“The prices of some things will decline. Others will go up. But we don't expect to see a decline in the overall price level,” said Powell, Nvidia stock hitting new highs, its market cap soaring to $1.78trln. “That doesn't tend to happen in economies, except in very negative circumstances. What you will see, though, is inflation coming down,” explained the Fed Chairman, the average American neither understanding nor caring about the nuance. Bitcoin raced upward, its market cap roughly half of Nvidia. The market now values this remarkable maker of the semiconductor chips necessary to create an artificial life form at roughly twice the value of the most secure network in human history. Fidelity added Bitcoin to a model portfolio, spurring investors to consider what happens to the price of a digital asset, whose supply is fixed at 21mm for all eternity, once passive investment products start really stacking Satoshis. You see, the supply of everything in the universe expands as its price increases, but no matter how high the price of Bitcoin goes, its pre-defined pace of production will only ever decrease. Nvidia (or any other stock) can be created at the click of a new issuance, or an executive equity option grant for that matter. The average investor neither understands this yet, nor cares for the nuance. “I would say this. In the long run, the US federal government is on an unsustainable fiscal path,” said Powell, pointing out one of the most important top-down investment themes of the coming decade. “And that just means that the debt is growing faster than the economy. So, it is unsustainable. I don’t think that’s at all controversial. And I think we know that we have to get back on a sustainable fiscal path. And I think you're starting to hear now from people in the elected branches who can make that happen,” he added, without naming names, because there really aren’t any.

Week-in-Review: Mon: Trump says he would consider a greater than 60% tariff on Chinese goods if elected, NSA Sullivan says Hamas/Israel ceasefire is not imminent and ball is in Hamas’s court, Fed’s Kashkari says possibility of higher neutral rate gives policy makers time to be patient / Goolsbee says more good data needed before starting cuts, US Senate releases bipartisan border deal, SLOOS shows still tight lending standards but not accelerating, EU PPI -10.6% (-10.5%e), S&P -0.3%; Tue: RBA unch as exp / kept door open for further hikes but thinks tightening cycle likely passed, China sov wealth fund announced increase in ETF purchases / Xi to be briefed on stock mkt as soon as today / China securities regulator (CSRC) suspends new lending for stock selling, Fed’s Mester expects to gain confidence to cut ‘later this year’, US house republicans fail to impeach Secretary of homeland security Mayorkis, Trump denied immunity in DC election case by appeals court, Yellen says concerned about CRE losses but says regulators are on top of it, Japan Labor earnings 1% (1.4%e) / Real -1.9% (-1.5%e), Japan household spending -2.5% (-2%e), Germany factory orders 2.7% (-5.3%e), ECB 3y infl exp 2.5% (2.2%p), S&P +0.2%; Wed: NYCB downgraded to junk by Moody’s / cut by Fitch, ECB’s Schnable promotes patience before cutting rates – bounces sharply following asset sale announcement (+20% off the lows), Haley loses Nevada primary despite being the only candidate, SNB data confirms intervention stance has flipped in favor of weaking CHF, Fed’s Collins expects cuts later this year, Beijing replaces the head of CSRC, Russia launches largest missile/drone strike this year – hitting targets in Kyiv, EU launches legal procedure against Hungary regarding its sovereignty law, Atlanta Fed wage tracker drops to 5% (5.2%p), Cocoa futures rise to all-time highs, Japan Leading Index 110 (109.3e), Germany IP -3% (-2.45e), Russia Ret sales real 10.2% (11.9%e) / Unemp rate 3.0% (2.9%e), US consumer credit 1.561b (16b exp), S&P +0.8%; Thu: BOJ dep. Gov Uchida says hard to see continuous rate hikes once NIRP ended / warned against mapping US and EU experiences on Japan’s hiking cycle / unthinkable that BOJ would suddenly stop buying any bonds, Netanyahu called Hamas demands as part of a cease-fire deal ‘delusional’, Czech CB cuts 50bps (50/50 chance of 25 or 50bp), Fed’s Barkin says don’t have to be in hurry to cut / no objection to reverse course if necessary, BOE’s Mann concerned about upward bias in price setting, US killed commander of Iran-backed militia in response to killing of US soldiers in Jordan a couple weeks ago, China CPI -0.8% (-0.5%e) / PPI -2.5% (-2.6%e), Brazil IPCA infl 4.51% (4.42%e), Mexico CPI 4.88% as exp / Core 4.76% (4.72%e), US init claims 218k (220k e), S&P +0.1%; Fri: S&P 500 closes above 5k, US CPI revisions very modest – removes risk to impending cutting cycle by Fed, Putin interviewed by Tucker Carlson, Trump wins Nevada GOP caucus, Biden says Israel’s campaign in Gaza has been ‘over the top’, Fed’s Logan sees no urgency to cut rates, ECB’s Kazaks says easing hopes over next 2 meetings too aggressive / Villeroy says cuts coming this year, BOJ’s Ueda says financial conditions will remain easy after BOJ exits NIRP, China new loans 4.92t (4.5t exp) / agg financing 6.5t (5.6t exp), Hungary CPI 3.8% (4.3%e), Canada emp chg 37.3k (15k exp) / unemp 5.7% (5.9%e), S&P +0.6%.

