The blaze was reported at 00:44 GMT on Wednesday. Fifteen firetrucks arrived quickly. Fourteen hours later nearby residents watched as exhausted firefighters left the second largest indoor shipbuilding complex of its kind in Europe. Four Dreadnought Class nuclear submarines are being built at the six-acre BAE Systems facility, to replace four Vanguard Class subs that are scheduled to be retired in the early 2030s. The Ministry of Defense said it was working with BAE and the emergency services. The cause of the fire remains unreported.

Overall: “In the global competition on AI, the alleged role of a single, and outdated, version of an American open-source model is irrelevant when we know China is already investing more than one-trillion dollars to surpass the US on AI,” said a Meta spokesperson, defending itself against an allegation. The Jamestown Foundation had released an academic paper [here] with the following claim: “The military and security sectors within the People’s Republic of China are increasingly focused on integrating advanced AI technologies into operational capabilities. Meta’s open-source model Llama (Large Language Model Meta AI) has emerged as a preferred model on which to build out features tailored for military and security applications. In this way, US and US-derived technology is being deployed as a tool to enhance the PRC’s military modernization and domestic innovation efforts, with direct consequences for the United States and its allies and partners.” The report also stated: “In September, the former deputy director of the Academy of Military Sciences (AMS), Lieutenant General He Lei, called for the United Nations to establish restrictions on the application of artificial intelligence (AI) in warfare. This would suggest that Beijing has an interest in mitigating the risks associated with military AI. Instead, the opposite is true. The People’s Republic of China is currently leveraging AI to enhance its own military capabilities and strategic advantages and is using Western technology to do so.” As the world waited for America to choose its next commander-in-chief, I spent the week thinking about security matters. “The number of different categories of space weapons that China has created and the speed with which they’re doing it is very threatening,” warned General Chance Saltzman, head of space operations for the US Space Force, as an existential race amongst the great powers accelerates, at the dawn of the AI Age.

Week-in-Review: Mon: LDP lost Japanese parliamentary majority. Iran says it favors ‘diplomacy’ to prevent war with Israel. Russian troops advance on Ukraine’s strategic city of Pokrovsk. NATO confirms North Korean troops have been deployed to Russia in ‘significant escalation’. Uruguayans reject a proposal to lower the retirement age from 65 to 60 in referendum. Japan jobless rate 2.4% (2.5%e) / Job-to-applicant ratio 1.24 (1.23e), S&P +0.3%; Tue: US consumer confidence nine-month high. US consumer most bullish on stocks since 1987’s Black Monday crash. US job openings fall to lowest since early 2021. Biden administration finalizes curbs on US investment in Chinese chip and AI tech. Iran triples 2025 military budget. Hezbollah names former deputy leader Naim Qassem as new chief. North Korean foreign minister begins an official visit to Russia. Reddit turns a profit for the first time in c.20 years. Saudi Arabia’s sovereign fund signals shift towards domestic projects. China’s dollar billionaires fall by more than a third in 3-years. China property developer Jiayuan is first to be de-listed from HKEX since the bubble burst. US Cons conf 108.7 (99.5e) / JOLTS 7.44m (7.99m e), Australia Q3 CPI YoY 2.8% (2.3%e), S&P +0.2%; Wed: US GDP data shows strong consumption and business investment. UK chancellor Rachel Reeves announces a £40bn tax increase, the biggest in a generation. EU begins to impose import duties on Chinese EV. US draws up draft Israel-Hezbollah ceasefire plan. Iran warns any Israeli aggression would justify a military response. China and India pull back troops from the remaining two friction points on the Himalayan border. US’s biggest labor unions and their pension funds, controlling $3tr in assets, back proposal limiting power of investors taking large stakes in publicly traded banks. Spain becomes fastest growing advanced economy. Gold and Bitcoin touch record highs. Q3 GDP ann.: US 2.8% (2.9%e) / Eurozone 0.9% (0.8%e) / France 1.3% (1.2%e) / Spain GDP +3.4% (2.9%e). US ADP Emp +233k (+111k e) / Conf. board consumer confidence 108.7 (99.5e), Germany CPI 2.0% (1.8%e), Russia Unemp rate 2.4% (2.5%e), S&P -0.3%; Thur: BoJ unanimously votes to hold rates at 0.25%. US weekly jobless claims fall to 5-month low. Eurozone inflation rises to ECB’s 2% target. UK gilt yields rise after Labour budget announcement. Israel says Iran is preparing an attack from Iraq. US says c.8,000 North Korean troops are deployed to Kursk region. North Korea launches ‘long-range ballistic missile’. Stablecoin issuer Tether reports $2.5bn quarterly profit. US Jobless claims 216k (230k e) / Cont claims 1862k (1880k e) / Personal income 0.3% as exp / spending 0.5% (0.4%e) / Core PCE 2.7% (2.6%e). Eurozone CPI est 2.0% (1.9%e). Japan Housing starts -0.6% (-4.3%e). Chicago ISM 41.6 (46.8e). France CPI 1.2% (1.1%e). Canada GDP 1.3% (1.5%e), S&P -1.9%; Fri: US manufacturing sector falls into contraction territory. US jobs data shows large downside surprise, partially affected by hurricanes. UK budget fallout continues as gilts yields rise, despite manufacturing contraction. Boeing and union leader representing 33,000 striking workers reach tentative deal including a 38% wage increase over 4 years and a $12,000 signing bonus. Trump sues CBS, alleging election interference by airing two different versions of a Harris interview. US confirms ‘Russian influence actors’ are behind viral election video showing Haitian immigrant voting multiple times for Harris in Georgia. US Change in nonfarm payrolls 12k (100k e) / ISM manuf. PMI 46.5 (47.6e) / Unemp rate 4.1% as exp / hourly earnings 4% as exp, UK manufacturing PMI 49.9 (50.3e) / Nationwide house PX 2.4% (2.8%e), S&P +0.4%.

