“It’s still a cynical bull market,” barked Biggie Too, Chief Investment Strategist for one of Wall Street’s too-big-to-fail affairs. “But there’s nothing new under the sun,” bellowed Biggie. “When the P/E gets to 25, when the real rate jumps above 3%, and all those Bull/Bear indices hit the old highs, Biggie’s gonna run for the hills,” said Too, easing into the 3rd person. “But we’re not there now, it’s not an idealistic bull market yet,” said Too. “Idealistic bulls are when the bubbly comes out, the groupthink, when everyone jumps in, that’s when Biggie bolts.”

Overall: “What is the sound of one hand clapping,” asked Kazuo Ueda, sitting alone in seiza. The dollar had just crossed above 158 to the yen, a level not seen in 34 years, back when he joined the University of Tokyo as a professor of economics. “What is the sound of one hand clapping,” asked Ueda, letting the question drift gently across his mind. It is one of the great Zen koans, a question without answer, a tool to help us achieve satori, awakening. After its utter destruction in the war, Japan had become an economic wonder. By 1989 its Nikkei 225 equity index had surged to 38,915, the yen followed, and the governor’s palace was estimated to be worth as much as California. “What is the sound of one hand clapping,” asked Ueda, desperate to tap into the power of being fully present, but unable to calm his mind. From that wild 1989 market peak, it all came crashing down. Had policymakers and politicians allowed a short depression, the nation would have experienced something profoundly different from its lost deflationary decades. “What would have happened,” asked Ueda, instantly angry his attention had drifted from the koan. It had been one year since he became Bank of Japan Governor. He had restored simplicity to policy, returning interest rates to positive from negative, letting go of yield curve control. He accomplished this without compromising government finances, which are so vulnerable after decades of the stunningly large deficit spending required to maintain economic and social stability, that even a modest interest rate rise would prove catastrophic. “What is the sound of one hand clapping,” whispered Ueda. In his year at the helm, the Nikkei 225 had surged to finally reclaim the 1989 highs, driven in part by the collapsing yen, which showed no signs of stabilizing in the absence of material interest rate hikes. And this, of course, risks devastating Japan’s government finances. “What is the sound of one hand clapping.”

Week-in-Review: Mon: US house passes $95b aid package for Ukraine/Israel/Taiwan after weeks of stalling by republicans / Biden says supplies will flow quickly once senate approves, Iran foreign min downplayed Israel’s latest retaliation, S&P leaves Italy credit rating unch, ECB’s Conteno signals could cut 100bp this year and still be above neutral, Trump’s hush money payments trial officially begins, China 1y/5y LPR unch as exp, EU cons conf -14.7 (-14.5e), Mexico eco activity 4.36% (2.70%e), US Chicago fed activity index 0.15 (0.07e), S&P +0.9%; Tue: US Senate passes aid package, US PMI flash stands out as the sole weak print amid continued strength elsewhere around the world, BOE’s Pill wants a cautious approach to easing – throwing cold water on rising dovish rhetoric from other BOE members, AAPL’s China iPhone sales down 19%, TSLA earnings miss but mkt rallies due to low bar and Musk optimism, BOJ’s Ueda reiterates they will hike if inflation sustainably rises to target, UK Public sector borrowing 11.9b (10b exp), EU PMI mfg 45.6 (46.5e) / serv 52.9 (51.8e) / comp 51.4 (50.7e), UK PMI mfg 48.7 (50.4e) / serv 54.9 (53.0e) / comp 54.0 (52.6e), US PMI mfg 49.9 (52.0e) / serv 50.9 (52.0e) / comp 50.9 (52.0e), US New home sales 693k (668k e), Argentina eco activity -3.2% (-6.0%e), S&P +1.2%; Wed: Indonesia CB hikes rate 25bp – no change exp, FTC bans noncompete agreements nationwide, Tik-Tok ban bill passed along with foreign aid package – kicking off a 270d clock to find a buyer, Meta falls due to increased AI costs/ decreased revenue forecasts in Q2, Japan fin min says environment is in place to intervene, BOC mins suggest a gradual easing cycle, US mortgage rates rise to 5m highs, Australia CPI 3.6% (3.5%e) / trimmed mean 4% (3.8%e), Germany IFO 89.4 (88.8e), Italy cons conf 95.2 (96.8e), US Durable goods orders 2.6% MoM (2.5%e), Russia IP 4% as exp, S&P flat; Thu: GOOG and MSFT beat after mkt close, USDJPY takes out 155 level, Reuters reports that China is stockpiling commodities ahead of an impending ccy devaluation, BHP to purchase Anglo American, Yellen says FX intervention acceptable only in rare circumstances, Israel strikes on Hezbollah intensify, ByteDance says it might shutter TikToc rather than divest, ECB’s Nagel says June cut not necessarily followed by series of cuts, Germany cons conf -24.2 (-26e), US 1Q GDP 1.6% (2.5%e), US Personal consumption 2.5% (3.0%e), US Initial claims 207k (215k e), US KC Fed mfg activity -8 (-5e), S&P -0.5%; Fri: BOJ on hold as exp / marginally dovish as mkt had come to exp a modest decrease in ~6t JPY of monthly JGB purchases / USDJPY continues to accelerate to new highs as the market awaits MOF intervention / Ueda says JPY depreciation to underlying infl is minimal at this stage, Blinken met with Xi – pushes for continued dialogue to solve remaining bilateral issues, US universities clamp down on pro-Palestinian protests / USC cancels commencement ceremony, Anglo American rejects BHP’s $39b offer, WSJ reports that Trump drafting plans for him to be consulted on Fed’s interest rate decisions if he is elected, bird flu found in 20% of US milk samples, Japan Tokyo CPI 1.8% (2.5%e) / Core 1.8% (2.7%e), EU M3 0.9% (0.6%e), Mexico Unemp rate 2.28% (2.54%e), Brazil IPCA 3.77% (3.85%e), US Personal inc 0.5% as exp / spending 0.8% (0.6%e), US PCE deflator 2.7% (2.6%e) / Core 2.8% (2.7%e), US Mich sentiment 77.2 (77.9e) / 1y infl exp 3.2% (3.1%e) / 5-10y infl exp 3% as exp, S&P +1.0%; Fri Night: Navy men’s lacrosse beat Bucknell 13-12 in overtime.