Manufacturing PMI (high-to-low): India 56.5 (previous month 54.9), Greece 54.7 (previous 51.3), Indonesia 52.9 (previous 52.2), Brazil 52.8/48.4, Russia 52.4/54.6, South Korea 51.2/49.9, China 50.8/50.8, Norway 50.73/51.58, Singapore 50.7/50.5, Vietnam 50.3/48.9, Mexico 50.2/52, Hungary 49.9/51, Hong Kong 49.9/51.3, Spain 49.2/46.2, Turkey 49.2/47.4, South Africa 49.2/49, United States 49.1/47.1, Netherlands 48.9/44.8, Taiwan 48.8/47.1, Italy 48.5/45.3, Canada 48.3/45.4, Japan 48/47.9, Sweden 47.1/48.6, Poland 47.1/47.4, UK 47/46.2, Germany 45.5/43.3, France 43.1/42.1, Switzerland 43.1/43, Czech Republic 43/41.8, Austria 43/42. Services PMI: India 61.8/59, Russia 55.8/56.2, UK 54.3/53.4, Brazil 53.1/50.5, Japan 53.1/51.5, China 52.7/52.9, US 52.5/51.4, Spain 52.1/51.5, Sweden 51.8/50.3, Italy 51.2/49.8, Ireland 50.5/53.2, Australia 49.1/47.1, Germany 47.7/49.3, France 45.4/45.7.

Weekly Close: S&P 500 +1.4% and VIX -0.92 at +12.93. Nikkei +2.0%, Shanghai +5.0%, Euro Stoxx +0.2%, Bovespa +0.7%, MSCI World +0.6%, and MSCI Emerging +0.9%. USD rose +2.4% vs Chile, +0.7% vs South Africa, +0.7% vs Turkey, +0.6% vs Russia, +0.6% vs Yen, +0.1% vs India, flat vs Euro, flat vs Sterling, and flat vs China. USD fell -8.6% vs Bitcoin, -7.5% vs Ethereum, -0.4% vs Sweden, -0.3% vs Mexico, -0.3% vs Brazil, -0.2% vs Australia, -0.1% vs Indonesia, and flat vs Canada. Gold -0.7%, Silver -0.9%, Oil +6.3%, Copper -3.7%, Iron Ore -4.7%, Corn -3.1%. 10yr Inflation Breakevens (EU +5bps at 2.00%, US +5bps at 2.26%, JP -7bps at 1.14%, and UK +2bps at 3.54%). 2yr Notes +12bps at 4.48% and 10yr Notes +15bps at 4.18%.

2024 Year-to-Date Close: Argentina +18.1% priced in US dollars (+21.4% priced in pesos), Turkey +16.6% priced in US dollars (+21.1% priced in lira), Denmark +9.1% priced in dollars (+11.9% in krone), NASDAQ +6.5% in dollars, Greece +5.6% (+8.3%), Netherlands +5.5% (+8.3%), S&P 500 +5.4% in dollars, Philippines +5.1% (+6.2%), Japan +4% (+10.3%), Hungary +3.2% (+7.2%), MSCI World +3.1% in dollars, Ireland +2.9% (+5.6%), Russia +2.7% (+4.6%), Colombia +2.6% (+4.4%), Saudi Arabia +2% (+2%), Euro Stoxx 50 +1.7% (+4.3%), India +0.5% (+0.2%), Malaysia +0.1% (+4%), Italy +0.1% (+2.7%), Russell -0.8% in dollars, Mexico -1% (-0.1%), France -1.2% (+1.4%), Germany -1.5% (+1%), Taiwan -1.6% (+0.9%), Canada -1.7% (+0.2%), Czech Republic -2% (+2.7%), Poland -2.1% (0%), Indonesia -2.2% (-0.5%), New Zealand -2.4% (+0.8%), UAE -2.4% (-2.4%), UK -3.1% (-2.1%), Belgium -3.3% (-0.8%), Israel -3.8% (-1.1%), Australia -3.9% (+0.7%), Switzerland -4.5% (-0.4%), Spain -4.5% (-2%), Korea -4.6% (-1.3%), Austria -4.7% (-2.2%), China -4.9% (-3.7%), Singapore -5.1% (-3.1%), Sweden -5.8% (-1.8%), Finland -5.8% (-3.4%), Brazil -6.5% (-4.6%), Thailand -6.7% (-1.9%), HK -7.7% (-7.6%), Venezuela -8.9% (-7.8%), Norway -9% (-5%), South Africa -9% (-5.2%), Portugal -11.6% (-9.4%), and Chile -11.7% (-2.7%).

