Dusted off an anecdote from 2014 about a natural law that defies physics (see below). It has been fun to watch Marcel work with Mara on weekend notes for the month of July. We all take August off from writing to recharge, read, roam. Hoping the same for you and your crew. See you in September with full weekend notes.
Week-in-Review (expressed in YoY terms): Mon: Ukraine’s first grain shipment since Russia’s invasion left for Lebanon, Summers says Fed’s assessment of neutral is ‘indefensible’ and much too low, Fed’s Kashkari emphasizes wage and inflation data – relatively hawkish from the perma dove, China Caixin mfg PMI 50.4 (51.5e), Indonesia CPI 4.94% (4.82%e) / Core CPI 2.86% as exp, Macau casino rev -95.3% (-97%e), Germany ret sales -9.8% (-8.3%e), EU final mfg PMI 49.8 (49.6e), EU unemp 6.6% as exp, US ISM mfg 52.8 (52e) / prices paid 60 (74.3e), S&P-0.3%; Tue: RBA hikes 50bp as exp, Uber beats earnings exp, Pelosi lands in Taiwan (first House leader to visit since 1997) / China retaliates with missile tests and encircling the island during “training drills” / China halts specific impts/expts to/from Taiwan in retaliation, Fed’s Evans says 50bp in Sept is reasonable and 75 could be okay, Fed’s Mester says infl hasn’t even stabilized yet, Fed’s Daly says infl is nowhere near almost done / market is ahead of itself on Fed cutting rates, S. Korea CPI 6.3% as exp / Core CPI 4.5% as exp, UK house prices 11% (11.4%e), Swiss cons conf -41.7 (-32e), US JOLTS job openings 10.698m (11m exp), S&P -0.7%; Wed: Pelosi says trip was to make clear that we will not abandon Taiwan, Opec+ agrees to very small increase in September production, Fed’s Bullard reiterated his hawkish stance, Fed’s Kashkari says 2023 rate cuts seem very unlikely, Fed’s Barkin wants positive real rates along the curve, Brazil CB hikes 50bp as exp, US Senate proposes legislation that would put crypto regulation into the hands of CFTC, ECB appears to have used the PEPP flexibility in June/July to guard against fragmentation, Swiss CPI 3.4% as exp / Core CPI 2% as exp, Turkey CPI 79.6% (80.24%e) / Core CPI 61.69% (61.25%e) / PPI 144.61% (138.31%e), EU PPI 35.8% (35.7%e), EU ret sales -3.7% (-1.7%e), US serv PMI final 47.3 (47e) / comp 47.7 (47.5p), US factory orders +2% MoM (1.2%e) / durable goods 2% (1.9%e), US ISM Serv 56.7 (53.5e), S&P +1.6%; Thur: BoE hikes 50bp as exp / says future policy not on a preset path, Coinbase announces partnership with Blackrock, Russia sentences WNBA star Brittany Griner to 9y in jail, US declares Monkey Pox a public health emergency, Chinese rockets likely flew over Taiwan during supposed training / 11 missiles fired into the sea around Taiwan – some landing in Japan’s exclusive economic zone, Senator Sinema agrees to move fwd with senate tax and climate bill, Zelensky wants direct talks with Xi – something that has been denied since the Russian invasion, Czech CB keeps rates unch – first pause since June 2021 (mkts priced for 50% chance of 25bp hike), Fed’s Mester wants rates at 4%+ and cuts can only come when inflation returns to target, German factory orders -9% (-9.2%e), US trade balance -79.6b (-80b exp), US init claims 260k as exp, S&P -0.1%; Fri: US NFP 528k (250k exp) / unemp 3.5% (3.6%e) / AHE 5.2% (4.9%e), India CB hikes 50bp (only 35bp hikes exp), China said to cancel military and climate talks with US / China sanctions Pelosi / Blinken says China’s military exercises are a significant escalation, Japan household spending 3.5% (1.5%e) / real earnings -0.4% (-1.3%e), Taiwan CPI 3.36% (3.6%e) / Core CPI 2.73% (2.8%e), Canada emp change -30.6k (15k exp) / unemp 4.9% (5%e), US cons credit 40.154b (27b exp), S&P -0.2%; Sat: Max and Jackie got married!
