The mathematics of conflict
There is no such thing as a zero-sum game
3 things happen when a war starts:
Prices in markets gyrate wildly. Today, NKE traded with a 2-dollar range. The low, 59.44. The high: 61.30. For context: NKE is part of the DJIA which traded a 628-point range. The NKE range was c. 3%. The index range was half that at c. 1.5%. Buyers and sellers at the top and the bottom while information drove sentiment and market dynamics.
Volume disappears. Only the institutions with quantified hedging parameters and cash commitment mandates (where funds have to invest in something because they must, by law, keep specific cash positions) are trading throughout the day. Speculators come and go while most everyone else is on the sidelines. Just waiting.
Headlines drive everything. Whether they are true, false, unconfirmed, or simply a product of unlimited data, every time the situation evolves or changes, the market reacts and not necessarily with any foresight or logic or rationale. In fact, the truth about news in a conflict: Nothing is as it seems.
The problem with markets during a conflict is exacerbated by the 21st century we find ourselves in. There is too much data for us to process within the 24 hours a day for 5 days trading world we live in.
As a result, everything from account balances to risk analyses are incorrect. Balances, especially,
as margin rates are fluctuating as wildly as prices. And with volume low, market moves can be exaggerated because of liquidations due to margin rates and margin calls.
Every trader has to know their margin position and how it is affected by prices driven by headlines that may or may not be complete or accurate. Cash positions to position equity ratios often determine how much risk a trader might be willing to carry against the borrowed money that is margin. Exchanges can demand higher cash deposits. So can brokers.
The moral, ethical, and philosophical mathematics are of course, very different. Worst case scenarios are being calculated all over the world by entities that have serious risks.
The UN, the IMF, the IBRD (the International Bank of Reconstruction and Development), the WB (the World Bank) to suggest a few.
As a result, no one knows anything. I repeat: No one knows anything.
That means that every time something happens, markets move, and prices change, and risk scenarios are altered based mostly on the math that drives quantitative decision making and human responses to headlines.
Nike might delay their results again this week. We do not know. We do know that they will pay a dividend of 40 cents a share in July.
NKE closed 1 dollar higher after trading the aforementioned range. Up 4 cents after hours to finish the day at 60.83.
To be continued…