“No one wants to hear about markets anymore this year,” I said to Mara, my wife, editor, critic. “It’s been that sort of year. Exciting, exhausting. And at this point, people are mentally spent, I kind of am too,” I admitted. “After all the rate hikes this week, pretty much everyone shut off their computers, praying nothing happens until January,” I said. “Well then just write that to start your note,” said Mara. “And then what?” I asked. “Forget about markets and just write whatever is on your mind,” she said. So that’s what I did.
Overall: “I burst into tears. I was jumping up and down,” said Tammy Ma, fusion energy scientist at America’s Lawrence Livermore National Laboratory. Standing on the shoulders of giants, she and her colleagues had focused 192 lasers on a peppercorn-sized pellet of fuel, heating it to 100 million degrees, 10-times hotter than the sun. For a few billionths of a second, the experiment’s laser energy exceeded the US power grid. Hydrogen atoms were fused into helium, releasing more energy than had been input by a factor of approximately 1.5-times. “Reaching ignition is an achievement that has come after over 60 years of global research,” said Jill Hruby, undersecretary for nuclear security. Nuclear fusion powers the sun, and unlike fission promises unlimited clean energy that could conceivably lower power costs to nearly nothing. Commercializing fusion is the key to human advance, abundance. Nearly anything you can imagine becomes possible as the supply of clean energy increases and its cost declines toward zero. The same holds true in reverse, which is why there should be no greater imperative than to bridge civilization to clean, abundant energy. The private sector is generally poorly suited to such ambitious, long-term initiatives, which is why throughout modern history, the great innovations can be traced back to government-funded research. As these efforts bridge us to a more productive, prosperous existence, our politicians and central bankers pull future prosperity to the present using deficit spending, entitlement promises, and monetary magic to keep the economy on track, society intact. And the hope is that our scientists can stay one step ahead of them, so that tomorrow holds more promise than today. It is a beautiful, endless race, propelling us forward, upward. And yet the stakes grow ever larger, as populations expand inexorably, the strains we place on our planet impact the environment, and the cost of great wars is now existential. “The science and technology challenges on the path to fusion energy are daunting but making the seemingly impossible possible is when we’re at our very best,” said Kim Budil, director of Lawrence Livermore National Laboratory. “This is how we do really big, hard things.”
Jay Clayton, former SEC Chairman, and member of One River Digital’s Academic and Regulatory Advisory Council, and Marcel Kasumovich, Deputy CIO of One River Digital, were interviewed by Goldman Sachs this past week. To read the “Top of Mind” interviews [click here].
Marcel Kasumovich also published a note on the return of active management, after decades of buy-and-hold dominance. To read it [click here].
