Dusted off an anecdote from October 2018 about accidents, our reactions to them, the opportunities they represent (see below). I take the late summer off from writing, to squeeze in some reading. Recharge. Hoping the same for you. All the very best, Eric
Week-in-Review: Mon: BoJ conducted an unscheduled JGB buying operation as yields continued higher following Friday’s YCC adjustment, ECB’s Lagarde says a pause in Sept doesn’t mean they are done with hiking cycle, Fed’s SLOOS shows continued tightening in lending standards but also ongoing weak demand for loans, Trump’s PAC spent ~$40m on legal costs, Chile CB cut 100bp (50bp exp), Fed’s Goolsbee thinks its possible inflation is tamed without a recession, China's State Council issued measures to expand consumption in the automobile / real estate / services sector, Japan ret sales 5.9% (5.4%e), Japan IP -0.4 (-0.7%e), Japan housing starts -4.8% (-0.5%e), China Mfg PMI 49.3 (48.9e) / serv 51.5 (53e) / comp 51.1 (52.3p), EU 2Q GDP 0.6% (0.5%e), EU CPI 5.3% as exp / Core 5.5% (5.4%e), Mexico 2Q GDP 3.7% (3.3%e), US Chicago PMI 42.8 (43.5e), US Dallas Fed Manf. Activity -20.0 (-22.5e), S&P +0.2%; Tue: RBA unch (10bp of hikes priced in) / warned that future hikes may be warranted, Fitch lowers US credit rating to AA+ from AAA after the close, Trump indicted on federal charges for his efforts to overturn the 2020 election, 3 Ukranian drones downed over Moscow, reports that China ccy regulator has asked banks to reduce/delay USD purchases to slow pace of CNY depreciation, China Caixin PMI mfg 49.2 (50.1e), UK Nationwide House Px -3.8% (-4.0%e), Italy unemp 7.4% (7.7%e), EU final mfg PMI 42.7 as exp, UK final mfg PMI 45.3 (45.0e), German unemp 5.6% (5.7%e), EU unemp 6.4% (6.5%e), US S&P final mfg PMI 49.0 as exp, US JOLTS job openings 9.582m (9.6m exp) / Quits 3.588m (3.869m prev), US ISM mfg 46.4 (46.9e), S&P -0.3%; Wed: BCB cuts 50bp (25bp exp) and signals another 50bp cut, BOJ deputy gov Uchida says YCC is not a step towards exit but rather to provide flexibility to continue easy policy / BOJ meeting mins indicate heated discussion over YCC tweak, big oil inventory drawdown (15.4m barrel draw – largest in history), US ADP 324k (190k e), Russia ret sales 10.0% (9.5%e) / unemp 3.1% (3.2%e), S&P -1.4%; Thu: BOJ conducted unscheduled JGB op again as theory develops that BOJ will step in at 5bp increments in 10y rate, BoE hikes 25bp as exp / acknowledges that rates are restrictive, Saudi’s extend oil supply cut, AMZN beats / AAPL misses, ECB’s Panetta (dove) sees rates persisting for a while at the terminal level, China Caixin serv PMI 54.1 (52.4e) / comp 51.9 (52.5p), Turkey CPI 47.83% (46.80%e) / Core 56.09% (54.50%e) / PPI 44.5% (40.42%p), EU serv PMI (final) 50.9 (51.1e) / comp 48.6 (48.9e), EU PPI -3.4% (-3.2%e), US init claims 227k (225k exp), US Factory Orders 2.3% as exp / Durable Goods Orders 4.6% (4.7%e), US Unit Labor Cost 1.6% 2Q (2.5%e) / productivity 3.7% (2.2%e), US serv PMI 52.3 (52.4e) / comp 52 as exp, US ISM serv 52.7 (53.1e), S&P -0.3%; Fri: US NFP +187k (200k exp) / AHE 4.4% (4.2%e) / unemp 3.5% (3.6%e), Trump’s next hearing set for 8/28, Ukraine targets ships in Russian port in the Black Sea in escalation of the conflict to the sea, RBA trims growth outlook to 1% (1.25%p) for this year due to higher rates and higher costs of living, ECB’s Lane says infl will continue to fall sharply, UAW asking Detroit carmakers for 40% pay increase over 4y, Germany factory orders 3% (-5.3%e), Hungary IP -6.1% (-5.3%e), France IP -0.3% (1.7%e), Italy IP -0.8% (-2%e), EU ret sales -1.4% (-1.7%e), Canada emp chg -6.4k (25.0k exp) / unemp 5.5% as exp / avg wage rate 5% (4.1%e), S&P -0.5%.
Weekly Close: S&P 500 -2.3% and VIX +3.77 at +17.10. Nikkei -1.7%, Shanghai +0.4%, Euro Stoxx -2.4%, Bovespa -0.6%, MSCI World -2.3%, and MSCI Emerging -2.6%. USD rose +4.7% vs South Africa, +3.0% vs Brazil, +3.0% vs Russia, +2.8% vs Chile, +2.4% vs Mexico, +1.8% vs Ethereum, +1.2% vs Australia, +1.1% vs Canada, +0.8% vs Sterling, +0.7% vs India, +0.6% vs Bitcoin, +0.5% vs Indonesia, +0.4% vs Yen, +0.3% vs China, +0.2% vs Sweden, +0.2% vs Turkey. Gold -1.2%, Silver -3.2%, Oil +2.8%, Copper -1.5%, Iron Ore +2.0%, Corn -6.2%. 10yr Inflation Breakevens (EU +8bps at 2.44%, US -2bps at 2.37%, JP -5bps at 1.17%, and UK +2bps at 3.80%). 2yr Notes -11bps at 4.77% and 10yr Notes +8bps at 4.04%.
