“We are ready to accept almost any explanation of the present crisis of our civilization except one: that the present state of the world may be the result of genuine error on our own part and that the pursuit of some of our most cherished ideals has apparently produced results utterly different from those which we expected.”                       Friedrich A. von Hayek, “The Road to Serfdom” We have used the above quote previously to describe the behaviour and rhetoric of central bankers. For any that have read Hayek’s magnum opus, you will know that he was using it much more broadly to…

Back in our May 2021 Update https://convex-strategies.com/2021/06/17/risk-update-may-2021/, we noted that past historical spikes in CPI, similar to what we were seeing then, had indeed all generally been transitory in nature. They had also all aligned with Federal Reserve tightening regimes and subsequent equity/asset market sell-offs. We went out on a limb and opined “that ‘tightening’ is, as of now, not currently a factor, in fact quite the opposite and particularly if one includes the Fed’s balance sheet in the analysis; still growing at $120bn per month. Far be it from us to use the old catch phrase that maybe ‘this…

“An ounce of prevention is worth a pound of cure.” Benjamin Franklin, circa 1736. For those in the more advanced metric world, there are 16 ounces in a pound, or adjusted that would be “28.35 grams of prevention is worth 453.59 grams of cure.” Turns out the esteemed Mr. Franklin, like ourselves, was an advocate of convexity and compounding. His math may not be exact but, to put it in our F1 Race Car terms, he is trying to measure the contribution of the brakes. Sadly, there has been scarce advancement on this quantification over time. As Nassim Taleb puts…