how, much like with the assurances of the “well trained and equipped Afghan National Security forces”, assertions would be made as to the safety of the financial system once,…

“…being accommodating toward anyone committing a nefarious action condones it.” Nassim Taleb in the Prologue of “Antifragile: Things that Gain from Disorder”. We like to think that we live up to the principle implicit in the above quote. As regards Sharpe World!™, we will not accommodate it. We do not condone bad actions and practices in the worlds of economics and finance. In this spirit, we link the following speech by outgoing Bank of Japan Deputy Governor Masazumi Wakatabe. Deputy Governor Wakatabe is not a particularly relevant player in what passes currently as BOJ monetary policy and whose term is…

Way back in our June 2021 Update we noted the insistence of several central banks to stick with their historically extreme monetary policy settings, despite clear indication that their traditional metrics of economic circumstances were running at the hottest end of historical norms. We led off with this quote from the Poet Laureate of Economics, Bill White. “The Fed says it will no longer react to anticipated higher inflation but only to actual higher inflation. Yet they are failing to react to actual higher inflation because they anticipate it will decline. Perhaps the real framework is anything that justifies not…