Volatility Leads to an Audit Check

Happy Friday, all —
This week’s market whipsaw had me doing a quick audit of my own models. Why?

🏦 Some regional U.S. banks dropped the bombshell about hidden credit losses and mounting bad loans (https://lnkd.in/eCHb6hJ8)

🚩Meanwhile, the IMF is waving a red flag over “disorderly corrections” ahead, warning that markets may be pricing in too much optimism (https://lnkd.in/evmD-e2S)

All of which leads me to a simple (but under-practiced) exercise:
“What if things go sideways?”

In every model I build or teach, I now challenge myself (and my students) to answer:

- What hidden exposures am I glossing over?
💳 Credit risks, counterparty concentration, off-balance sheet items, liquidity stress, covenant crunches, etc.
💵 If a “liquidity shock” hits, how fast does my model break?
(i.e. what assumptions collapse first: working cap, margins, debt servicing?)
📉 Are my downside (or upside) assumptions realistic — or not pushing far enough?

💡 Remember: “The most dangerous phrase in modeling is, ‘that could never happen.’” – Unknown (but we've all thought it at least once)

Here’s to smoother (or at least survivable) markets ahead🌤️
Have a great weekend!