“Rather than embracing the promise of new technology as we have done in the past, here we propose to embrace stagnation, force centralization, urge expatriation, and welcome extinction of new technology,” said SEC Commissioner Hester Pierce, a registered Republican, first nominated to the SEC by Obama in 2015, appointed by Trump in 2017, and will serve through 2025. “Accordingly, I dissent,” she said, directly to Chairman Gensler and the three additional Commissioners who collectively lead the SEC. “No longer does this Commission consider the real-world effects of its exercise of authority. No longer does this Commission think creatively about regulatory alternatives that advance the Commission’s mission while preserving space for potentially disruptive innovation. No longer does this Commission worry that regulatory bullheadedness often produces absurd consequences,” said Hester, a courageous public servant in a world short of inspired leaders, determined to call things as she sees them. “Rather, today’s Commission aggressively expands its regulatory reach to solve problems that do not exist. Today’s Commission treats its basic approach to exchange regulation as something that must not - indeed cannot - be altered to allow room for new technologies or for new ways of doing business,” she said. “The release sends a message that we are uninterested in facilitating innovation and competition in the financial markets and instead seek to protect incumbents. Accordingly, although I am generally supportive of reopening comment periods where it is clear that the Commission will benefit from further good faith engagement with the public, I cannot support what the Commission is doing in this release,” said Hester. Nowhere else in the world was such open dissent amongst appointed leaders on display. And it doesn’t matter whether you agree or not with Pierce’s position on the matter of distributed ledger technological innovation, it is the spirit and substance of her public stand that reminds us of what makes America great.

For the complete SEC Commissioner Hester Pierce speech [click here].

Marcel Kasumovich and Shaun Martinak published a great piece on the latest upgrade to Ethereum, and the road toward a scalable, trustless world computer [click here].

Week-in-Review: Mon: US Wholesale Inv. +0.1% (+0.2%e), Wholesale Trade +0.4% (+0.6%e), ECB De Cos signals more hikes needed, BoJ’s Ueda’s signals no change to policy at inaugural press conference, BOK leaves rates unchanged, China conducts military drills in response to Speaker McCarthy’s meeting with Taiwan’s Pres. Tsai, US and Philippines conduct their own military drills, US confirms leak of Ukraine war intel, S&P +0.1%; Tue: Norway CPI 6.5% (6.1%e), Fed’s Williams signals more hikes needed and doesn’t think bank failures will be a big negative for the US economy, Fed’s Goolsbee calls for “prudence and patience”, Fed’s Kashkari says calm in banking sector is being restored, ECB’s Villeroy warns of persistent inflation, IMF warns of economic impact of rising political tensions in Asia, S&P flat; Wed: US CPI 5.0% (5.1%e), Core CPI 5.6% (5.6%e), US Mtg Applications +5.3%, Bank of Canada keeps rates unch. as expected, Aussie Unemp 3.5% (3.6%e), Fed Minutes signal more rake hikes but lower terminal rate due to banking issues, Fed Daly expects economy to slow without more rate hikes, Fed’s Barkin still waiting for inflation “to crack”, BoE’s Bailey will not stop hikes because of banking concerns, S&P -0.4%; Thur: UK IP -3.1% (-3.7%e), UK Manuf. -2.4% (-4.5%e), US initial claims 239k (235ke), US PPI 2.7% (3.0%e), Core PPI 3.4% (3.4%e), biggest PPI decline since pre-Covid, NZ Manuf PMI 48.1, S&P +1.3%; Fri: Sweden CPI 10.6% (11.0%e), Canada Manuf Sales -3.6% (-2.7%e), US Import Price -4.6% (-4.1%e), Adv Retail Sales -1.0% (-0.5%e), US IP 0.4% (0.2%e), U.Mich. Cons Sentiment 63.5 (62.1e), U.Mich. 1yr Infl. Exp. 4.6% (3.7%e), Fed’s Waller says not much progress on inflation and higher rates are needed, Fed’s Goolsbee says rate hikes are taking time to work through the economy, S&P -0.2%.

Weekly Close: S&P 500 +0.8% and VIX -1.33 at +17.07. Nikkei +3.5%, Shanghai +0.3%, Euro Stoxx +1.7%, Bovespa +5.4%, MSCI World +1.4%, and MSCI Emerging +1.0%. USD rose +1.2% vs Yen, +0.6% vs Turkey, flat vs Sterling, and flat vs China. USD fell -11.4% vs Ethereum, -8.8% vs Bitcoin, -2.9% vs Brazil, -2.7% vs Chile, -1.4% vs Indonesia, -1.4% vs Russia, -1.4% vs Sweden, -1.1% vs Canada, -0.8% vs Euro, -0.7% vs Mexico, -0.6% vs South Africa, -0.6% vs Australia, and -0.1% vs India. Gold -0.4%, Silver +1.7%, Oil +2.5%, Copper +2.4%, Iron Ore +1.8%, Corn +2.7%. 10yr Inflation Breakevens (EU +8bps at 2.39%, US +4bps at 2.30%, JP -3bps at 0.61%, and UK +4bps at 3.77%). 2yr Notes +12bps at 4.10% and 10yr Notes +12bps at 3.51%.