Weekly Close: S&P 500 +2.7% and VIX -3.68 at +15.03. Nikkei +2.3%, Shanghai +0.8%, Euro Stoxx +1.7%, Bovespa +1.1%, MSCI World +2.4%, and MSCI Emerging +3.7%. USD rose +2.4% vs Yen, +0.4% vs Mexico, +0.4% vs Bitcoin, +0.1% vs China, and +0.1% vs Sweden. USD fell -1.9% vs Ethereum, -1.8% vs Australia, -1.6% vs Brazil, -1.5% vs South Africa, -1.3% vs Russia, -1.0% vs Sterling, -0.7% vs Chile, -0.6% vs Canada, -0.3% vs Euro, -0.3% vs Indonesia, -0.1% vs India, and -0.1% vs Turkey. Gold -2.4%, Silver -5.2%, Oil +1.9%, Copper +1.5%, Iron Ore -0.1%, Corn +1.6%. 10yr Inflation Breakevens (EU -1bp at 2.14%, US +2bps at 2.43%, JP -2bps at 1.45%, and UK -1bp at 3.75%). 2yr Notes +1bp at 5.00% and 10yr Notes +4bps at 4.67%.

2024 Year-to-Date Close: Argentina +27.2% priced in US dollars (+37.6% priced in pesos), Turkey +20.9% priced in US dollars (+32.7% priced in lira), Colombia +12.5% in dollars (+14.3% in pesos), Denmark +12.2% (+16.2%), Ireland +10% (+13.8%), Italy +9.1% (+12.8%), Greece +8.8% (+12.5%), Netherlands +8.4% (+12.2%), Russia +8.4% (+11.3%), Euro Stoxx 50 +7% (+10.7%), S&P 500 +6.9% in dollars, Spain +6.7% (+10.4%), Venezuela +6.3% (+8%), NASDAQ +6.1% in dollars, Taiwan +5.3% (+12.2%), MSCI World +5.2% in dollars, Germany +4.8% (+8.4%), Poland +4.6% (+7.6%), Hungary +4.2% (+10.6%), Malaysia +4.2% (+8.3%), France +3.6% (+7.2%), Czech Republic +3.5% (+9.1%), HK +3.3% (+3.5%), UK +3% (+5.3%), India +3% (+3.2%), Saudi Arabia +2.4% (+2.4%), China +1.7% (+3.8%), Japan +1.3% (+13.4%), Canada +1.3% (+4.8%), Belgium +1% (+4.5%), Austria -0.1% (+3.3%), Mexico -0.5% (+0.8%), Russell -1.2% in dollars, Philippines -1.4% (+2.8%), Norway -1.6% (+7.3%), Singapore -2% (+1.2%), Sweden -2.1% (+6.7%), Israel -2.5% (+3.2%), Chile -4.2% (+3.2%), South Africa -4.6% (-1.6%), Australia -4.6% (-0.2%), UAE -5.6% (-5.6%), Finland -5.9% (-2.6%), New Zealand -6.1% (+0.3%), Korea -6.4% (+0%), Switzerland -6.5% (+1.9%), Indonesia -8.2% (-3.3%), Portugal -9.7% (-6.6%), Brazil -10.5% (-5.7%), Thailand -11.3% (-3.9%).

