Consequences Happen

With the advent of the Coronavirus, we of course get introduced to a new term ” Social Distancing”. Basically, this is a new term for staying home, working from home, and generally avoiding large groups in order to avoid contamination. This kind of risk avoidance, along with market movements of late, got me thinking about how Central Banks have attempted to quarantine markets from all exogenous risks over really the last 12 years. The cordoning off came under the guise of low rates and no matter the risk, market participants could rest assured that a shot of liquidity was at the ready. In Nassim Talibs book Antifragile he does a great job describing systems that become inherently more unstable as they are overly engineered to become more stable. This could not describe todays environment more perfectly, in attempting to eliminate all systemwide risk, even those associated with a normal business cycle, the entire system has been rendered more risky.