“Diversity is our strength,” said Pete Hegseth in a recent town hall at the Pentagon. “That is the single dumbest phrase in military history,” continued the US Secretary of Defense, presiding over 2.8mm active-duty, reserve, National Guard, and civilian personnel. The US pendulum is swinging hard. It is far too early to know where it will take the country, and with it, the world. “I think our strength is our unity. Our strength is our shared purpose, regardless of our background, regardless of how we grew up, regardless of our gender, regardless of our race.”

Overall: Did stocks puke this Monday? Or last? Maybe both? And I seem to remember that Crypto tanked too because of a trade war with Mexico and Canada that lasted hours. Makes no sense the more I think about it. But maybe I’m conflating that sell off with the DeepSeek air-pocket that happened a month or two ago. Or was that two weeks back? Big tech ramped up AI spending plans anyway. Why did Bessent wait so long to launch a sovereign wealth fund? And where did Mexico find 10,000 troops to seal off its northern border? Didn’t know they even had an army. And did we impose new tariffs on China? We might have. Or maybe that was Europe, and the Chinese trade war comes later? Saw some clip on X where Japan’s Prime Minister Ishiba pledged to invest $1trln in the US. Does that include existing investments? Oh crap, I might be confusing Ishiba and Mayoshi Son. Oh well. And did USAID really pay Politico $8mm last year? BBC and NYT too? Mexico’s President Sheinbaum applauded the dismantling of USAID, saying that if the US wants to help with development, it should be done in a transparent way. Rwanda’s President Kagame voiced his agreement, saying Africa must wean itself off aid, “I think by being hurt, we may learn some lessons.” Like all matters of substance, the closer you examine them, the more ignorant of their complexities you discover you are. And Hegseth committed to a full audit of the Department of Defense and its $850bln budget. Did Panama just kick the Chinese out and grant our warships free passage? Why did we have to pay in the first place? Elon’s going after Medicare and Medicaid fraud, with his band of nerds ripping through Adderall and antiquated databases. And apparently, we’re going to shut down the Department of Education and let our states figure out how to improve upon its disgraceful results. Which will free up resources to buy Greenland, invade Canada, and build our new Gaza resort. Which all left the S&P 500 -0.2% on the week, 1.5% below its record.

Week-in-Review: Mon: Mexico and Canada say US tariffs delayed by a month following conversations with Trump. China vows to retaliate against the US but stopped short of imposing tariffs. Trump signs measure to create US sovereign wealth fund (SWF). Indonesia passes law to set up $61bn SWF. French PM forces through budget, risking no-confidence vote. BoJ board members expressed concerns at their January meeting about the weakening yen. Ontario government to cancel $100m Starlink contract amid trade war. HK 2024 GDP 2.5% (2.4%e), Indonesia CPI 0.76% (1.86%e), Turkey CPI 42.12% (41.10%e), Eurozone PMI mfg 46.6 (46.1e), US ISM mfg 50.9 (50.0e), S&P -0.8%. Tue: Trump’s 10% China tariff takes effect as deadline passes. China to levy 15% tariff on US LNG and Coal and a 10% fee on US crude oil, agricultural equipment and other vehicles. China sets export control on tungsten-related materials and probes Google over alleged anti-trust law breaches. US postal service suspends inbound parcels from China & HK. The Fed’s Goolsbee says Fed should be cautious in lowering rates due to mounting uncertainty. US Treasury sued by unions and retirees for allowing union members’ records to be shared with DOGE team. US Factory orders -0.9% (-0.8%e) / Durable goods orders -2.2% as exp, S&P +0.7%. Wed: China weighs probe into Apple’s app store fees. USPS to continue accepting China and Hong Kong packages. Trump proposes US takeover of Gaza, relocate Palestinians to other countries, and rebuild it as a new “Riviera”. Saudi Arabia, other US allies and Arab states reject the proposal, reiterating their support for a 2-state solution. USAID tells employees many would be put on paid leave effective Friday and staff stationed overseas must return within 30 days. The US Treasury said DOGE members have been given “read-only” access to parts of the government’s payments system. Japan’s labor cash earnings gained 4.8% year on year in December, far above estimates and the most since 1997. US ISM Serv. 52.8 (54e), US ADP Emp change 183k (150k e), UK PMI serv 50.8 (51.2e) / comp 50.6 (51.2e), S&P +0.4%. Thur: BoE taking “gradual and careful” approach to cuts; 7 voted for 0.25% cut, 2 for 0.5% cut. US government vessels will now be able to transit the Panama Canal without fees, according to the State Department. US Secretary of State Rubio to boycott G-20 summit in Johannesburg due to South Africa’s new “land-expropriation law”. Poll show strong support from Canadians on responding to Trump tariffs, including export taxes on oil. Donald Trump to close tax loophole on carried interest. Hawkish BoJ board member Tamura says 2 or more hikes needed in next 12 months. UK Bank rate 4.5% as exp, Eurozone Ret sales 1.9% as exp, US Jobless claims 219k (213k e) / Cont. claims 1886k (1870k e), Mexico Overnight rate cut 0.5% to 9.5% as exp, S&P +0.4%. Fri: Trump plans to unveil reciprocal tariffs on other countries next week, including Japan. EU to offer lower tariffs on US cars. Judge issues temporary order restricting access by DOGE to US government payment system. Panama says US claims of free canal transit for warships are ‘lies’. Iran’s Supreme Leader Khamenei says negotiations with US administration are “neither wise, nor prudent, nor dignified”. Trump imposes sanctions on ICC officials. US Change in nonfarm payrolls 143k (175k e) / US Unemp rate 4.0% (4.1%e), US Mich sent 68.7 (73.7e), Mexico CPI 3.63% (3.59%e), Canada Unemp rate 6.6% (6.8%e), Russia Ret sales 5.2% (6.5%e), Russia Unemp rate 2.3% (2.4%e), S&P -1.0%.

