Rene Descartes, a 17th-century mathematician, asked the fundamental question of how causal power functions. He was interested in how things relate to each other in terms of causality and how the thought of an action gets translated into a physical action. The theory he came up with, called "Interactionism," affirms the relationship between thought and action. Importantly for our discussion, Descartes knew that any effect must have an antecedent cause.

When we are unclear about something, Descartes teaches us to search diligently for first principles, those things about which we are certain, and then explore what might have caused an event or observed the effect.

Warnings
In recent weeks, we have heard a variety of pundits, including a parade of Federal Reserve (Fed) officials speaking about mounting risks in the credit markets. Steve Eisman, who correctly pre-identified the magnitude of the sub-prime mortgage debacle, expressed confidence in commercial banks but worried that a U.S. recession would bring "massive" losses to the corporate bond market. The Fed published a report stating that there are meaningful risks in the corporate bond markets due to the amount of issuance that has occurred over the past decade and the weak credit quality of much of that issuance. As documented in many prior articles, we concur with those concerns and suggest the effect has a nasty way of sneaking up on central bankers. For our latest on the topic please read The Corporate Maginot Line.