Libor

The unwinding of the Japanese yen carry trade is also a big part of that.

The inciting incident for me that really put me down that road was when we moved off of LIBOR to SOFR.

During Trump's first term, we started the process.

And then under Powell at the Fed, starting in 2021 with self-tightening and then with his second term, that's when we started putting gas on the fire and saying, no, this is it.

Exactly.

Do

you know the difference between LIBOR and SOFR?

LIBOR is the London Internet Bank Overnight Rate.

Maybe you can explain a little more clearly what you mean by that.

And where does the move from LIBOR to SOFR fit in? Did that essentially give the U.S.

more control over the price of dollars and take some of that power away from London and the offshore dollar system?

Yeah, that's the beginning of it, right? If this is a movie, that's the inciting incident.

And then, you know, if you, I'm a former amateur screenwriter, so I look at it and go, plot point number one then would be implementing SOFR.

The midpoint turn would be SOFR, would be Powell's second term where he starts raising interest rates after COVID.

and after the inflation from COVID and Trump is out of power and things look bad, but the point of no return was, because what, see, LIBOR, the London Interbank Offered Rate, which is now, you know, an anachronism, was, it was the system that allowed them to decide what the price of dollars was in the global markets.

So post-Bretton Woods, the build-out of the Eurodollar system was done, one, it was done on the back of the Japanese and the yen carry trade.

independence.

Except not really until 2022, because that's when we switched away from LIBOR to SOFR.

What that word salad basically is means is that city of London has always ran American monetary policy, meaning even after like world war II, when British pound was no longer the world reserve currency, we were now it was King dollar.

They still controlled our price of dollars.

And that was through LIBOR.

It was just an indexing rate that, Your credit card, your mortgage, your auto loans, any revolving credit, that was all tied to LIBOR.

LIBOR, if you Google it, Google LIBOR scandal, it was bullshit.

It was a central planning, commie, we're going to make economics as fake and gay as possible sort of scheme, as you can imagine.

In Europe, the European Market Infrastructure Regulation, known as EMEA, established broadly equivalent requirements, clearing obligations for standardized instruments, trade reporting to approve repositories, and risk mitigation requirements for anything left uncleared.

And running alongside all of this has been the transition away from LIBOR, the London Interbank Offered Rate, following evidence that panel banks had manipulated it.

That transition has moved differently by currency.

US dollar LIBOR moved principally to SOFA.

Sterling moved to SONIA.

Other currencies have their own overnight alternatives.

I'm pretending I am, but I'm just merely kind of showing you what a macro hedge fund does.

Now, there's things like LIBOR and swaps that trade on LIBOR, floating rate versus fixed rate swaps.

I actually... pasted this thing from ICAP, which you can actually look at, and then also this academic study.

And again, if you have any trouble finding this, there's a link in the description box and I'll post it again.

So there's all kinds of things you could do with respect to the yield curve, or you can make direct interest rate bets.

Again, LIBOR and the Eurodollar are floating and fixed rates that you can trade around.

There's options on these swaps.

These are all generally called swaps.

Because I've had conversations like-- other side.

Um, Pete sat in on- Uh, one of, uh, one of the conference, series of conference calls I host, right? Uh, well, we take turns hosting, right? And one of those, uh, actually one of the, one of the two women that were on the call, uh, she was a former Fed governor, and she was on the LIBOR committee.

This woman is probably in her seventies.

And, you know, this woman should know more about global capital markets than anyone in the world.

"Yes.

Yes, it is." And I was like, "Okay.

And all those offshore dollars, they're indexed to LIBOR, right?" And she goes, "Yeah, of course.

Of course they are.