Fresh off yesterday’s exciting football game (Army 17- Navy 11), our family divided, dusted off a 2018 anecdote from a Marine Force Recon veteran about applying combat principles to investing (see below). Taking the rest of December off from writing, to gather the forces for what is sure to be an exciting 2024. Wishing you a little recharge too. All the very best, E

Week-in-Review: Mon: ECB’s Centono warns on labor market risks from tight policy, gold hits a record high before reversing, OPEC+ cuts can go past Q1 says Saudi energy minister, India’s BJP party has strong showing in state elections – bodes well for the 2025 nat’l elections, SOFR fixes 6bp higher in signs of potential funding stress, Turkey CPI 61.98% (62.60%e) / Core 69.89% (71.40%e), EU investor conf -16.8 (-15.6e), US Factory orders -3.6% (-3.0%e) / Durable goods orders -5.4% as exp, S&P -0.5%; Tue: RBA unch as exp / signaled will be on hold for a while (more dovish than exp), ECB’s Schnabel says no more hikes given soft CPI / Vujcic says no cuts just yet, China’s credit outlook cut to negative by Moody’s, Israeli troops entered Gaza’s second-largest city in a new phase of the war, S. Korea GDP 1.4% as exp / CPI 3.3% (3.5%e) / Core CPI 3% (3.1%e), Tokyo CPI 2.6% (4%e) / Core 2.3% (2.4%e), China Caix serv PMI 51.5 (50.5e) / comp 51.6 (50p), France IP 1.8% (2.8%e),  EU PMI serv 48.7 (48.2e) / comp 47.6 (47.1e), US PMI serv 50.8 as exp / comp 50.7 as exp, South Africa GDP -0.7% (-0.1%e), EU PPI -9.4 (-9.5e), Brazil GDP 2.0% (1.8%e), US JOLTS job openings 8.733m (9.3 m exp), ISM Services 52.7 (52.3e) / prices paid 58.3 (58e), S&P -0.1%; Wed: BOC on hold as exp / keeps guidance for more hikes if necessary, Poland CB unch as exp, ECB’s Kazaks says no need for cuts in 1H24 / Kazimir says 1Q rate cut talk is ‘science fiction’ / Villeroy says cuts might be considered in 2024, Australia 3Q GDP 2.1% (1.9%e), Germany factory orders -7.3% (-3.9%e), Hungary ret sales -6.5% (-6.3%), EU Ret sales -1.2% (-1.1%e), Mexico cons conf 47.3 (46e), US ADP emp change 103k (130k exp), US Trade balance -$64.3b (-$64.2b exp), S&P -0.4%; Thu: BOJ’s Ueda comments causes increased odds of earlier hikes than previously priced, China trade data shows signs of continued weak demand, AMD announces new accelerator chip to rival NVDA’s, UK accuses Russia of hacking to interfere in democratic process, China expts 0.5% (0.0%e) / impts -0.6% (3.9%e), China FX reserves $3.171t ($3.139t exp), Japan leading index 108.7 (108.2e), Germany IP -3.5% (-3%e), EU 3Q GDP 0.0% (0.1%e), Mexico CPI 4.32% (4.39%e) / Core 5.30% (5.33%e), US init claims 220k as exp, S&P +0.8%; Fri: NFP 199k (185k exp) / unemp 3.7% (3.9%e) / AHE 4% as exp, India CB unch as exp / says nowhere close to cutting due to high food driven infl, Politburo meeting releases statement highlighting focus on growth / demotes focus on stability, Putin announces he’s running for a 5th 6yr term in March 2024, US Cons cred 5.134b (8.5b exp), Japan real cash earnings -2.3% (-3%e), Japan 3Q GDP -2.9% (-2%e), Hungary CPI 7.9% (8%e), US UofMich sentiment 69.4 (62e) / 1y infl exp 3.1% (4.3%e) / 5-10y infl exp 2.8% (3.1%e), S&P +0.4%.

Manufacturing PMI (high-to-low): India 56/55.5, Russia 53.8/53.8, Mexico 52.5/52.1, Hungary 52.2/52.3, Indonesia 51.7/51.5, Greece 50.9/50.8, China 50.7/49.5, Singapore 50.3/50.2, Hong Kong 50.1/48.9, South Korea 50/49.8, South Africa 50/48.9, Norway 49.86/47.86, Brazil 49.4/48.6, Sweden 49/46.2, Poland 48.7/44.5, Taiwan 48.3/47.6, Japan 48.3/48.7, Canada 47.7/48.6, Vietnam 47.3/49.6, UK 47.2/44.8, Turkey 47.2/48.4, United States 46.7/46.7, Spain 46.3/45.1, Netherlands 44.9/43.8, Italy 44.4/44.9, Czech Republic 43.2/42, France 42.9/42.8, Germany 42.6/40.8, Austria 42.2/41.7, Switzerland 42.1/40.6. Services PMI: India 56.9/58.4, Ireland 54.2/52.6, Russia 52.2/53.6, China 51.5/50.4, Brazil 51.2/51, Spain 51/51.1, UK 50.9/49.5, US 50.8/50.6, Japan 50.8/51.6, Germany 49.6/48.2, Italy 49.5/47.7, Sweden 48.3/48.5, Australia 46/47.9, France 45.4/45.2.

