The Q-Trap. (Any views expressed in the below are… | by Arthur Hayes | Apr, 2022

  1. Borrow JPY cheap. The JGB’s 10-year yield is 0.24% vs. the UST 10-year yield of 2.58%. You have picked up 224bps of yield for 10 years– that’s huge.
  2. Sell your borrowed JPY, purchase USD. But do not hedge the currency risk (you hedge on the left-hand side), as JPY is freely convertible. The forward points are negative because of covered interest rate parity. (Google is your friend if that is all Klingon to you).
  3. Buy US-listed stonks, preferably some big tech names.
  4. You have now funded your stonks with cheaper money.
  5. If JPY strengthens, you lose money, but that’s not your problem if you are a fiduciary. When this blows up in your face, just ask your pliant central bank for a bailout. But you already got your bonus — YAHTZEE!
  1. Bitcoin and Ether are highly correlated to the Nasdaq 100. If the NDX tanks, it will take crypto down with it.
  2. NDX, like all long-duration assets, benefits from falling interest rates.
  3. Unprofitable tech, such as ARKK, got smacked as UST 2-year rates rose. Big tech (NDX) has been saved for now by a few profitable names, but even it has traded lower.
  4. The Fed and all other central banks are fighting inflation, and must therefore tighten monetary conditions, not loosen them.
  5. Japan, even though it is pursuing accommodative monetary policy, can’t save the world’s risk asset markets because its bazooka is a pea shooter when compared to the Fed’s.
  6. The NDX bounce failed at the 61.8% Fibonacci Retracement level, and will continue lower towards and below 10,000.
  7. The Fed put is not based on equities but on US corporate credit markets, which are still healthy-ish… Watch the BBB 2s / 10s spread for a sign the Fed is about to abort the mission and juice the markets higher once more.
  8. Global growth will decline on higher commodity prices driven by the continuation and possible escalation of the Russia / Ukraine war. This, in absence of accommodative central banks, will also weigh negatively on stonks.
  9. Ipso facto, NDX will fall, and so will crypto.

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