Weekly Close: S&P 500 -1.4% and VIX +1.55 at +21.88. Nikkei +0.4%, Shanghai -0.8%, Euro Stoxx -1.5%, Bovespa -1.4%, MSCI World -1.2%, and MSCI Emerging -1.1%. USD rose +2.8% vs Brazil, +1.5% vs Mexico, +1.5% vs Chile, +1.2% vs Sweden, +0.8% vs Russia, +0.7% vs Australia, +0.7% vs Ethereum, +0.5% vs Indonesia, +0.5% vs Yen, +0.4% vs Canada, +0.3% vs Sterling, +0.1% vs Turkey, +0.1% vs China, and flat vs India. USD fell -2.8% vs Bitcoin, -0.4% vs Euro, and -0.1% vs South Africa. Gold -0.2%, Silver -3.3%, Oil -3.2%, Copper flat, Iron Ore -0.1%, Corn -0.2%. 10yr Inflation Breakevens (EU +3bps at 1.85%, US +4bps at 2.34%, JP -4bps at 1.26%, and UK +5bps at 3.55%). 2yr Notes +10bps at 4.21% and 10yr Notes +14bps at 4.39%.

Oct Mthly Close: S&P 500 -1.0% and VIX +6.43 at +23.16. Nikkei +3.1%, Shanghai -1.7%, Euro Stoxx -3.3%, Bovespa -1.6%, MSCI World -2.0%, and MSCI Emerging -4.4%. USD rose +7.1% vs Chile, +6.2% vs Brazil, +5.8% vs Yen, +5.0% vs Australia, +4.8% vs Sweden, +4.7% vs Russia, +3.7% vs Sterling, +3.7% vs Indonesia, +3.0% vs Canada, +2.3% vs Euro, +1.9% vs South Africa, +1.9% vs Ethereum, +1.8% vs Mexico, +1.4% vs China, +0.3% vs India, and +0.2% vs Turkey. USD fell -9.8% vs Bitcoin. Gold +3.4%, Silver +4.3%, Oil +2.2%, Copper -4.7%, Iron Ore -2.3%, Corn -3.3%. 10yr Inflation Breakevens (EU +9bps at 1.83%, US +14bps at 2.33%, JP +8bps at 1.27%, and UK +17bps at 3.57%). 2yr Notes +53bps at 4.17% and 10yr Notes +50bps at 4.29%.

2024 Year-to-Date Equity Index Close: Argentina +65.1% priced in US dollars (+102.2% priced in pesos), Taiwan +21.7% priced in US dollars (+27% in Taiwan dollars), NASDAQ +21.5% in US dollars, HK +20.8% in US dollars (+20.3% in HK dollars), S&P 500 +20.1% in US dollars, Malaysia +15.6% in US dollars (+10.3% in ringgit), MSCI World +15.5% in dollars, Spain +14.8% in dollars (+17.2% in euros), South Africa +14.5% (+10.8%), Belgium +12.7% (+15.1%), Germany +12.6% (+14.9%), Israel +12.6% (+17.3%), Hungary +12.1% (+21.9%), Italy +11.9% (+14.2%), Czech Republic +11.3% (+16.6%), India +10.7% (+11.8%), Ireland +10.2% (+12.5%), Netherlands +10% (+12.3%), China +9.6% (+10%), Canada +9.6% (+15.7%), Singapore +9.2% (+9.7%), Russell +9% in dollars, UK +7.1% (+5.7%), Euro Stoxx 50 +5.7% (+7.9%), Greece +5.3% (+7.5%), Philippines +5.2% (+10.7%), Japan +4.7% (+13.7%), Denmark +4.5% (+6.7%), Thailand +4.1% (+3.4%), Switzerland +3.6% (+7.4%), Norway +2.8% (+12.3%), Australia +2.7% (+7%), Turkey +2.3% (+18.9%), Indonesia +0.7% (+3.2%), Austria +0.6% (+2.7%), New Zealand +0.3% (+6.7%), Saudi Arabia +0.3% (+0.5%), Sweden -0.3% (+6.7%), Poland -0.7% (+1.4%), Colombia -1.7% (+13.2%), UAE -2.4% (-2.4%), Chile -3.1% (+5.7%), France -3.8% (-1.8%), Finland -4% (-2%), Portugal -8.3% (-6.4%), Korea -10.5% (-4.3%), Brazil -20.7% (-4.5%), and Mexico -26.1% (-11.8%).

