Blog: The Murphy's Law Approach to risk management
The expert knows more and more about less and less until he knows everything about nothing. -Mahatma Gandhi
Most investors seem to think that the tightening cycle is nearing its end, and the Fed honestly believes they're engineering a soft landing. But the Fed and other central banks have disappointed the markets by saying rates will stay high until there is a clear sign that inflation is returning to that 2% target. Then they can think about gradually reducing rates. Many commentators have noted that contrary to the Fed's expectation, rates historically go "up the escalator and down the elevator" but they haven't discussed why that happens. The assumption is that the economy goes unexpectedly into recession due to over-tightening, and the central banks are forced to cut rates. Well, that's kinda true. But the sequence of events is usually quite different than popular lore has it. In fact, I have my own view on market risk derived from experience and research. Murphy's Law rules.
The Murphy's Law Approach
My philosophy behind market uncertainty indicators is pretty straight forward: