Wishing you and your families a healthy, happy, and prosperous 2023. Filled with adventure, challenge, volatility, introspection too. Dusted off an anecdote from 2011 that I reflect on at the dawn of each year, in preparation for what is to come (see below).
One River Digital’s Doug Wilson, who leads our credit activities, published a piece [click here] that compares boom/bust cycles in the deregulated power, oil & gas, oilfield services, and coal industries to what has unfolded in bitcoin mining. We see very similar distressed credit opportunities developing today in bitcoin mining as those that unfold in typical commodity busts.
Week-in-Review (expressed in YoY terms): Mon: glob
al holiday / minimal activity, S&P Closed; Tue: ECB’s Knot says tightening cycle has only passed halfway point, China continues reopening acceleration by cancelling inbound traveler quarantine (still requires negative covid test within 48hrs of departure), BoJ’s Kuroda dismissed speculation of near term exit from accommodative policy, more than a third of Texas gulf coast refinery capacity shut the past few days due to extreme weather (~1.8 mbpd), Japan to tighten restrictions on travel from China, TSLA extends scheduled shutdown of Shanghai factory due to covid cases, Russia foreign min Lavrov says Ukraine must surrender and concede lands annexed by Moscow in order to end the war, S. Korea retaliated against N. Korea’s sending of drones into its air space by doing the same, Japan jobless rate 2.5% (2.6%e) / ret sales 2.6% (3.7%e) / Housing starts -1.4% (1.4%e), Brazil personal default rate 5.9% (6%e), US adv goods trd bal -83.3b (-96.7b exp), US wholesale inv 1% MoM (0.3%e),US FHFA house prices 0% MoM (-0.7%e), US Case Shiller Home Prices 8.64% (8%e), US Dallas Fed -18.8 (-13.5e), S&P -0.4%; Wed: BoJ minutes reveal the widening of the yield cap was not aimed at changing the direction of policy, BoJ did another unscheduled fixed rate bond operation, US to require negative covid test for travelers from China, Southwest scraps 62% of scheduled flights, Hong Kong to scrap gathering limits and testing requirements, Russia bans oil expts to foreign buyers that adhere to cap, Japan IP -1.3% (-1.5%e), Mexico unemp 2.85% (3.2%e), US Richmond Fed 1 (-10e), US pending home sales -4% MoM (-1%e), Russia unemp 3.7% (3.9%p) / ret sales -7.9% (-10%p), S&P -1.2%; Thur: BoJ announced further unscheduled bond buying operations, rumors that Hirohide Yamaguchi has emerged as strong candidate for next BOJ chair, Italy says no new mutations in recent covid cases arriving from China (virtually all omicron variant), Netanyahu sworn in as Israel’s “new” prime minister, India to reintroduce mandatory covid tests for travelers coming from China (and other Asian countries), S. Korea IP -3.7% (-4.9%e), Vietnam CPI 4.55% (4.8%e), Spain ret sales -0.8% (1.5%p), US init claims 225k as exp, S&P +1.7%; Fri: BoJ conducts 3rd day of unscheduled bond buying – boosts monthly bond buying to $128b for December (a new record), UK / Spain / France are the latest countries to require visitors from China to present negative covid test, Biden signs $1.7t funding bill (includes $47b in aid for Ukraine), 6y of Trump tax returns released, Putin / Xi talks hail deepening ties b/w the countries, PBOC announces extended trading hours for CNH going forward, S. Korea CPI 5% (5.1%e) / Core CPI 4.8% (4.6%e), S. Africa private credit 8.3% (9%e), UK house px 2.8% (4.4%p), Poland ret sales -1.2% (0.5%p), Spain CPI 5.6% (5.8%e), Poland CPI 9.8% (10.2%p), US Chicago PMI 44.9 (40e), S&P -0.3%.