Concentration: “Don’t get distracted by an iPhone 17 with ChatGPT functions,” said the British CIO, his long career spent in Asia. “It’s a distraction in the grand scheme of things,” he continued. “All that matters is that you understand we’re in a massive arms race; our ability to win comes down to compute, power, AI.” We were discussing highest conviction themes, where you’d concentrate your capital if you could make only one bet. It’s a good thought experiment. Because real wealth is not generated by diversification, it is built through concentration.

Concentration II: “The buckets are defense, AI, the infrastructure to support it, and the commodities required for it all,” explained the same CIO. “They’re each part of a piece, the same theme.” One big trade. “The driver of AI is not improved productivity, it’s defense. And defense gets kind of lost in the debate.” No one really wants to talk about it. “But that’s why this drive to push AI to the extremes is being pushed and will continue,” he said. “So that’s long Nvidia, ARM, TSMC, Taiwanese peripherals, the major armaments companies too.”

Concentration III: “Trying to find the US companies that are investable with good beta to the defense theme has been difficult,” he said. “The best opportunities have come from Europe.” They’re the ones who need to spend most. Our Asian allies too. “Mitsubishi Heavy, NEC, the Koreans. Then you have copper, but you need to invest in the entrepreneurial miners. Big names, like BHP, Vale, Glencore, they’re megaliths, bureaucracies, more focused on avoiding risks than taking them,” he said. “So that’s my thematic bet right now, and for the foreseeable future.”

Zero: Israel sent 100 aircraft for a 2000km flight to attack Tehran. Zero were shot down. First, the IDF took out Iran’s air defenses. Those Russian S-300 anti-aircraft systems can now be found disassembled in large craters through the region (Russia’s newer S-400 system underperformed expectations in Ukraine and the S-500 is in test phase). With Iran’s air defenses offline, Israeli aircraft had their way with whatever targets they chose in Tehran. They skipped over the mullahs this time. Next time who knows. Such is the nature of warfare for those with superior tech.

Hypersonic: “This precisely demonstrates that the US military is using the so-called threat of China’s missile development as an excuse to continuously enhance its missile strike capabilities across land, sea, and air, seeking absolute military superiority,” said Zhang Junshe in the Global Times, a Chinese propaganda sort of online publication. The US Navy is reportedly moving to arm our ships with Patriot Advanced Capability-3 Missile Segment Enhancement (PAC-3 MSE) interceptors to counter the growing threat from Chinese hypersonic weaponry.

Hyperconnected: America’s SpaceX launched its 201st mission to expand the Starlink network, with a goal of bringing high speed, low latency internet access to the globe. The Falcon 9 delivered another 23 satellites, 573 lbs each, into low-earth orbit on Wed, bringing the total to 6,504. SpaceX plans to launch 12 Falcon 9 rockets every month. The pace of Starlink satellite deployment is mind-blowing and can be seen [here]. In Ukraine, we glimpsed the power of this system. Imagine it when paired with AI. There is no prize for second place in this race.

Anecdote: “Each stone here is a memory,” said the commanding officer. Thirty of us stood atop a granite mountain, in a semicircle, Hudson River to our east, West Point to the north, American flag flying overhead, black POW flag in its shadow. “And each stone also holds a lesson.” Mara and I joined Liv for a memorial hike in the lead up to Veterans Day. Her water polo team inscribed the names of fallen teammates from seasons long past onto rocks which they placed on the mountaintop. The shrine has grown over the decades, now towering overhead, so many thousands of memories, placed by classmates, teammates, officers, enlisted, friends, families. Fire houses joined the tradition, police stations too, their bravery, heroism, twin towers. “The lessons we have drawn from this pile inform your daily training, your discipline, drills, even the things you may think are trivial, like how you make your bed.” Before the commanding officer had said a word, we had all stood in contemplative silence for what seemed an eternity. A solemn pause, beautiful. Each of us gazed at the pile, processing. At my feet were seven bricks, painted black, each with the name of an officer, six men, a woman, class of 1989, my year, our wildly different paths, their ultimate sacrifice, my deepest gratitude, profound respect. “They are your extended family,” said the commanding officer to his team of cadets, motioning to the rock pile. “And you do not know what the future holds, what will be asked of you, but you will all remain connected,” he said, pointing to a stone placed many years ago, his classmate. “I’ve grown close to his family, his children. And the only regret in my life is that I had an opportunity to speak at his funeral but didn’t. You must take every opportunity to express how you feel about each other, how much you each mean.”

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.