Weekly Close: S&P 500 +0.2% and VIX -0.28 at +12.35. Nikkei -3.4%, Shanghai -2.1%, Euro Stoxx +1.3%, Bovespa -0.9%, MSCI World +0.2%, and MSCI Emerging -0.7%. USD rose +3.0% vs Russia, +2.3% vs Chile, +1.6% vs South Africa, +1.5% vs Australia, +1.3% vs Sterling, +1.1% vs Euro, +1.0% vs Brazil, +0.9% vs Mexico, +0.9% vs Sweden, +0.6% vs Canada, +0.6% vs China, +0.2% vs Turkey, +0.2% vs Indonesia, and +0.1% vs India. USD fell -12.5% vs Bitcoin, -11.9% vs Ethereum, and -1.3% vs Yen. Gold -3.6%, Silver -10.0%, Oil -3.8%, Copper -2.6%, Iron Ore +2.4%, Corn +0.2%. 10yr Inflation Breakevens (EU -3bps at 2.07%, US flat at 2.23%, JP flat at 1.33%, and UK -1bps at 3.58%). 2yr Notes +18bps at 4.72% and 10yr Notes +3bps at 4.23%.

Year-to-Date Equities (high to low): Argentina +126.8% priced in US dollars (+366.1% priced in pesos), Poland +45.6% priced in US dollars (+34.2% priced in zloty), Hungary +40.8% in dollars (+34% in forint), Greece +37.7% (+37.1%), NASDAQ +37.6% in dollars, Venezuela +29.7% (+172.6%), Italy +28.8% (+28.2%), Mexico +26.1% (+12.2%), Spain +24.8% (+24.2%), Brazil +24.3% (+15.8%), Germany +20.9% (+20.4%), Taiwan +20.4% (+23%), Ireland +20.2% (+19.7%), S&P 500 +19.9% in dollars, Euro Stoxx 50 +19.7% (+19.2%), Denmark +19.1% (+18.9%), MSCI World +17.1% in dollars, France +16.8% (+16.3%), Czech Republic +16.3% (+17.1%), India +14.8% (+15.8%), Russia +14% (+43%), Netherlands +14% (+13.5%), Sweden +12.5% (+13.2%), Japan +12% (+23.8%), Chile +10.7% (+13.5%), Colombia +8.4% (-10.9%), Switzerland +8% (+3.2%), Korea +7.9% (+12.6%), Saudi Arabia +7.4% (+7.1%), Portugal +7.4% (+6.9%), Russell +6.8% in dollars, Austria +6.7% (+6.2%), UK +5.1% (+1.4%), Canada +4.4% (+4.9%), Indonesia +4.1% (+4.5%), Belgium +0.2% (-0.2%), Australia -1.4% (+2.2%), Norway -1.8% (+9.1%), New Zealand -3.4% (+0.2%), Israel -3.9% (+1%), Singapore -4.5% (-4.3%), Philippines -4.6% (-5.1%), Turkey -7.2% (+43.6%), China -7.5% (-3.9%), Finland -7.6% (-8%), UAE -7.9% (-7.9%), Malaysia -8.9% (-3.6%), South Africa -9.3% (+1.1%), HK -17.5% (-17.4%), and Thailand -19.3% (-17.2%).

Anecdote (Nov 2018): “Capital markets and combat are not turn-based games like chess,” said the Deputy CIO, top decile performer, Marine Force Recon veteran. “This means that there’s no such thing as waiting to make a decision, because waiting is a decision,” he continued. “Waiting can frequently be correct near-term, but you need to be intentional about how to use that time – to gather information, prioritizing the data that will have the most significant impact on your probability of a favorable outcome.” There’s a vast difference between incomplete and insufficient information. “Defining the threshold for information sufficiency is an art, honed through experience, often indistinguishable from intuition.” Acting with insufficient information imposes an unnecessary risk that will get you killed in combat or cause avoidable losses as an investor. “But waiting for complete/perfect information is foolish because it’s an illusion – it’s not possible, because events move in real time.” You cannot fall victim to the zero-defect mentality – the search for perfect information cripples your ability to execute. “There are two contrasting philosophies in military science about the best use of reserves; plugging holes or reinforcing success.” The US Marine Corps has decisively adopted the latter. “We don’t apply resources evenly across a front.” Our forces search for gaps. “As a battle develops, we don’t deploy reserves to areas where we experience the most resistance. We deploy them to the areas where we’re experiencing the most success.” The Germans pioneered this doctrine between WWI and WWII, devastating their neighbors through the lightning of Blitzkrieg. “Portfolio rebalancing is an expression of this philosophy. It’s a rules-based process that forces you to do what everyone says they’re trying to do, but few do.” Which is to redeploy resources through selling high and buying low, applying pressure to gaps in the market. “The Special Operations community selects and trains with the expectation that we will always be outnumbered but must never be outmanned,” he said. “We only play away games. And we’re expected to win every one.”

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.