Manufacturing PMI (high-to-low): India 57.7 (previous week 56.4), Russia 53.1 (previous week 50.8), Sweden 52.9 (previous 52.4), Greece 52.8 (prev 53.2), Indonesia 51.9/51.2, Canada 51.6/52.2, Norway 51.18/50.41, Taiwan 51.1/52.7, Hong Kong 51/51.1, US 50.9/49.2, Spain 50.9/53.3, Singapore 50.9/51.1, Brazil 50.7/50.4, South Korea 50.3/49, China 50.1/50.5, Hungary 49.8/50.6, Mexico 49.1/49.8, Vietnam 48.9/49.8, Poland 48.8/48.2, Japan 48.7/49.6, Netherlands 48.4/48.6, UK 48.3/47, Turkey 48/49.1, Switzerland 47.5/47, South Africa 47.4/49.9, Czech Republic 46.6/44.8, Italy 46.3/46.2, Austria 45.7/43.3, Germany 45/42.5, France 45/41.9. Services PMI: India 56.5/59.3, Spain 54.9/57.3, Russia 54.6/51.2, Ireland 53.4/57.1, Japan 53/50.9, US 52.9/56.8, Germany 52.5/51.2, Australia 51.2/50.8, China 51/52.2, UK 50.8/51.1, Italy 50.4/50.7, Sweden 49.2/48.6, France 48.2/49.3, Brazil 47.6/51.6.

Weekly Close: S&P 500 -0.2% and VIX +0.11 at +16.54. Nikkei -2.0%, Shanghai +1.6%, Euro Stoxx +0.6%, Bovespa -1.2%, MSCI World -0.1%, and MSCI Emerging +1.4%. USD rose +23.6% vs Ethereum, +6.8% vs Bitcoin, +0.9% vs India, +0.7% vs China, +0.7% vs Turkey, and +0.3% vs Euro. USD fell -2.4% vs Yen, -1.7% vs Russia, -1.7% vs Canada, -1.6% vs Chile, -1.4% vs South Africa, -1.3% vs Sweden, -0.9% vs Australia, -0.6% vs Brazil, -0.6% vs Mexico, -0.2% vs Indonesia, and -0.1% vs Sterling. Gold +1.9%, Silver +0.6%, Oil -2.1%, Copper +7.2%, Iron Ore +1.5%, Corn +1.1%. 10yr Inflation Breakevens (EU -4bps at 1.84%, US flat at 2.43%, JP +2bps at 1.59%, and UK -4bps at 3.56%). 2yr Notes +9bps at 4.29% and 10yr Notes -4bps at 4.50%.

2025 Year-to-Date Equity Index Returns: Colombia +17.4% priced in US dollars (+9.9% priced in pesos), Poland +13.4% priced in US dollars (+12% priced in zloty), Chile +11.7% in dollars (+8.6% in pesos), Brazil +10.8% (+3.6%), Hungary +10.2% (+9.3%), Spain +9.1% (+9.4%), Israel +8.7% (+6%), Germany +8.7% (+9.4%), Euro Stoxx 50 +8.5% (+8.8%), South Africa +8.3% (+5.6%), Czech Republic +8.3% (+8.9%), Mexico +8.2% (+6.7%), Switzerland +7.9% (+8.6%), France +7.7% (+8%), Italy +7.6% (+8.4%), Sweden +7% (+6.3%), Norway +6.5% (+5.4%), Korea +6.4% (+5.1%), Greece +5.7% (+6%), Australia +5.7% (+4.3%), Finland +5.6% (+6.4%), UK +5.5% (+6.5%), Austria +5.2% (+5.9%), HK +5% (+5.4%), Netherlands +4.9% (+5.2%), Ireland +4.4% (+4.7%), Canada +3.6% (+2.9%), Saudi Arabia +3.5% (+3.3%), MSCI World +3.4% in dollars, Singapore +2.8% (+1.9%), S&P 500 +2.5%, Russell +2.2%, Taiwan +2% (+1.9%), UAE +1.8% (+1.8%), Belgium +1.4% (+1.7%), Vietnam +1.4% (+0.7%), NASDAQ +1.1%, Japan +0.7% (-2.8%), Denmark -0.1% (+0.6%), Turkey -0.5% (+1.2%), New Zealand -0.5% (-1.6%), Portugal -0.8% (-0.5%), China -1.4% (-1.4%), Malaysia -2.4% (-3.1%), India -2.9% (-0.4%), Indonesia -5.6% (-4.8%), Philippines -6.2% (-5.7%), Argentina -6.7% (-4.6%), Thailand -7.5% (-8.4%).