Weekly Close: S&P 500 -0.1% and VIX +0.80 at +21.67. Nikkei -0.5%, Shanghai +1.4%, Euro Stoxx -0.6%, Bovespa +0.0%, MSCI World +0.3%, and MSCI Emerging +0.3%. USD rose +5.1% vs Russia, +2.4% vs Brazil, +2.3% vs Ethereum, +2.1% vs Bitcoin, +0.6% vs Mexico, +0.3% vs Turkey, and +0.1% vs South Africa. USD fell -3.0% vs Chile, -1.4% vs Australia, -1.3% vs Yen, -1.3% vs China, -1.0% vs Sweden, -0.8% vs Euro, -0.4% vs Sterling, -0.4% vs Canada, -0.2% vs India, and -0.1% vs Indonesia. Gold +1.4%, Silver +1.1%, Oil +1.5%, Copper +0.2%, Iron Ore +3.3%, Corn +1.9%. 10yr Inflation Breakevens (EU +5bps at 2.27%, US +7bps at 2.30%, JP flat at 0.85%, and UK -2bps at 3.62%). 2yr Notes +11bps at 4.43% and 10yr Notes +13bps at 3.88%.
Dec Monthly Close: S&P 500 -5.9% and VIX +1.09 at +21.67. Nikkei -6.7%, Shanghai -2.0%, Euro Stoxx -3.4%, Bovespa -2.4%, MSCI World -4.0%, and MSCI Emerging -1.5%. USD rose +17.6% vs Russia, +6.1% vs Ethereum, +2.1% vs Bitcoin, +1.8% vs Brazil, +1.6% vs India, +1.2% vs Mexico, +1.1% vs Canada, and +0.5% vs Turkey. USD fell -5.0% vs Yen, -4.8% vs Chile, -2.8% vs Euro, -2.7% vs China, -1.0% vs Indonesia, -1.0% vs South Africa, -0.7% vs Sweden, -0.4% vs Australia, and -0.2% vs Sterling. Gold +2.7%, Silver +8.0%, Oil -0.3%, Copper +0.9%, Iron Ore +12.0%, Corn +1.9%. 10yr Inflation Breakevens (EU -2bps at 2.27%, US -7bps at 2.30%, JP -5bps at 0.85%, and UK -20bps at 3.62%). 2yr Notes +12bps at 4.43% and 10yr Notes +27bps at 3.88%.
Q4 Quarterly Close: S&P 500 +7.1% and VIX -9.95 at +21.67. Nikkei +0.6%, Shanghai +2.2%, Euro Stoxx +9.6%, Bovespa -0.3%, MSCI World +9.8%, and MSCI Emerging +9.3%. USD rose +31.4% vs Russia, +19.4% vs Bitcoin, +12.8% vs Ethereum, +2.3% vs Indonesia, +1.7% vs India, and +1.0% vs Turkey. USD fell -12.2% vs Chile, -9.4% vs Yen, -8.4% vs Euro, -7.6% vs Sterling, -6.1% vs Australia, -6.0% vs Sweden, -5.8% vs South Africa, -3.2% vs Mexico, -3.1% vs China, -2.4% vs Brazil, and -2.0% vs Canada. Gold +8.8%, Silver +26.2%, Oil +4.8%, Copper +13.2%, Iron Ore +14.2%, Corn -0.9%. 10yr Inflation Breakevens (EU +19bps at 2.27%, US +14bps at 2.30%, JP -4bps at 0.85%, and UK -54bps at 3.62%). 2yr Notes +15bps at 4.43% and 10yr Notes +4bps at 3.88%.
2022 Yearly Close: S&P 500 -19.4% and VIX +4.45 at +21.67. Nikkei -9.4%, Shanghai -15.1%, Euro Stoxx -12.9%, Bovespa +4.7%, MSCI World -19.2%, and MSCI Emerging -22.3%. USD rose +217.7% vs Ethereum, +190.8% vs Bitcoin, +40.6% vs Turkey, +15.2% vs Sweden, +13.9% vs Yen, +12.0% vs Sterling, +11.3% vs India, +9.2% vs Indonesia, +8.5% vs China, +7.3% vs Canada, +6.9% vs South Africa, +6.6% vs Australia, and +6.2% vs Euro. USD fell -5.1% vs Brazil, -5.0% vs Mexico, -4.2% vs Russia, and -0.1% vs Chile. Gold -0.7%, Silver +3.9%, Oil +14.8%, Copper -10.7%, Iron Ore +36.7%, Corn +22.6%. 10yr Inflation Breakevens (EU +47bps at 2.27%, US -30bps at 2.30%, JP +40bps at 0.85%, and UK -32bps at 3.62%). 2yr Notes +370bps at 4.43% and 10yr Notes +237bps at 3.88%.