Year-to-Date Equities (high to low): Czech Republic +25% priced in US dollars (+18% priced in koruna), Greece +22.4% priced in US dollars (+18.6% priced in euros), Mexico +21.3% in dollars (+12.4% in pesos), Italy +20.5% (+17.6%), Ireland +19.8% (+16.9%), France +19.1% (+16.2%), Euro Stoxx 50 +18.6% (+15.7%), Spain +16.6% (+13.8%), Germany +16.4% (+13.5%), Denmark +16.2% (+13.6%), NASDAQ +15.8%, Taiwan +13.8% (+12.7%), Netherlands +13.3% (+10.5%), Argentina +12.4% (+36.4%), Korea +11.1% (+15%), Sweden +10.8% (+10.1%), Poland +10.2% (+6.7%), Chile +9.6% (+3%), Switzerland +8.8% (+5.7%), MSCI World +8.7% priced in dollars, China +8.5% (+8.1%), UK +8.3% (+5.6%), Hungary +8% (-1.2%), S&P 500 +7.8%, Canada +7.3% (+6.2%), Colombia +7.2% (-2.5%), Japan +6.9% (+9.2%), Austria +6.8% (+4.2%), Portugal +6.3% (+3.7%), Belgium +6.3% (+3.7%), Russia +5.5% (+18.6%), Saudi Arabia +4.9% (+4.6%), Indonesia +4.2% (-0.5%), Brazil +3.8% (-3.1%), Finland +3% (+0.5%), South Africa +2.9% (+9.2%), Australia +2.7% (+4.6%), HK +2.7% (+3.3%), Singapore +2.1% (+1.6%), Russell +1.1%, New Zealand +1% (+3.6%), India -0.3% (-1.5%), Philippines -0.7% (-1.3%), Thailand -3.1% (-4.6%), Norway -3.2% (+2.6%), Malaysia -3.9% (-4%), UAE -5.8% (-5.8%), Venezuela -7.2% (+34.2%), Israel -7.9% (-4.4%), and Turkey -10.7% (-7.6%).

Answers: “What happens when governments stifle innovation?” I asked. GPT4 answered: When governments stifle innovation, it can lead to reduced economic growth, decreased competitiveness, and a slower pace of technological advancement. Businesses may face regulatory barriers, restricted access to resources, and limited incentives for research and development. As a result, talented individuals might seek opportunities in more innovation-friendly environments, causing a brain drain and hindering the nation's progress.

Answers II: “Why would governments ever stifle innovation?” GPT4 answered: Governments may inadvertently stifle innovation due to bureaucracy, excessive regulation, or protectionist policies aimed at preserving domestic industries. They might also prioritize short-term political gains over long-term economic benefits, leading to misguided policies. Additionally, some governments may lack the foresight to recognize the potential of new technologies or may act in response to pressure from special interest groups resistant to change.

Answers III: “When governments stifle innovation, what is the best way to correct such mistakes?” GPT4 answered: It is crucial to identify and eliminate barriers to innovation, such as excessive regulations and bureaucracy. Governments should establish policies that incentivize research and development, invest in education, and promote collaboration between the public and private sectors. Encouraging open dialogue, fostering competition, and ensuring transparent and evidence-based decision-making can help create a more innovation-friendly environment.

Answers IV: “Why do governments avoid near-term pain, even if that amplifies longer-term costs?” GPT4 answered: Governments often prioritize near-term pain avoidance due to electoral cycles, political pressures, and the need for public support. Short-term benefits may secure votes or address immediate crises, even at the expense of long-term consequences. The complexity and uncertainty of long-term issues are challenging for policymakers. This short-termism can hinder the development of policies that serve society's broader interests in the long run.

Answers V: “Why do individuals do the same?” GPT4 answered: Humans tend to avoid near-term pain due to cognitive biases and psychological factors. Present bias, for instance, makes immediate rewards and consequences appear more significant than future ones. Additionally, humans have difficulty accurately predicting long-term outcomes, leading to a focus on short-term gratification. Uncertainty, fear of failure, and aversion to change also contribute to this preference for avoiding short-term discomfort, even if it compromises long-term success.

Anecdote: “Why are we so often our own worst enemies?” I asked myself. I didn’t bother asking GPT4, it couldn’t possibly give me the real answer. We feed these large language models everything we’ve ever learned, which is why they tell us what we already know. And this question remains as deep a mystery as any in the universe. I first started to appreciate it as a young trader. The profession requires one to make frequent decisions, many of which are wrong. Both winning and losing trades can be cut short or left to run. And the profit/loss score card cannot be denied. In such a pursuit, each decision should be made coldly, rationally, with the sole objective to maximize profit while minimizing loss. Yet there are times when traders act otherwise. We trade out of fear, greed, arrogance, stubbornness, narcissism, boredom, addiction. We add to losing longs in the irrational belief that by buying more, we may reverse a declining market. Or vice versa. We swear that if the market lets us get away with it one last time, we’ll never do it again. Sometimes a Hail Mary trade may work, even spectacularly. And so reckless behavior is occasionally rewarded. But of course, in time, the market hunts down those unable to control their self-destructive impulses and ruins them. The ones who survive this battle with themselves learn to make decisions that are hard, humbling, and exploit the behavioral weaknesses and lack of discipline in others. Naturally, such elemental flaws manifest in every aspect of who we are; personally, professionally, politically. They are the source of the world’s infinite complexity, our pain, political dysfunction too. It is why we must celebrate those rare dissenters with the courage to take a stand, forcing us to face our reflection when we succumb to our inner enemies. But these mysterious flaws are also the source of our sublime beauty. If we optimized for cold rationality, we would be utterly boring algorithms. Perhaps like the AIs we are creating. Which I suspect will never fully appreciate us.     

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.