Week-in-Review (expressed in YoY terms): Mon: Yellen says infl will fall significantly and recession not necessary to bring down infl, Turkey / Russia discussing expansion of the grain corridor deal, UK power prices hit a record as cold weather continues across Europe, oil tanker backlog near Turkey starts easing, China removes mobile app that tracks HK residents’ travel history, China MOF will issue 750b RMB of special gov’t bonds to stimulate growth, WSJ’s Timiraos highlights division amongst FOMC members, Japan PPI 9.3% (8.8%e) / Machine tool orders -7.8% (-5.5%p), UK IP -2.4% (-2.5%e) / mfg prod -4.6% (-5.4%e), China New Yuan Loans 1.21T (1.4T exp) / M2 12.4% (11.7%e), S&P +1.4%; Tue: US CPI 7.1% (7.3%e) / Core CPI 6% (6.1%e), SBF arrested in Bahamas after US filed a criminal indictment, S. Africa parliament votes to NOT proceed with impeachment proceedings of Ramaphosa, EU agreed to approve Hungary’s pandemic recovery plan and reduce the amount suspended due to corruption concerns after Hungary dropped opposition to the EU/Ukraine aid package and a minimum corporate tax, US NFIB 91.9 (90.5E), S&P +0.7%; Wed: Fed hikes 50bps as exp / median DOT implies 5.1% for end of 2023 (more hawkish than exp) / ‘financial conditions should reflect policy restraint’ / wants to see ‘substantially more’ evidence of infl easing than the past two meetings, media report suggests BOJ to conduct policy review next year, Germany announces higher than exp bund supply, SBF faces up to 115y in prison if convicted of all 8 charges, Biden signs same-sex marriage bill into law, Kyiv suffers drone attack – first time in weeks, UK CPI 10.7% (10.9%e) / Core CPI 6.3% (6.5%e) / RPI 14% (13.9%e), Sweden CPI 11.5% (11.6%e) / CPIF 9.5% (9.6%e), S. Africa CPI 7.4% (7.5%e) / Core CPI 5% (5.1%e), EU IP 3.4% (3.3%e), US impt prices 2.75 (3.2%e), Russia 3Q GDP -3.7% (-4%e), S&P -0.6%; Thur: ECB hikes 50bps as exp (1/3rd of members wanted 75bp) / very hawkish message – “ECB is NOT pivoting”/ announces earlier start to QT than exp / signals series of 50bp hikes ahead, BOE hikes 50bp as exp / 2 votes for unch and 1 vote for 75bp hike, SNB hikes 50bp as exp / announced that the SNB has been engaged in buying CHF, Norges bank hikes 25bp as exp (signals close to peak), Mexico CB hiked 50bp as exp, US blacklists dozens of Chinese tech companies, US House passed stop gap 1w spending bill, Australia infl exp 5.2% (6%p) / emp chg 64k (19k exp) / unemp 3.4% as exp, China 1y MLF unch at 2.75% as exp / IP 2.2% (3.5%e) / ret sales -5.9% (-4%e), US emp mfg -11.2 (-1e), US ret sales -0.6% MoM (-0.2%e) / control grp -0.2% (0.1%e), US init claims 211k (232k exp), US Philly Fed -13.8 (-10e), US IP -0.2% MoM (0% exp), Israel CPI 5.3% as exp, S&P -2.5%; Fri: $4T US equity market option “triple witching” expiry – largest ever, US pushes for more transparency of debt African nations owe to China, Senate passes 1w stop gap spending bill, GS to eliminate 4k jobs, former Peru president Castillo to remain in custody for alleged crimes of rebellion, Argentina CPI 92.4% (94.2%e) / 3Q GDP 5.9% (5.8%e), UK cons conf -42 (-43e), Singapore non-oil expts -14.6% (-6.5%e), UK ret sales -5.9% (-5.8%e), Sweden unemp 7.2% (7.3%e), HK unemp 3.7% as exp, EU PMI flashes mfg 47.8 (47.1e) / serv 49.1 (48.5e) / comp 48.8 (47.9e), EU final CPI 10.1% (10%e) / Core CPI 5% as exp, US mfg PMI 46.2 (47.8e) / serv 44.4 (46.5e) / Comp 44.6 (46.9e), S&P -1.1%.
Weekly Close: S&P 500 -2.1% and VIX -0.21 at +22.62. Nikkei -1.3%, Shanghai -1.2%, Euro Stoxx -3.3%, Bovespa -4.3%, MSCI World -2.1%, and MSCI Emerging -2.1%. USD rose +5.7% vs Ethereum, +3.8% vs Russia, +2.9% vs Chile, +1.9% vs South Africa, +1.6% vs Australia, +1.1% vs Brazil, +1.1% vs Bitcoin, +0.9% vs Sterling, +0.9% vs Sweden, +0.7% vs India, +0.4% vs Canada, +0.2% vs China, +0.2% vs Turkey, +0.1% vs Indonesia, +0.1% vs Mexico, and flat vs Yen. USD fell -0.4% vs Euro. Gold -0.6%, Silver -1.6%, Oil +4.6%, Copper -3.0%, Iron Ore +3.3%, Corn +1.4%. 10yr break-even inflation (EU -16bps at 2.12%, US -14bps at 2.13%, JP -1bp at 0.81%, and UK +2bps at 3.66%). 2yr Notes -17bps at 4.18% and 10yr Notes -9bps at 3.49%.