Manufacturing PMI (high-to-low): Switzerland 58 (previous month 59.1), Hungary 57.8 (previous month 57), India 56.4 (previous 53.9), Netherlands 54.5/55.9, Brazil 54/54.1, Sweden 53.1/53.6, United States 52.8/53, South Africa 52.7/52.5, Canada 52.5/54.6, Hong Kong 52.3/52.4, UK 52.1/52.8, Japan 52.1/52.7, Austria 51.7/51.2, Indonesia 51.3/50.2, Vietnam 51.2/54, China 50.4/51.7, Russia 50.3/50.9, Singapore 50.1/50.3, South Korea 49.8/51.3, France 49.5/51.4, Germany 49.3/52, Greece 49.1/51.1, Spain 48.7/52.6, Italy 48.5/50.9, Mexico 48.5/52.2, Turkey 46.9/48.1, Czech Republic 46.8/49, Taiwan 44.6/49.8, Poland 42.1/44.4. Services PMI: Sweden 58.8/62.3, Ireland 56.3/55.6, Brazil 55.8/60.8, India 55.5/59.2, China 55.5/54.5, Russia 54.7/51.7, Spain 53.8/54, France 53.2/53.9, UK 52.6/54.3, Australia 51.7/48.8, Japan 50.3/54, Germany 49.7/52.4, Italy 48.4/51.6, US 47
Weekly Close: S&P 500 +0.4% and VIX -0.18 at +21.15. Nikkei +1.3%, Shanghai -0.8%, Euro Stoxx -0.6%, Bovespa +3.2%, MSCI World +0.6%, and MSCI Emerging +0.1%. USD rose +3.7% vs Bitcoin, +1.9% vs Chile, +1.7% vs Ethereum, +1.3% vs Yen, +1.1% vs Australia, +1.1% vs Canada, +0.9% vs South Africa, +0.8% vs Sterling, +0.7% vs Sweden, +0.4% vs Indonesia, +0.4% vs Euro, +0.3% vs China, +0.2% vs Mexico, and flat vs Turkey. USD fell -1.7% vs Russia, -0.2% vs Brazil, and flat vs India. Gold +0.5%, Silver -1.8%, Oil -9.7%, Copper -0.6%, Iron Ore -5.2%, Corn -1.6%. 5y5y inflation swaps (EU +1bps at 2.09%, US -5bps at 2.58%, JP +8bps at 0.86%, and UK +3bps at 3.70%). 2yr Notes +34bps at 3.23% and 10yr Notes +18bps at 2.83%.
YTD Equity Indexes (high-to-low): UAE +16.8% priced in US dollars (+16.8% priced in dirham), Chile +12.3% priced in US dollars (+21% in pesos), Argentina +12% in dollars (+44.9% in pesos), Turkey +9.3% in dollars (+48.1% in lira), Brazil +9% (+1.6%), Saudi Arabia +8.9% (+9%), Indonesia +2.8% (+7.6%), Singapore +2.5% (+5.1%), Portugal +1.5% (+13.4%), Venezuela -4.3% (+21.8%), Norway -4.9% (+5.9%), India -5.9% (+0.3%), Israel -9% (-2.2%), Canada -9.5% (-7.6%), Thailand -10% (-3.4%), UK -10.1% (+0.7%), Australia -10.5% (-5.8%), Malaysia -10.5% (-4.2%), South Africa -10.7% (-5.9%), Mexico -12% (-12.3%), S&P 500 -13%, Colombia -13.4% (-7.9%), HK -14.2% (-13.7%), Russell -14.4%, MSCI World -14.5% in dollars, Greece -15% (-4.9%), Spain -15.6% (-6.3%), Japan -16.6% (-2.1%), China -16.7% (-11.3%), Philippines -17.4% (-10.1%), Denmark -17.4% (-8.1%), Switzerland -17.9% (-13.6%), New Zealand -17.9% (-10%), Netherlands -19% (-9.4%), France -19.1% (-9.5%), NASDAQ -19.1%, Czech Republic -21% (-13.5%), Belgium -21.9% (-12.7%), Euro Stoxx 50 -22.5% (-13.3%), Germany -23.1% (-14.5%), Korea -23.6% (-16.4%), Taiwan -23.7% (-17.5%), Finland -23.8% (-15.3%), Italy -25.7% (-17.4%), Sweden -26.6% (-17.4%), Ireland -26.9% (-18.2%), Hungary -27.8% (-14.3%), Austria -29.5% (-21.7%), Poland -31.8% (-22.3%), and Russia -33.7% (-45.8%).
Anecdote (January 2014): “Now I know what really goes on behind the scenes!” exclaimed the investor, excitedly. I smiled. Proudly. You see, there’s nothing more gratifying than giving credit where it’s due. And I just had. We’d been discussing weekend notes. How it started almost by accident. How it evolved, grew. And as it did, how it demanded more and more. Which pushed me to search harder and harder. To discover interesting questions, occasional answers, and unique perspectives. From exceptional people. And that led to a series of discoveries. The first of which is that exceptional people are all pretty similar. In that they have a deep, insatiable, child-like curiosity. About all sorts of things. About people. About themselves. And this makes them at once confident, humble, young, and wise. The second similarity is that they value one gift above all others. Which is why they share ideas and questions, rather than facts and figures, in the hope that they make you think. Deeply. Praying you return a gift of equal value. Which leads to the third similarity. They’ve uncovered a law that defies physics. A law I wish I’d learned as a much younger man; if you give more than you get, you get more than you give. Of course, there’s no better way to share ideas than by telling stories. Scary ones. Sad ones. Funny ones. So they share theirs. Without which weekend notes would lack soul. And that leads back to where I began. You see, I’d told the investor that every Saturday afternoon I submit my week’s work to an exceptional woman. A unique talent who, before I destroyed her career, had been the NY Post’s youngest editor. A superstar. And if my work doesn’t come alive, she kills me. Which is awkward. Because she is my wife. Mara.
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.