Too: “Dollar up, gold up, crypto up,” bellowed Biggie. “Now that’s an odd combination, it’s not something Biggie sees too often,” continued the Chief Investment Strategist for one of Wall Street’s too-big-to-fail affairs. “You want Biggie to tell you what’s going on here?” And I shook my head no; certain he didn’t care what I wanted. “The dollar is the best house in a bad hood. Versus the euro, the renminbi, the yen, the reais, the dollar beats them all,” said Biggie. “But listen up, gold and bitcoin, crypto, they’re the fancy mansions in that hood, you got that?”

Too II: “Biggie don’t want to own any of these currencies right now except for the dollar,” said Too. “But ultimately, do you want to own a currency with the deficits, the debt, the spending you see coming out of Washington?” asked Biggie, uninterested in my answer. “You want to own the currency of a country with a foreign policy that looks like a mad donkey bouncing off fences, causing trouble everywhere on the planet?” And I shrugged, though I got his point. “You want to own a currency longer-term with these two characters on the Presidential ballot in November?”

Too III: “So if Biggie can’t hold the dollar in the longer term, and he can’t hold any other fiat paper backed by a foreign central bank, then what are his alternatives?” bellowed Biggie. “Gold and crypto are not huge markets today, but they may be someday. And you’re getting some dumb short-term speculators in now, but you’re getting some very smart longer-term cats too,” he said, smiling, a golden grin. “They’re hedging against anarchy, rising institutional distrust. So some are buying dollars for cyclical reasons, but buying gold and crypto for structural reasons.”

Characters: “Let us be very specific here: unless a message is coming directly from President Trump or an authorized member of his campaign team, no aspect of future presidential staffing or policy announcements should be deemed official,” said Trump senior advisers Susie Wiles and Chris LaCivita. The Wall Street Journal had just run a story titled: Trump Allies Draw Up Plans to Blunt Fed’s Independence - Some Trump advisers argue that the president should be consulted on interest-rate decisions. The convergence of the Fed and Treasury is ongoing, accelerating.

Characters II: “Together, the proposals would increase the top marginal rate on long-term capital gains and qualified dividends to 44.6%,” read the Biden administration’s 2025 budget proposal. When combined with state taxes, the rate would exceed 50% (California’s top capital gains rate would be 59%). There were headlines about a proposal to tax unrealized gains at 25%, which will die a long slow death as armies of lawyers argue over a multitude of exemptions to something so practically preposterous. But tax hikes are coming, the pendulum is swinging.

Anecdote: “I, along with almost everyone in this room, have gone through life always looking ahead, always looking at what will come next,” said Jackson, Navy Co-Captain, addressing his team. “When I was a freshman, watching from the sidelines, I dreamt of the day I could make a difference on the outcome of a game, contribute, about when I would be a senior, and could make a true impact on this team.” Jackson had sent me and Mara the speech (excerpted here), his sixteen-year lacrosse career nearly finished. And we in turn began our reflection. The ten thousand hours, victories, defeats, tears, injuries, soul searching, character development. “In all those moments, all the times I picked up a stick years ago and can't even remember, what I didn't realize was that each of those moments was one less time.” Throughout his development, I refused to communicate with his coaches, and I supported their decisions unconditionally. It created the need and space for Jackson to forge his own relationships, and this naturally deepened them. “One less time in my life that I would put any jersey on, one less time I would lace up my cleats, one less time I would have a side conversation with a teammate.” Just as his athletics are ending, a new mentor has entered Jackson’s life. Marine special forces, in his mid-thirties, four combat tours, a massive human, intense, hard, thoughtful, caring. And amongst the lessons he is imparting is the power of being fully present. “We are so caught up looking forward to what will happen, what we want, what will come, that we forget how to be present in the moment, take advantage of it, understand how far we have come, and how much we have already accomplished.” The fortunate amongst us manage to fill our lives with inspired coaches, mentors, and as parents, we are forever grateful to those who invest in our children. “It wasn’t until this week, preparing for this game, where it truly sunk in that instead of one less time, it is now one last time for me and the rest of the seniors, one last time to play in this game, to be in this environment, to suit up again.”

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.