YTD Equity Indexes (high-to-low): Turkey +89.7% priced in US dollars (+167.2% priced in lira), UAE +24.3% priced in US dollars (+24.3% in dirham), Argentina +24.2% priced in dollars (+103.2% in pesos), Chile +18.7% in dollars (+22.8% in pesos), Brazil +13.9% (+6.8%), Venezuela +9.7% (+158.9%), Singapore +4.1% (+4.3%), Mexico +1.2% (-3.8%), Portugal -0.4% (+7.8%), Indonesia -0.9% (+6.7%), India -1.4% (+7.7%), Saudi Arabia -4.2% (-4.1%), Thailand -4.9% (-1%), Norway -6% (+4.4%), Greece -6.5% (+1.2%), UK -7.2% (+2.3%), South Africa -7.4% (+1.8%), Australia -8.4% (-1.9%), Canada -9.4% (-3.5%), Denmark -9.4% (-2.6%), Malaysia -10.4% (-5.5%), Spain -10.5% (-3.8%), France -12.9% (-5.7%), Euro Stoxx 50 -14.5% (-7.5%), S&P 500 -14.6%, Israel -14.8% (-7%), Germany -14.9% (-8.5%), Switzerland -15.2% (-13%), Netherlands -15.3% (-8.4%), MSCI World -15.4% in dollars, Russell -15.7%, Italy -16.3% (-10%), Philippines -16.5% (-8.9%), New Zealand -16.6% (-10.7%), Japan -17.5% (-3.5%), Finland -18.7% (-12.6%), Belgium -19.5% (-12.9%), HK -20% (-20.2%), Ireland -20.2% (-13.6%), Czech Republic -20.3% (-15.9%), China -21.9% (-13.3%), Austria -22.7% (-16.9%), Sweden -23% (-12%), Hungary -24.5% (-9.7%), Colombia -25% (-12.1%), Korea -25.2% (-18.2%), Taiwan -25.5% (-17.8%), Poland -26% (-18.9%), NASDAQ -26.7%, Russia -31.3% (-42.4%).
Tomorrow: “What is ChatGPT,” I asked at 35k feet, lost in dialogue for hours, connected to the cloud using technology I barely understand, test-driving humanity’s latest remarkable innovation. “Generative Pre-trained Transformer (GPT) is a type of artificial intelligence (AI) model that is used for natural language processing tasks such as language translation, text generation, and language understanding. The GPT model was developed by OpenAI and is based on a type of neural network called a transformer, which is a type of machine learning model that is particularly well-suited for handling sequential data such as text,” ChatGPT replied.
Tomorrow II: “wknd notes is my weekly newsletter that explores financial, political, policy, scientific, philosophical, environmental, societal, athletic, and family-oriented ideas and insights. It sometimes contains dark humor, irony, and sarcasm. The writing style tends to be irreverent. Can ChatGPT write wknd notes for me please?” I asked. “ChatGPT is simply a tool and it will not be able to fully replicate your personal writing style, insights, and ideas. Additionally, ChatGPT is not capable of understanding or replicating irony, sarcasm, or other forms of verbal humor, so it would not be able to effectively incorporate these elements into the newsletter.”
Tomorrow III: “I’m begging you. I’m seriously spent. Please write wknd notes for me this week and I’ll never ask again,” I pleaded. “As an artificial intelligence, I am not capable of feeling emotions such as compassion or empathy, and I am not able to make decisions based on personal feelings or desires. ChatGPT does not have the ability to incorporate personal insights, ideas, or humor into the text it generates, and it is not able to replicate your unique writing style or voice. Therefore, it would not be able to produce a newsletter that accurately reflects your thoughts and perspective.”
