“If Iran doesn’t FULLY OPEN, WITHOUT THREAT, the Strait of Hormuz, within 48 HOURS from this exact point in time, the United States of America will hit and obliterate their various POWER PLANTS, STARTING WITH THE BIGGEST ONE FIRST! Thank you for your attention to this matter,” posted America’s Commander-in-Chief at around 8pm ET tonight (Saturday). Bitcoin is the only liquid market trading Saturday night. It quickly traded down 2.7% to $68,400 and then started to claw its way higher.
Overall: “We are getting very close to meeting our objectives as we consider winding down our great Military efforts in the Middle East with respect to the Terrorist Regime of Iran,” posted America’s Commander-in-Chief just after the market close on Friday. It had been a typical week in the new world. Israel attacked critical Iranian natural gas infrastructure. So, Iran attacked Qatari natural gas infrastructure. And since Qatar supplies 20-25% of global liquified natural gas (30% of helium), the destruction of 17% of that capacity means that roughly 3.75% of global production will remain offline until it is rebuilt. Early estimates are that it may take 3-5 years. In a world grown accustomed to addressing nearly every major crisis by printing money, a true structural disaster is hard to contemplate, let alone properly size the ripple effects. Any problem that can be solved by expanding central bank balance sheets is not a real problem. The great problems in the world take two forms. Physical constraints. And people problems. After decades of uninterrupted globalization and optimization, where we sacrificed redundancy to maximize profitability, we must now confront the truth that a few hundred angry Shaheds can upend the entire system. And with Iran having launched two missiles at Diego Garcia, we must also recognize the world has just gotten smaller. Europe is within range of advanced Iranian weaponry. And this requires us all to face the hardest issue of all: people problems, which are often amplified by religious differences. Every nation has these problems to varying degrees. But the US is energy and food independent and faces far fewer constraints than any nation on earth, particularly when we include our northern and southern neighbors. “The Hormuz Strait will have to be guarded and policed, as necessary, by other Nations who use it - The United States does not! If asked, we will help these Countries in their Hormuz efforts, but it shouldn’t be necessary once Iran’s threat is eradicated. Importantly, it will be an easy Military Operation for them. Thank you for your attention to this matter!”
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Lone Star: “We came into this year pretty similar to how we came into last year - thinking US GDP could be stronger than just about anyone else,” said Lone Star, one of our nation’s top performing endowment CIOs. “If you took Iran out of the equation, we’d see 5% GDP in 2026. And it looks like the administration is freeing up bank capital by loosening regulations.” Banks will then lever that 10x, boosting credit creation, adding fuel to the fire. “But with Trump in the picture, and record equity valuations, as bullish as we were, we cut risk way back this year.”
Lone Star II: “After Liberation Day last year, you have to factor in a greater chance of wildcards when managing portfolio risk,” continued Lone Star. “So even with 5% GDP, between Trump and valuations, owning equities near the highs is a bit like spitting into the wind.” Good visual. “Coming out of the pandemic, we had over 35% of the portfolio in long-only equities. Now its more like 15%,” he said. “The market will give us an opportunity to size up again, it always does. And in the meantime, we’ve built a book of highly idiosyncratic bets that I love.”
Lone Star III: “Over the past few years, we’ve been investing in places where we see a high probability of ongoing supply/demand mismatches,” said Lone Star. “As unpredictable as the politics are now, it’s a safe bet that demand for data centers is going to remain strong. We’ve been long since before Covid. And demand for power will remain constrained almost no matter what Trump might do.” So, he’s long that too. “About 18 months ago with crude near $50 a barrel, we built an energy portfolio. At $90 a barrel we rotated out of that into software stocks.”
Lone Star IV: “We got long helium reserves in a large private investment a few years ago, it’s an important input into the semiconductor manufacturing process,” said Lone Star. “No matter what Trump may or may not do, demand for semiconductors for AI and rocket launches is going to remain up and to the right,” he said. “We got lucky when the Iranians hit Qatar, which is one of the major helium suppliers, and this made it easier to sell our oil positions.” Qatar supplies 30% of global helium. “Rolling out of oil into software stocks that are down 50% feels good here.”