Top Down: “Ten percent of endowments are run by top-down macro guys,” said Lone Star, one of the top-performing endowment CIOs. “We hunt for ten-year trends, gale force tailwinds, and position our portfolios around those,” he said. “Getting the macro right allows me to make a lot of mistakes and still win.” The top-down macro approach requires a far smaller investment team than the ‘best-manager’ approach and the ‘best-ideas’ approach of endowment management. “We run our money without any specific targets for an asset class, a region, or anything else. And I can beat the benchmarks by 500-600bps.”

Top Down II: “I have infinite-life capital, so I don’t need to be right on timing,” said Lone Star. “The narrower your focus, the tighter your timing, the more likely you’ll lose,” he explained. “The broader and longer your view, the more likely you’ll win.” Indeed. “And if you believe in the random walk, then a drunk person will not always stumble left. A bearish person will not always make money being max short, and a bullish person won’t get rich by always being leveraged long. So, you lean against extremes, trade around your themes. And compound.”

Top Down III: “Oil is going to get tight over the coming five years,” said Lone Star. “If you look at the demand curves, the decline curves, we’re missing 3-5mm barrels per day out a few years,” he said. “The kinds of tailwinds I look for are all about supply -- you can’t bring enough new supply online in time for rising demand. Right now, investors are unwilling to fund sufficient new oil supply,” he said. “Semiconductors. We’re looking at trough earnings and trough values. Ask yourself, how many semiconductors will the world need in ten years? The answer is a lot.”

Top Down IV: “AI will make the internet’s impact look like child’s play,” said Lone Star. “Who’s going to win?” he asked, rhetorically. “Everyone. That’s who. Maybe it’ll take 5-7 years, but everyone wins here,” he said. “People tell me corporate margins are too high, but I see AI as pushing them up another 2-3 percent. Multiply that by a 20x PE and stocks should be 40-60% higher just on that,” he said. “That doesn’t mean it’s straight up. We could see wild moves. We will. But it’s why we haven’t had a dollar of uninvested cash in our portfolio for the past year.”

Anecdote: “This is a thinking job,” said Lone Star. “It’s not a doing job,” continued one of America’s best-performing endowment CIOs. “It’s a job for people who pull on strings to see where they lead.” I smiled. “We screen for people with a natural curiosity and an interest in puzzles,” he explained. “Because, this game is a puzzle that’s always changing.” When I started One River in 2013, Lone Star had taken the reins of one of America’s worst performing endowments. He’s been in the Top-5 for the past 1yr, 3yrs, 5yrs running. “I surround myself with a tight group of the top thinkers across a range of disciplines, best in class types, and we hunt for opportunities, themes, and commit capital together, make concentrated bets.” Back in March and April of 2020, when One River’s long vol strategies were surging, he hit the ATM hard, pulling cash from our funds every Friday, redeploying that capital into deeply distressed securities. That’s how you compound at extraordinary rates. “I’ve got a few deep distress guys, top-down guys, volatility experts, equity guys, credit, macro thinkers,” he said. “At any given point in time, I have $1mm with probably half my managers, and a couple billion deployed to the others.” As the investment opportunity set shifts, those allocations swing. “A lot of people in my seat have huge teams who scour the world, meeting thousands of managers, and they think that kind of work is how they’ll outperform. No doubt, they can find the best manager in Pakistan,” he said. “In general, those kinds of investors don’t think they can make money in markets, but I do,” said Lone Star. “So I spend my time with a small team, internal and external, thinking, hunting, searching the markets for things to own that other investors don’t yet realize they’ll need to buy.”

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.