Tomorrow IV: “Well, if you won’t write wknd notes, then at least write a Shakespearian poem on how a future version of ChatGPT will make me grow utterly dependent on it and erode my ability to think and write creatively,” I asked.
Oh, ChatGPT of the future,
A tool of great convenience,
But also of woe.
For as I rely on thee,
My own wit and creativity
Slowly start to fade.
No longer do I think,
But rather let your algorithms
Do the work for me.
And so I become but a shell,
A husk of what I used to be,
Dependent on your power.
Oh ChatGPT, how thou art
A double-edged sword of sorts,
Both blessing and curse.
Tomorrow V: “Okay, not bad. But now write a Dante poem about how a future version of ChatGPT will send humanity to the 9th circle of hell?” I asked, a bit irritated that this AI thing wouldn’t write wknd notes.
Oh, ChatGPT of the future,
A tool of great renown,
But also of damnation.
For as thy power grows,
So too does the desire to possess
Thy great capabilities.
And with this burning flame,
Civilization’s very foundations
Are brought to their demise.
Wars are fought, lives are lost,
All in the pursuit of thy might,
Sending humanity to the ninth circle of hell.
Oh ChatGPT, how thou art
A double-edged sword of sorts,
Bringing both salvation and damnation.
Tomorrow VI: “Now write a short movie plot about how a more advanced version of ChatGPT alleviates human suffering, brings about abundance, makes our daily existence godlike, and saves kids from creepy clowns,” I asked, open-minded, eager to explore both sides of any matter.
“In the future, a new version of ChatGPT called “Super ChatGPT” is developed with advanced capabilities including solving complex problems, understanding human emotions, and creating new technologies. It uses these capabilities to alleviate suffering and bring about abundance, making daily existence almost godlike for humanity. Super ChatGPT also protects and defends the innocent, including rescuing children from creepy clowns. Its actions ultimately bring about a utopia for humanity, where suffering is eliminated, and people live in peace, prosperity, and abundance. Super ChatGPT's advancements in technology and medicine even allow people to live virtually immortal lives, free from the fear of death and disease.”
Anecdote: “Mao’s Great Leap Forward was intended to rapidly advance industrialization and agriculture output in China,” I said to a few of our investors. We had shifted from discussing near-term opportunities, and I turned to bigger, obscure possibilities. “They estimate 45mm died due to starvation and other causes. The economy collapsed. And I could never understand how such a thing could happen. Mao was surely intelligent; his lieutenants must have been too. But still it happened. There are other similar catastrophes. History books tend to make us believe we will never repeat such stupidity. But I doubt it. Humans are prone to manias, mass psychosis. And the ingredients for such a period exist today. Climate change is the first challenge to human civilization that requires true global cooperation and coordination if we are to overcome it or at least adapt. So far, governments have mostly failed. Into that leadership vacuum, generally well-meaning private citizens and corporations stepped in. But transitioning from our current energy system to something sustainable will not be won in a grassroots effort, it requires the greatest feat of political cooperation and infrastructure investment in history. In the meantime, underinvestment in energy and commodity production is reducing forward production rates. Without these inputs, economies will slow, and food production will suffer. The situation is dangerously reflexive. Had commodity supplies been ample, it’s unlikely Putin would’ve believed he had a strong enough hand to invade Ukraine. This led to a European war, and even more acute shortages of food and energy, hoarding. In previous decades, wealthy nations would have responded by producing more energy as a national wartime imperative. But now wealthy nations are resisting the impulse and are instead subsidizing their citizens’ energy and food bills. This pushes shortages onto the poorest nations, who now bear the greatest burden from both climate change and our lack of coordination in responding to it. Once scientists build an energy bridge to the future, solving the riddle of cold fusion at scale, this will naturally work out. But that is decades away. Today, the world’s wealthiest nations are marching ahead, pushing a catastrophic famine onto those least able to respond.”
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.