“Time and chance happeneth to them all.” Ecclesiastes 9:11. We pulled the above quote from a video clip by Ole Peters introducing his, and Alex Adamou’s, new book, “An Introduction to Ergodicity Economics”. Just as Ole mentions, this biblical reference ever so nicely sums up our overall philosophy on the importance of convexity in life. Clearly, we were not early to this challenge! It is a very useful little video clip and a truly wonderful book. Why we wrote a textbook We highly recommend taking the time to watch this video. Ole does an excellent job of explaining the intentions…

“The bond market is suggesting much higher r-stars, but I would discount that a bit because they’ve tended not to be reliable.” John Williams, November 2025. Watch Fed’s Williams Says He’d Discount Bond Market’s Neutral-Rate Estimate – Bloomberg An absolute classic quote from one of the most esteemed High Priests of Sharpe World, President of the New York Federal Reserve and Vice Chair of the FOMC, John Williams. Ignore reality. Trust the models. In case you were uncertain about whether Mr. Williams himself has a reliable track record of forecasts and model accuracy, we have the wonderful ability of being…

“Financial Economics, I argue, did more than analyze markets; it altered them. It was an ‘engine’ in a sense not intended by Friedman: an active force transforming its environment, not a camera passively recording it.” Donald MacKenzie, “An Engine, Not a Camera”, 2006. Donald Mackenizie’s wonderful book, “An Engine, Not a Camera”, was referred to us by a couple of our most respected mentors, who regularly appear referenced in our Updates, after we published our February 2025 Update – “Rational Accounting Man”. It is a wonderful book that goes through the history of the evolution of what the author refers…

“So let me start by saying that the inflation that we got was not at all the inflation we were looking for or talking about in the framework. This was—it really was a completely different thing.” Jerome Powell, December 2021. Transcript of Chair Powell’s Press Conference — December 15, 2021 Statements like this make us wonder if calling somebody a “central banker” ought not to be taken as an insult. That was Chair Powell at the post FOMC press conference back in December 2021. They wanted inflation, badly! That was the whole point of ZIRP, QE, LSAPs, and FAIT. These…

“Situations of uncertainty and intractability rule out optimization and, along with it, the usefulness of the theory of maximizing subjective expected utility.” Gerd Gigernzer, November 2024. The rationality wars: a personal reflection | Behavioural Public Policy | Cambridge Core We linked to this wonderful paper from Gerd Gigerenzer, and paid homage to it with our choice for the title, in our November 2024 Update – “Rationality Wars” Convex Strategies | Risk Update: November 2024 – “Rationality Wars”. This particular quote, however, is what we devoted the bulk of our thoughts to in our May 2025 Update – “Just Do It”…

Admiral Lord Horatio Nelson is credited with proclaiming “I see no ships” when disregarding the signal to retreat during the Battle of Copenhagen in 1801. The saying has become a British idiom for somebody ignoring that which they don’t want to see. The story goes that Lord Nelson held his telescope up to his blind eye. Our minds drifted to this pithy little phrase as we listened to the opening speech at the annual ECB Forum in Sintra, Portugal, from ECB President Christine Lagarde. President Lagarde took the opportunity of the conference, and her slot as the opening speaker, to…

“…if you want utility, don’t optimize expected utility because you’re bound to lose actual utility.” Ole Peters and Oliver Hulme, May 2025. Expected-utility maximizers don’t maximize utility. – Ergodicity Economics As ever, Ole makes it so clear. This wonderful note perfectly echoes our own claims around Sharpe World stalwarts, like Modern Portfolio Theory (MPT), that are explicitly optimizing to expected returns. Exactly as Ole shows, they are explicitly impairing actual returns. “…agents who follow the prescriptions of expected-utility theory do not maximize utility in the long run; agents who follow the prescriptions of ergodicity economics, on the other hand, do…

“…granting boundless power to government agencies to solve the world’s problems does not square with my disposition…some may believe the biggest threat to our economy comes from outsiders who seek to change the status quo—I don’t agree…I believe the predominant risk come from choices made inside the four walls of our most important economic institutions.” Kevin Warsh, April 2025. Commanding Heights April 25 2025 DC.pdf Are the challenges of our times the results of policies enacted in the last 30, 60, 90 days or, more likely, accumulated through decades of efforts undertaken with minimal consideration to longer term consequences? We…

“Moral hazard is a natural concern for a policy which removes the main risk that hedge funds face when taking leveraged positions in cash-futures basis.” Kashyap, et al, March 2025 The above quote comes from a recent Brookings Papers note, “Treasury Market Dysfunction and the Role of the Central Bank”, authored by Anil Kashyap (University of Chicago), Jeremy Stein (Harvard), Jonathan Wallen (Harvard) and Joshua Younger (Columbia/Tudor Investment Corporation). (See Figures 6 & 7 in Convex Strategies | Risk Update: August 2024 – “Unknowable” for the relevance of their institutional affiliations.) 4_Kashyap-et-al.pdf The authors introduce the note thusly: “We build…

“The products are gaining traction because the buyers don’t have to mark them to market, thus avoiding the possibility of booking paper losses.” Japan Regulator Planning Crackdown on $67 Billion of High-Yield Loans – Bloomberg A great article from Bloomberg on the proliferation of an increasingly popular investment product that is being gobbled up by regional banks in Japan. The article is special, not so much in the unique innovation of this particular product, but due to its simple clarity as to why these sorts of investments proliferate. The above quote lays it out clearly. These are not economic or…