2022 Annual Equity Indexes (high-to-low): Turkey +109.7% priced in US dollars (+196.6% priced in lira), Argentina +40.4% priced in US dollars (+142% priced in pesos), Chile +22.9% priced in dollars (+22.1% in pesos), UAE +20.3% in dollars (+20.3% in dirham), Brazil +10.1% in dollars (+4.7% in reias), Singapore +4.8% (+4.1%), Portugal -0.6% (+5.6%), Greece -2.1% (+4.1%), Thailand -3.2% (+0.7%), Venezuela -4% (+253.9%), Indonesia -4.2% (+4.1%), Mexico -4.5% (-9%), India -6% (+4.3%), South Africa -6.6% (-0.1%), Denmark -6.8% (-1.5%), Saudi Arabia -7.2% (-7.1%), Norway -8.5% (+2%), UK -9.8% (+0.9%), Malaysia -9.9% (-4.6%), Spain -10.6% (-5.6%), Australia -11.4% (-5.5%), Canada -14.6% (-8.7%), France -14.9% (-9.5%), Philippines -15.5% (-7.8%), HK -15.5% (-15.5%), Euro Stoxx 50 -17% (-11.7%), Germany -17% (-12.3%), Switzerland -17.3% (-16.7%), Czech Republic -17.8% (-15.7%), Italy -17.9% (-13.3%), New Zealand -18.4% (-12%), Netherlands -18.8% (-13.7%), MSCI World -19.2% priced in dollars, Belgium -19.2% (-14.1%), S&P 500 -19.4%, Japan -20.3% (-9.4%), Finland -20.5% (-16%), Ireland -20.8% (-15.8%), Russell -21.6%, China -21.8% (-15.1%), Israel -22% (-11.8%), Poland -23% (-17.1%), Austria -23.4% (-19%), Colombia -23.5% (-8.9%), Hungary -24.4% (-13.7%), Sweden -26.6% (-15.6%), Korea -29.2% (-24.9%), Taiwan -30.1% (-22.4%), NASDAQ -33.1%, Russia -42% (-43.1%).
Anecdote (Jan 2011): Pretty much everything I learned about climbing mountains, I learned from Vincent Ravanel. He’s 7th generation high altitude mountain guide from Argentiere, France. From father to son, the Ravanel’s passed a simple mantra: “The Mountain never ends.” And like most things profound, it touches on something universal and fundamental. Because climbing mountains, physical and metaphorical, is what Man does, and has always done, and will always do. Vincent would calmly whisper that mantra high on the rock and ice when we faced a challenge, a fork, a decision. It served to humble us both, remind us to pace ourselves, and to only press for the summit if conditions and timing were optimal. And it also served to inspire, to capture in a sentence our ambition to tackle something so large and enduring. You see, to bag a tough peak and return intact, of course you need skill/strength/tenacity, but you also need the right temperature/weather/visibility and a measure of good luck. Combine all those well, find the opening, push like hell, and bang – success. But fight the elements, force it, press your luck, and, well, you know the result. So, I take a deep breath, and look up, a new quarter looms and above that, a new year, a new decade, a new century, even a new millennium. And on these first steps of this ambitious climb, I remind myself of the importance of patience and humility, optimal conditions and timing, and a little good luck. But mostly, I tell myself to listen carefully, at those tough and lonely points that surely lay ahead, for the Ravanel whisper, “The Mountain never ends.”
Good luck out there,
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.