FAFO: Every consequential achievement in life requires that you really go for it. Take the leap. No risk, no reward, no guaranties. But for every leap you make, you’re certain to endure the consequences. That’s pretty much the point of FAFO (F-around and find out). Prime Minister Tojo FAFO’d, when he ordered the Pearl Harbor attack, but it took a few years to really find out. Having leaders with poor judgement is often devastating. And the opposite is also true. George Washington FAFO’d, and we ended up with the USA. Abe Lincoln did too and ended slavery.

FAFO II: “Hamas’s goal is not to run Gaza and to bring it water and electricity and such. Hamas, the Qassam and the resistance woke the world up from its deep sleep and showed that this issue must remain on the table,” said Hamas politburo member Khalil al-Hayya, safe and sound in Qatar, shortly after his Oct 7th attack on Israel. “This battle was not because we wanted fuel or laborers. It did not seek to improve the situation in Gaza. This battle is to completely overthrow the situation.” Gaza’s clock is ticking; Khalil is Hamas’s leader. He found out.

FAFO III: The world’s most powerful nation is now in full FAFO mode. Trump has thrown the Overton window so wide open that anything appears possible, domestically, internationally. By the time he’s done, pretty much every institution and organization will be tested. Orthodox thinking about economics, business, investment, politics, taxation, equity, equality, DEI, ESG, central banking, deficits, trade, alliances, borders, and the use of military might will be turned on its head. So much depends on his judgement. Where will it all lead? We’ll find out.

FAFO IV: Stability favors the incumbents in any system. Which is why those who rise to the top build moats, supporting stasis through whatever means necessary (lobbyists, lawmakers, lawsuits, regulators, central bankers, gov’t bailouts). That doesn’t mean stability is bad, but even the most risk averse recognize that without some creative destruction no real progress will be made. So, the only debate is how much instability a society is willing to tolerate. Americans tolerate more than Europeans and Japanese. Enter Trump the Disrupter. And AI. Simultaneously.

FAFO V: Expect incumbents here and abroad to react violently to the disruption now underway. In the coming years, everyone in a position of power will feel threatened, their budgets under fire, profit pools under assault, customers cannibalized, business models rendered obsolete. Most incumbents will use their power to prevent this, and they’ll be loud about it, pulling out every tool in their kits. It’ll be noisy and volatile. But real change is what drives big trends in financial asset prices. Market moves are often counterintuitive in times of change. Ride those trends too.

Anecdote: I love survival stories. Nothing good ever happens to dead people, so it seems worthwhile to study the art of enduring. That’s naturally a metaphor for trading, investing, business building too. So, I think about it a lot, and remind my team of its importance, particularly in periods of volatility, shifting sands, great change. Laurence Gonzales wrote a book called ‘Deep Survival, Who Lives, Who Dies, and Why.’ Survival is no simple matter, but accepting reality quickly is perhaps the most important determinant of who lives and dies. Curiosity and playfulness are critical too, which is why children often survive better than adults in disasters. “The rigid person is a disciple of death; The soft, supple, and delicate are lovers of life,” wrote Gonzales. Nothing could be truer. There is a beautiful passage about a woman lost at sea who endured when others did not. “Still, she was doing her best, struggling to think like a survivor. When she found that the seaweed with which they’d covered themselves sustained a vast number of tiny creatures, ‘I was dazzled by the life it supported…an entire world, self-sufficient and complete.’ To be open to the world in which you find yourself, to be able to experience wonder at its magnificence, is to begin to admit its reality and adapt to it,” wrote Gonzales. “Be here now. It is to place yourself in relation to it, to say: Before I came here, the world was as it is now; after I am gone, it will be that way still. To experience wonder is to know this truth: The world won’t adapt to me. I must adapt to it. To experience humility is the true survivor’s correct response to catastrophe,” he continued. “A survival emergency is a Rorschach test. It will quickly tell you who you are.”

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.