Thinking about the year ahead, trade conflict, industrial policy, existential technology competitions, great power conflict in the coming age of AI. And I recalled an anecdote from 2017, back when these frictions were just beginning to be brought to light and called by their proper names (see below). Back next Sunday with full weekend notes. Wishing you all the very best in 2025, Eric

Week-in-Review: Mon: US to send Ukraine $6bn in new military and budget assistance. US Treasury says Chinese state-backed actor hacked its computers. Trump backs Musk/Ramaswamy in clash with his supporters on the H-1B skilled-workers visa program. China PMI mfg 50.1 (50.2e), US Chicago PMI 36.9 (43.0e), South Korea CPI 1.9% (1.7%e), S&P -1.1%. Tue: Macron issues mea culpa over French legislative elections in NYE speech. Xi acknowledges China’s strains and promises to address unemployment, income growth, elderly care, childcare, education and healthcare in NYE address. China disputes US Treasury claims that it was behind cyber-attack. Leaked military documents show Russian prepared list of targets in Japan and South Korea. South Korea issues arrest warrant for impeached President Yoon. Hungary loses EU funds over rule-of-law concerns. S&P -0.4%. Wed: US Army veteran perpetrates terror attack in New Orleans. US Army soldier involved in explosion of Tesla Cybertruck at Trump hotel in Las Vegas. Thur: PBoC to change framework and start using one main interest rate to steer demand for credit. Germany’s predicted new chancellor rejects retaliatory tariffs against US and pushes for free-trade deal. Syrian delegation visits Saudi Arabia in first foreign trip since Assad ousting. US Jobless claims 211k (221k e) / Cont. claims 1844k (1890k e), S&P Global Mfg. PMI US 49.4 (48.3e) / UK 47 (47.3e), Italy 46.2 (44.9), Eurozone M3 3.8% (3.5%e), S&P -0.2%. Fri: Biden blocks Nippon Steel’s $15bn takeover of US Steel. Trump ally Mike Johnson re-elected US House Speaker. Richmond Fed’s Barkin warns of more upside to growth and inflation in 2025. South Korean officials bid to arrest impeached president proves unsuccessful. US ISM mfg PMI 49.3 9 (48e), Turkey CPI 44.38% (45.20%e) / core 45.34% (45.80%e), Germany unemp. rate 6.1% (6.2%e), Mexico unemp. rate 2.64% (2.55%e), S&P +1.3%.

Weekly Close (12/27/24-01/03/25): S&P 500 -0.5% and VIX +0.18 at +16.13. Nikkei -1.0%, Shanghai -5.6%, Euro Stoxx +0.2%, Bovespa -1.4%, MSCI World -0.5%, and MSCI Emerging -0.9%. USD rose +6.1% vs Russia, +2.4% vs Chile, +1.5% vs Mexico, +1.2% vs Sterling, +1.1% vs Euro, +1.0% vs Sweden, +0.8% vs Turkey, +0.3% vs China, +0.3% vs India, +0.2% vs Canada, +0.1% vs South Africa, and flat vs Australia. USD fell -6.2% vs Ethereum, -2.7% vs Bitcoin, -0.4% vs Yen, -0.3% vs Indonesia, and -0.1% vs Brazil. Gold +0.9%, Silver +0.3%, Oil +4.8%, Copper -1.2%, Iron Ore -0.4%, Corn -0.7%. 10yr Inflation Breakevens (EU +5bps at 1.84%, US -1bp at 2.34%, JP flat at 1.47%, and UK +2bps at 3.54%). 2yr Notes -5bps at 4.28% and 10yr Notes -3bps at 4.60%.

2024 Annual Equity Index Returns (high to low): Argentina +113.8% priced in US dollars (+172.5% priced in pesos), NASDAQ +28.6% priced in US dollars, Israel +26.9% priced in US dollars (+28.6% in shekels), S&P 500 +23.3% priced in US dollars, Taiwan +19.8% in US dollars (+28.5% in Taiwan dollars), HK +18.3% in US dollars (+17.7% in HK dollars), MSCI World +17% in dollars, Malaysia +15.9% in dollars (+12.9% in ringgit), Czech Republic +14.8% (+24.5%), Hungary +14.3% (+30.9%), Singapore +12.8% (+16.9%), Germany +11.7% (+18.8%), Russell +10% (+10%), Turkey +9.9% (+31.6%), China +9.6% (+12.7%), Canada +8.3% (+18%), Belgium +7.6% (+15%), Spain +7.4% (+14.8%), Japan +6.8% (+19.2%), Greece +6.3% (+13.7%), Italy +5.8% (+12.6%), India +5.8% (+8.8%), Netherlands +4.5% (+11.7%), Ireland +4.2% (+11.4%), UK +3.7% (+5.7%), South Africa +3.3% (+6.9%), Euro Stoxx 50 +1.3% (+8.3%), Colombia +1% (+15.4%), Saudi Arabia +0.4% (+0.6%), Austria +0.2% (+6.6%), Norway -1% (+11.4%), Thailand -1.2% (-1.1%), UAE -1.7% (-1.7%), New Zealand -1.8% (+11.4%), Australia -2.7% (+7.5%), Poland -3.2% (+1.4%), Philippines -3.2% (+1.2%), Switzerland -3.4% (+4.2%), Chile -3.9% (+8.3%), Sweden -5.6% (+3.6%), Indonesia -7.5% (-2.7%), France -8.5% (-2.2%), Finland -11.9% (-6.2%), Denmark -13.5% (-7.9%), Portugal -18% (-12.4%), Korea -21% (-9.6%), Brazil -29.5% (-10.4%), Mexico -30% (-13.7%).