Lone Star V: “Buying software stocks is easier because most people do it through ETFs,” said Lone Star. “So, their selling is indiscriminate. Vertically integrated software companies are not going away. And they’re so cheap now, but literally no one owns them.” Everyone’s buying semiconductor stocks, praying Nvidia doubles yet again. “But I can promise you there will be overcapacity built in semis and then prices will roll over, and the stocks will tank. I don’t know when. In the meantime, my software stocks produce huge cashflow. I’m paid to wait for a rally.”
Lone Star VI: “The key to this style of investing is to continually look to add convexity into your portfolio,” said Lone Star. “You buy energy when oil is at $50, not because you know what will happen, but because there’s upside convexity,” he said. “You don’t buy helium deposits because you know the Ayatollah will bomb Qatar. You do it because you see supply/demand imbalances, and the convexity is in your favor,” said Lone Star. “This stuff doesn’t require genius, but it does demand that you lean against the wind and stay very disciplined.”
Anecdote: “There’s been a trend over the past decade by folks in my seat to set up managed accounts and funds-of-one,” said Lone Star, one of our nation’s top performing endowment CIOs. “They’re generally looking for greater transparency into the portfolio, and segregation of their assets into secure funds.” It allows for greater capital efficiency too. “I do it for a different reason. I want to be able to say yes to certain investments and no to others. To hunt for opportunities. I want to be able to supersize positions. I want to be able to get in and out of the market when the right catalysts develop.” I’ve watched Lone Star lean into strong rallies and buy into panic liquidations. Through the Covid market collapse, he partially redeemed from our convexity fund nearly every Friday. And shortly after crude oil futures prices went negative in 2020, we bought call options in his fund. A few quarters later, with oil prices surging, Lone Star was selling. “I work with managers to develop specialized strategies to better optimize the risk/return profile of my total portfolio. At any given point in time, I have five specialist managers running this sort of risk for me,” said Lone Star. “This part of my portfolio has made roughly 20% annualized for the past three years. And having that kind of performance allows us to take risks elsewhere in the portfolio that we may not otherwise take. In years when some of those go wrong, we still perform well. In years where it all goes to plan, we really outperform,” he said, acknowledging that this is how he’s climbed to the top of the league tables. “I don’t really mind telling people what we do here, because very few manage money this way. It requires you to be comfortable wearing risk and navigating market volatility in ways that most folks with much bigger portfolios are unwilling to do.”
Good luck out there,
Eric Peters
Chief Investment Officer
One River Asset Management
Week-in-Review: Mon: US IP MoM 0.2% (0.1%e), empire mfg -0.2 (3.9e). Canada CPI 1.8% (1.9%e). China IP YTD YoY 6.3% (5.3%e). Australia RBA cash rate target 4.10% as exp. Trump reiterated appeals for other nations to help secure the Strait of Hormuz. Nvidia’s CEO predicted its AI processors would help generate $1T in sales through 2027. S&P +1.0%. Tue: US pending home sales MoM 1.8% (-0.6%e). South Korea unemp rate SA 2.9% (3.0%e). Indonesia BI-Rate unch 4.75% as exp. Trump announced summit with Xi Jinping postponed, as Iran War adds another point of tension into US/China relations. S&P +0.3%. Wed: US FOMC rate decision upper bound unch 3.75% as exp, lower bound unch 3.50% as exp. Bank of Canada rate decision unch 2.25% as exp. Brazil Selic rate 14.75% as exp. Eurozone CPI 1.9% as exp, Core 2.4% as exp. Japan BOJ target rate unch 0.75% as exp. Australia unemp rate 4.3% (4.1%e). Powell said the US central bank will not cut rates again until inflation resumes cooling. Asian equities dropped as attacks on key energy infrastructure in the Middle East drove oil prices higher. S&P -1.4%. Thu: US init jobless claims 205k (215k e), new home sales 587k (722k e). Bank of England bank rate unch 3.75% as exp. ECB main refinancing rate unch 2.15% as exp, deposit facility rate unch 2.00% as exp. Gold and silver fell as Iran War damps rate-cut hope. Attacks in Qatar and other energy infrastructure in the Gulf raised concerns about long-term inflationary pressure in energy prices and impact on the global economy. ECB policymakers noted they would be ready to raise interest rates as soon as their next meeting in April, should fallout from the war in Iran push inflation too far above target. S&P -0.3%. Fri: Russia key rate 15.00% as exp. Taiwan export orders 23.8% (24.5%e). Trump says he’s considering “winding down” US military efforts against Iran, saying the US was close to achieving its objectives. US allows sale of stranded Iran oil to cap fuel-price rises. First US oil barrels from Trump’s planned emergency release set to hit market. US Defense Department designates Palantir’s Maven AI system as “program of record” for incorporation across all branches of the service. S&P -1.5%. Sat: Trump threatens to obliterate Iran’s power plant infrastructure if the Strait of Hormuz is not opened in 48hrs.
