Shorting NKE: part 22

The philosophical edges

The markets, for bonds, currencies, stocks, and commodities are separate yet connected ecosystems where the typical systems and process related to life and death are happening at all times.

They are subject to the laws of physics. Where they connect is where the opportunities are.

For example:

American banks, as part of a Shadow trade war with the Japanese, notoriously lend dollars to the Japanese banks, at a premium.

Japanese banks, in need of dollars for a number of reasons, decide they can afford to lend yen, at a discount.

So they invent a swap where American banks can borrow yen at a discount and in return Japanese banks can borrow dollars flat, ie with no premium or spread above market rates.

Trillions in notional principals are exchanged, and traders make money.

The impact on derivatives liquidity, and exchange rates, and forward rates; as well as accounting practices is astounding.

The market for these swaps, explodes.

Treasury bonds rise in price and fall in yield (their inverse relationship drives a bigger market than any other) which encourages U.S, treasury borrowing and refinancings.

Demand to finance overnight Treasury positions spikes and that means something called repurchase agreements hits the headlines:

It is all connected.

That is why the NY Mayoral contest makes national headlines. That is why 1600 Pennsylvania Avenue is becoming the Media capital of the world. That is why people suddenly know how many pages a tax bill has.

Volume matters. Taxes matter. Tariff based impacts matter.

Everything matters because everything is connected.

So what prevails?

The US dollar trend:

The stock market:

Something else?

Everything.

To be continued…