2025 Year-to-Date Equity Index Returns (Dec 31-Jan 3): Argentina +7.5% priced in US dollars (+7.7% pried in pesos), Norway +2.9% priced in US dollars (+2.8% in krone), Colombia +2.6% in dollars (+1.2% in pesos), Turkey +2.5% (+2.5%), Korea +2% (+1.8%), Russell +1.7% in dollars, South Africa +1.7% (+1%), NASDAQ +1.6% in dollars, Poland +1.6% (+2.3%), Australia +1.5% (+1.1%), India +1.3% (+1.5%), Indonesia +1.1% (+1.2%), S&P 500 +1% in dollars, Philippines +1% (+1.1%), Denmark +0.9% (+1.9%), Portugal +0.9% (+1.4%), Canada +0.9% (+1.4%), MSCI World +0.8% in dollars, Israel +0.7% (+1.2%), Greece +0.7% (+1.2%), Finland +0.6% (+1.5%), Saudi Arabia +0.6% (+0.5%), Sweden +0.3% (+1.1%), Czech Republic +0.2% (+1.1%), Netherlands +0.2% (+0.7%), Singapore +0.1% (+0.4%), Japan closed, Spain 0% (+0.5%), New Zealand -0.1% (-0.3%), UK -0.2% (+0.6%), Switzerland -0.3% (+0.2%), Mexico -0.3% (-1.1%), Belgium -0.6% (-0.1%), Germany -0.9% (0%), Euro Stoxx 50 -1% (-0.5%), UAE -1% (-1%), Taiwan -1.1% (-0.6%), Italy -1.1% (-0.2%), Austria -1.3% (-0.3%), Hungary -1.4% (+0.6%), Malaysia -1.4% (-0.8%), Ireland -1.4% (-0.9%), Brazil -1.6% (-1.5%), HK -1.6% (-1.5%), France -1.8% (-1.3%), Thailand -2% (-1.1%), Chile -2.6% (-0.1%), China -4.5% (-4.2%).

Anecdote (Jan 2017): “How do you tariff someone who has stolen your nation’s intellectual property?” asked the scientist, an entrepreneur. We were discussing the concept of fair trade, which is as foreign to America’s most elite engineers as it is to Indiana factory workers. “China has turned reverse engineering into an art form.” An American manufacturer delivers its state-of-the-art semiconductor fabrication machine to its Chinese customer. That night fifty engineers disassemble it, photograph each piece, measuring everything with perfect precision. Six months later an exact replica appears on the market with a near identical name, priced at the cost of production in America. “We have a six-month lead on any innovation, after that we need to slash prices.” Chinese courts rarely award meaningful damages; but they do grant injunctions, though it can take two-years, by which time the technology has moved on. “In materials science, our engineers put trace amounts of inert substances into our products as tracers. The reverse-engineers don’t know they’re tracers and include those same substances in their counterfeit products, which proves they’ve been copied.” But when a court issues an injunction, a new company pops up across the street, owned by the same people, doing the same thing. “When our companies invest in research and development, and the intellectual property is stolen, our companies struggle. Our margins shrink, our cost of capital rises. The innovation engine eventually stalls.” We’re living through the greatest theft of intellectual capital in human history. There is no equivalent. China has stolen the West’s intellectual property, combined it with cheap labor, capital, hard work, ambition, determination. No President has said “Stop!” They now challenge us economically and militarily. “So, tell me what fair trade means?” he asked. “Because people talk about currencies, restricted market access, cheap steel, but nothing’s more unfair and destructive than intellectual property theft.”

Good luck out there,

Eric Peters

Chief Investment Officer

One River Asset Management

Disclaimer: All characters and events contained herein are entirely fictional. Even those things that appear based on real people and actual events are products of the author’s imagination. Any similarity is merely coincidental. The numbers are unreliable. The statistics too. Consequently, this message does not contain any investment recommendation, advice, or solicitation of any sort for any product, fund or service. The views expressed are strictly those of the author, even if often times they are not actually views held by the author, or directly contradict those views genuinely held by the author. And the views may certainly differ from those of any firm or person that the author may advise, converse with, or otherwise be associated with. Lastly, any inappropriate language, innuendo or dark humor contained herein is not specifically intended to offend the reader. And besides, nothing could possibly be more offensive than the real-life actions of the inept policy makers, corrupt elected leaders and short, paranoid dictators who infest our little planet. Yet we suffer their indignities every day. Oh yeah, past performance is not indicative of future returns.