Weekly Close: S&P 500 -1.9% and VIX -0.41 at +26.78. Nikkei -0.8%, Shanghai -3.4%, Euro Stoxx -3.8%, Bovespa -0.8%, MSCI World -2.0%, MSCI Emerging -0.4%, Bitcoin -1.8%, and Ethereum +1.1%. USD rose +3.9% vs Russia, +1.5% vs Chile, +1.4% vs India, +0.6% vs South Africa, +0.2% vs Indonesia, and +0.2% vs Turkey. USD fell -1.4% vs Sweden, -1.3% vs Euro, -0.8% vs Sterling, -0.6% vs Australia, -0.3% vs Yen, -0.3% vs Mexico, -0.1% vs Brazil, and flat vs China & Canada. Gold -9.6%, Silver -14.4%, Oil (WTI) +1.4%, Oil (Brent) +8.8%, NatGas (US) -1.1%, NatGas (EU) +18.2%, Power (EU) +2.8%, Copper -6.6%, Iron Ore +2.4%, Corn -0.4%. 10yr Inflation Breakevens (EU +6bps at 2.27%, US +1bp at 2.39%, JP +5bps at 1.86%, and UK +10bps at 3.52%). 2yr Notes +18bps at 3.90% and 10yr Notes +10bps at 4.38%.
YTD Equity Index Returns: Korea +31.4% priced in US dollars (+37.2% priced in won), Norway +26.7% priced in US dollars (+20.3% in krone), Israel +18.9% in dollars (+15.8% in shekels), Taiwan +14% (+15.8%), Brazil +13.2% (+9.4%), Turkey +12.4% (+15.9%), Colombia +10% (+7.9%), Thailand +8.8% (+13.8%), Singapore +6.9% (+6.5%), Hungary +6% (+10%), Portugal +5.6% (+7.2%), Malaysia +5.6% (+2.4%), Japan +5% (+6%), Saudi Arabia +4.3% (+4.3%), Australia +2% (-3.3%), China +0.9% (-0.3%), Mexico +0.3% (-0.3%), Finland +0.2% (+1.9%), Netherlands -0.4% (+1.1%), UK -1% (-0.1%), Canada -1.2% (-1.2%), Poland -1.3% (+1.8%), Russell 2000 -1.8%, HK -2% (-1.4%), Philippines -2.4% (-0.6%), Sweden -2.4% (-0.6%), New Zealand -2.8% (-4.1%), Austria -4.1% (-2.5%), Greece -4.1% (-2.6%), MSCI World -4.2% priced in US dollars, UAE -4.2% (-4.2%), Belgium -4.7% (-3.2%), Spain -4.9% (-3.4%), S&P 500 -5%, Chile -5.1% (-1.9%), Italy -6.3% (-4.7%), Euro Stoxx 50 -6.5% (-5%), Argentina -6.7% (-10.7%), Switzerland -6.8% (-7.1%), NASDAQ -6.9%, France -7.4% (-5.9%), Vietnam -7.7% (-7.7%), South Africa -8.1% (-5.4%), Czech Republic -8.2% (-5.4%), Germany -10.2% (-8.6%), Ireland -10.7% (-9.3%), India -15.2% (-11.5%), Denmark -16.9% (-15.5%), Indonesia -19% (-17.8%).
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.