July Monthly Close: S&P 500 +3.1% and VIX +0.04 at +13.63. Nikkei -0.1%, Shanghai +2.8%, Euro Stoxx +2.0%, Bovespa +3.3%, MSCI World +3.3%, and MSCI Emerging +5.8%. USD rose +4.5% vs Chile, +4.1% vs Russia, +3.5% vs Turkey, +2.8% vs Bitcoin, +0.6% vs Indonesia, and +0.3% vs India. USD fell -5.3% vs South Africa, -2.5% vs Sweden, -2.2% vs Mexico, -1.5% vs China, -1.4% vs Yen, -1.2% vs Brazil, -1.0% vs Sterling, -0.8% vs Euro, -0.8% vs Australia, -0.6% vs Ethereum, and -0.4% vs Canada. Gold +2.1%, Silver +8.5%, Oil +15.6%, Copper +6.6%, Iron Ore +1.4%, Corn +3.7%. 10yr Inflation Breakevens (EU +11bps at 2.40%, US +14bps at 2.37%, JP +16bps at 1.24%, and UK -8bps at 3.78%). 2yr Notes -2bps at 4.88% and 10yr Notes +12bps at 3.96%.
Year-to-Date Equities (high to low): Greece +46.2% priced in US dollars (+41.9% priced in euros), Argentina +41.7% priced in dollars (+123.5% priced in pesos), Poland +35.3% in dollars (+24.4% in zloty), NASDAQ +32.9% in dollars, Ireland +31.8% (+27.9%), Hungary +30% (+23.3%), Mexico +27.4% (+11.4%), Italy +24.2% (+20.6%), Chile +19.2% (+19.6%), Brazil +18.6% (+8.9%), Germany +18% (+14.6%), Euro Stoxx 50 +17.7% (+14.2%), Spain +17.3% (+13.8%), S&P 500 +16.6%, Czech Republic +16.5% (+13.7%), France +16.4% (+13%), Netherlands +15.5% (+12.1%), Taiwan +15.5% (+19.1%), MSCI World +14.9% in dollars, Japan +14% (+23.4%), Korea +13% (+16.4%), Russell +11.1%, Denmark +10.4% (+7.4%), Russia +10% (+43.6%), Switzerland +9.5% (+3.4%), Colombia +9.1% (-9%), Saudi Arabia +8.8% (+8.6%), India +7.9% (+7.8%), UK +7.3% (+1.5%), Sweden +6.8% (+8.1%), Canada +6% (+4.4%), Austria +5.4% (+2.4%), Belgium +3.9% (+0.8%), Portugal +3.3% (+0.3%), Indonesia +2.4% (+0%), China +2.4% (+6.4%), Norway +2% (+4.9%), Singapore +1.4% (+1.3%), Australia +0.8% (+4.1%), New Zealand +0.4% (+4.1%), South Africa -1% (+6.9%), HK -1.3% (-1.2%), Israel -1.5% (+3%), Philippines -1.5% (-1.8%), Venezuela -4.2% (+67%), UAE -4.2% (-4.2%), Malaysia -6.6% (-3.4%), Turkey -6.8% (+34.3%), Finland -7.9% (-10.6%), Thailand -8.2% (-8.3%).
Anecdote (Oct 2018): “Know what I’m grateful for Dad?” asked Jackson (16). We were headed back down the mountain, swiftly, steadily, darkness closing in. “I’m grateful it didn’t happen to Charlie, Teddy, Olivia, or Mom,” he said. Our five-hour climb up Mount Madison had been hard, unexpectedly steep. Charlie barely made it. The summit view stretched across New Hampshire’s presidential range, we relaxed in a mossy shallow, a mountain spring, dipping our heads, a magic moment. “If one of us was going to get burned like this, I’m glad it was me,” said Jackson, his wound tightly wrapped, leg shaking uncontrollably, in pain, shock. And in that instant, I glimpsed my oldest son becoming a man. An hour earlier, leaving that mountain spring, we sat for dinner at the high-altitude hut, fellow trekkers gathered at long tables. College kids cooked. One poured boiling soup onto Jackson. A 3rd degree burn covered his thigh, blistered skin, raw flesh. We dressed it immediately, packed him with pain killers and headed down, leaving Mara and the kiddies behind. Jackson led, I followed, watching him for signs of stress, unsteadiness, and told a story. ‘Into the Void’ is a classic tale of two young Patagonia climbers who confront catastrophe. Like most accidents, theirs started long before the traumatic event. Climbing disasters are usually the product of a series of inconsequential decisions that interact in unexpected ways, compounding exponentially. In fact, most disasters are – trading and investing included. But accidents need not become disasters. Accidents happen all the time, some good, others bad. They’re the source of opportunity, pushing us out of our comfort zones, leading to chance encounters, reshuffling the deck, sparking volatility, panics, mis-pricings. How we react defines our lives. And this accident had presented an opportunity to tackle the topic, father and son, down a dark mountain trail.
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.