Dusted off an anecdote from 2018 about mental models and market tops (see below). Taking a few weeks off from writing as I do each year-end, for family, friends, gratitude, altitude. Wishing the same for you. Merry Christmas, Happy Hanukkah. All the very best, Eric
For Week-in-Review and Weekly & Year-to-Date market data, scroll to the bottom.
Anecdote (July 2018): “Every investor needs a mental model,” said the CIO. “Without one we’re lost.” We weaved through New York. “I developed mine years ago,” he said, crossing Lexington, mid-block, diagonally, headed south. “Markets move in cycles. After a euphoria comes the fall. But euphoria tends to persist.” The lights toggled on our approach to Park and 61st, we made our way, a steady pace. “Late cycle, if enough people ignore the warning signals, markets continue higher,” he explained. “Holding your breath and staying long far past the time it’s obviously crazy is intellectually unsatisfying.” That doesn’t make it wrong. A good model prevents you from exiting the cycle early. “My model is to stay invested until something really important breaks. Cycles very rarely fizzle out.” We crossed Madison, a crowded crosswalk, 59th toward Central Park. “And I’m not talking about emerging markets, they always blow up when the Fed hikes. But that never signals the cycle’s end. It’s an intermediate sign. When emerging markets go, there’s still money to be made being long developed markets.” We turned down 5th Ave, bypassing buggies, sweating horses, The Plaza. “When you build a model, defining various market states, transition phases, one thing becomes abundantly clear. Knowing how much road is left ahead is far more important than knowing your destination.” A whiff of the University Club pool swirled around 54th. We passed St. Patrick’s, Bronze Atlas shouldering our world, and cut through Rockefeller. “You’ll never know how high valuations can climb. All you can identify are signs that something is breaking. At the cycle’s end, most investors dismiss these, giving you time to get out.” I now saw he was leading us to Times Square, its frenzied glow. “China is this cycle’s weak link. And it’s just now starting to get interesting.”
Good luck out there,
Eric Peters
Chief Investment Officer
One River Asset Management
Week-in-Review: Mon: Canada CPI 2.2% (2.3%e). China IP 4.8% (5.0%e), ret sales 1.3% (2.9%e). President Xi faces calls for stronger Yuan to rebalance the economy away from exports and boost consumer demand. Nasdaq seeks SEC approval to extend trading hours to 23 hours during weekdays. Oil slides on signs of surplus and Ukraine peace talks. S&P -0.2%. Tue: US unemp rate 4.6% (4.5%e). US Nov change in nonfarm payrolls 64k (50k e). Chile overnight rate target 4.50% (as exp). Hungary rate decision unch 6.50% as exp. Warner Bros planning to reject Paramount’s hostile takeover bid, valuing existing agreement with Netflix as better offering. Zelensky said he has agreement with US to make security guarantees legally binding through a congressional vote as part of deal to end war. S&P -0.2%. Wed: UK CPI 3.2% (3.5%e), Core 3.2% (3.4%e), RPI 3.8% (4.2%e). Eurozone CPI 2.1% (2.2%e), Core 2.4% as exp. South Africa CPI 3.5% (3.6%e). US announces package of arms sales to Taiwan valued at more than $10b, drawing angry response from China. Coinbase announces entry into prediction markets through Kalshi and equities trading with USDC stablecoin. S&P -1.2%. Thu: US CPI 2.7% (3.1%e), Core 2.6% (3.0%e). US init jobless claims 224k (225k e), cont claims 1897k (1920k e). Mexico overnight rate 7.00% as exp. BOE bank rate 3.750% as exp. ECB main refinancing rate 2.15% as exp, deposit facility rate 2.00% as exp, lending facility 2.40% as exp. Trump Media announces merger with TAE Technologies, with combined company planning to build world’s first utility-scale nuclear fusion power plant next year. Trump signs order to move cannabis into a less restrictive federal category. S&P +0.8%. Fri: UMich sent 52.9 (53.5e). US existing home sales 4.13m (4.15m e). Eurozone cons conf -14.6 (-14.0e). Russia key rate 16.0% as exp. BOJ target rate 0.75% as exp. EU agrees to loan Ukraine €90b for the next two years as peace negotiations continue. Trump administration halts US green card lottery program, citing its use by the suspect in the Brown university shooting. S&P +0.9%.
Weekly Close: S&P 500 +0.1% and VIX -0.83 at +14.91. Nikkei -2.6%, Shanghai +0.0%, Euro Stoxx +1.6%, Bovespa -1.4%, MSCI World +0.1%, MSCI Emerging -1.5%, Bitcoin -2.4%, and Ethereum -2.8%. USD rose +2.3% vs Brazil, +1.2% vs Yen, +0.6% vs Indonesia, +0.6% vs Australia, +0.6% vs Russia, +0.3% vs Chile, +0.3% vs Euro, +0.2% vs Canada, +0.2% vs Turkey, and +0.2% vs Mexico. USD fell -0.8% vs India, -0.6% vs South Africa, -0.2% vs China, -0.1% vs Sterling, and -0.1% vs Sweden. Gold +1.4%, Silver +8.8%, Oil -1.3%, Copper +2.8%, Iron Ore +0.9%, Corn +0.7%. 10yr Inflation Breakevens (EU -5bps at 1.74%, US -4bps at 2.24%, JP +2bps at 1.80%, and UK -3bps at 2.98%). 2yr Notes -4bps at 3.48% and 10yr Notes -4bps at 4.15%.
2025 Year-to-Date Equity Index Returns: Czech Republic +75.9% priced in US dollars (+50.8% priced in koruna), Israel +72.6% priced in US dollars (+51.8% priced in shekels), Colombia +71.1% in dollars (+48.5% in pesos), Spain +67.7% (+48.1%), Chile +67.1% (+53.6%), Korea +67.1% (+67.6%), Hungary +67.1% (+39.2%), Poland +66.4% (+45.2%), Greece +62.8% (+43.7%), Austria +61.1% (+42.9%), South Africa +60.5% (+42.2%), Ireland +52.1% (+34.3%), Mexico +49.7% (+29.2%), Italy +47.6% (+30.9%), Brazil +47.2% (+31.7%), Portugal +45.4% (+28.4%), Finland +43.8% (+27.5%), Germany +37.5% (+22%), Sweden +36.2% (+14.4%), Belgium +34.7% (+19%), Canada +34.1% (+28.4%), Euro Stoxx 50 +33.2% (+17.7%), Norway +33.2% (+18.5%), Vietnam +30.3% (+34.5%), UK +29.4% (+21.1%), Switzerland +29.2% (+13.5%), HK +27.8% (+28.1%), Singapore +27.6% (+20.7%), France +25.1% (+10.4%), Taiwan +24.9% (+20.2%), Japan +23.9% (+24.1%), Netherlands +21.7% (+7.5%), NASDAQ +20.7%, China +20.3% (+16.1%), MSCI World +19% in dollars, Indonesia +17.8% (+21.6%), S&P 500 +16.2%, Russell +13.4%, Australia +13% (+5.7%), Malaysia +11.3% (+1.4%), UAE +5.8% (+5.8%), India +4.9% (+9.8%), New Zealand +4.7% (+1.7%), Thailand -2.6% (-10.6%), Turkey -4.7% (+15.4%), Philippines -10.4% (-9.3%), Argentina -11.9% (+23.9%), Saudi Arabia -13% (-13.2%), and Denmark -15.8% (-25.2%).
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.