Dusted off an anecdote from 2018 on how to think about information sufficiency as it pertains to the art of investing, through the eyes of a special forces Marine (see below). Back next Sunday with full wknd notes. Happy 4th of July. E

Week-in-Review: Mon: world reacts to failed mutiny by Wagner group in Russia / Putin says Wagner troops can join the Russian army or go to Belarus, BOJ mins show no surprises, Japan MOF’s ‘ccy chief’ Kanda says not ruling out any options to respond to excessive currency moves, China eclipses Japan as #1 exporter of cars globally, Yellen plans trip to China in July, PBOC sets yuan stronger than expected to the greatest extent YTD, Greece’s Misotakis remains PM in decisive election, US Dallas Fed mfg activity -23.2 (-21.8e), S&P -0.5%; Tue: PBOC continues to surprise the market by fixing Yuan 111 pips stronger than exp, Japan FinMin Suzuki warns yen moves are one sided, string of very strong US data, ECB’s Lagarde highlights uncertainty around terminal rate peak and says inflation is still too high, ECB’s Panetta to be named new Bank of Italy chief, Italy cons conf 108.6 (105.5e), S. Africa payrolls QoQ -0.2% (0.2%e), Brazil IPCA infl 3.4% (3.38%e), Canada CPI 3.4% as exp / Core Median CPI 3.9% (4%e), US durable goods orders 0.6% MoM (0%e), US FHFA housing index 0.7% MoM (0.5%e), US C/S home prices -1.7% (-2.4%e), US new home sales 763k (676k exp), US cons conf 109.7 (104e), US Richmond Fed mfg -7 (-12e), S&P +1.1%; Wed: Japan MOF’s Kanda says will respond appropriately to excessive FX moves, Biden administration looking to implement new curbs on AI semiconductor exports to China, PBOC returns to yuan fixings in line with mkt expectations, Powell/Lagarde/Ueda/Bailey participate in Sintra panel / Powell open to 2 consecutive hikes / Ueda wants more certainty on 2024 infl before altering policy, US bank’s pass Fed’s annual stress test, Australia CPI 5.6% (6.1%e), S. Korea cons conf 100.7 (98p), Germany cons conf -25.4 (-23e), France cons conf 85 (84e), Italy CPI 6.7% (6.8%e), US wholesale inventories -0.1% MoM as exp, S&P flat; Thu: surprising large upward revision to US 1Q GDP at 2% (1.4%e), Riksbank hikes 25bp as exp (although market was pricing decent chance of 50bp hike), BoJ’s Himino sees early signs of demand driven infl, China’s home appliance stimulus underwhelms expectations, PBOC returns to stronger than exp fixings for yuan (0.4%), SCOTUS rules against affirmative action, Japan ret sales 5.7% (5.2%e), Australia ret sales 0.7% MoM (0.1%e), Japan cons conf 36.2 (36.1e), UK net cons credit 1.1b (1.5b exp), EU cons conf unch at -16.1 / eco conf 95.3 (95.7e), S. Africa PPI 7.3% (7.5%e), Germany CPI 6.8% as exp, US init claims 239k (265k exp), US pending home sales -2.7% MoM (-0.5%e), S&P +0.5%; Fri: Japan FinMin Suzuki says watching ‘sharp one-sided moves’ with a great sense of urgency causing USDJPY to retrace after briefly touching above 145, SCOTUS throws out Biden’s student loan relief plan, Brazil’s Bolsonaro gets 8yr ban from office, Apple becomes first company worth $3T, China names new head of Central bank (Pan Gongsheng), Brazil authorities commit to 3% infl target, data reveals SNB increased intervention to keep CHF strong, Libor set for the last time – ending 50y run, S. Korea IP -7.3% (-8.6%e), Tokyo CPI 3.1% (3.4%e) / Core CPI 3.8% (4%e), Japan jobless rate 2.6% as exp, Japan IP 4.7% (4.3%e), China mfg PMI 49 as exp / serv 53.2 (53.5e) / comp 52.3 (52.9p), Japan housing starts 3.5% (-2.7%e), UK house prices -3.5% (-4%e), Germany ret sales -5.1% (-4.9%e), France CPI 5.3% (5.4%e) / Consumer spending -3.6% as exp, Germany emp change 28k (14k exp), Italy unemp rate 7.6% (7.9%e), EU CPI 5.5% (5.6%e) / Core CPI 5.4% (5.5%e), EU unemp 6.5% as exp, Mexico unemp 2.93% (2.8%e), Brazil unemp 8.3% as exp, US personal inc 0.4% (0.3%e) / spending 0.1% (0.2%e), US PCE deflator 3.8% as exp / Core PCE deflator 4.6% (4.7%e), US Chicago PMI 41.5 (43.8e), US UoM sentiment 64.4 (63.9e) / 1y infl exp 3.3% as exp / 5-10y infl exp 3% as exp, S&P +1.2%.

Weekly Close: S&P 500 +2.3% and VIX +0.15 at +13.59. Nikkei +1.2%, Shanghai +0.1%, Euro Stoxx +1.9%, Bovespa -0.7%, MSCI World +2.2%, and MSCI Emerging -0.2%. USD rose +3.5% vs Russia, +3.1% vs Turkey, +1.4% vs Ethereum, +1.0% vs China, +0.8% vs Sweden, +0.5% vs Canada, +0.4% vs Indonesia, +0.4% vs Yen, +0.4% vs South Africa, +0.3% vs Australia, +0.2% vs Brazil, +0.1% vs Sterling, +0.1% vs Bitcoin, and flat vs India. USD fell -0.5% vs Chile, -0.3% vs Mexico, and -0.1% vs Euro. Gold -0.2%, Silver +1.3%, Oil +1.4%, Copper -1.5%, Iron Ore +1.2%, Corn -15.3%. 10yr Inflation Breakevens (EU -3bps at 2.29%, US +2bps at 2.23%, JP +8bps at 1.08%, and UK +10bps at 3.87%). 2yr Notes +16bps at 4.90% and 10yr Notes +10bps at 3.84%.

June Monthly Close: S&P 500 +6.5% and VIX -4.35 at +13.59. Nikkei +7.5%, Shanghai -0.1%, Euro Stoxx +2.3%, Bovespa +9.0%, MSCI World +5.9%, and MSCI Emerging +3.2%. USD rose +25.3% vs Turkey, +7.2% vs Russia, +3.6% vs Yen, +2.0% vs China, +0.5% vs Indonesia, and +0.5% vs Ethereum. USD fell -10.4% vs Bitcoin, -5.2% vs Brazil, -4.6% vs South Africa, -3.2% vs Mexico, -2.4% vs Canada, -2.4% vs Australia, -2.0% vs Euro, -2.0% vs Sterling, -1.0% vs Chile, -0.8% vs India, and -0.6% vs Sweden. Gold -2.8%, Silver -3.8%, Oil +4.0%, Copper +2.2%, Iron Ore +10.8%, Corn -5.0%. 10yr Inflation Breakevens (EU -2bps at 2.29%, US +6bps at 2.23%, JP +13bps at 1.08%, and UK +18bps at 3.87%). 2yr Notes +50bps at 4.90% and 10yr Notes +19bps at 3.84%.

Q2 Quarterly Close: S&P 500 +8.3% and VIX -5.11 at +13.59. Nikkei +18.4%, Shanghai -2.2%, Euro Stoxx +0.9%, Bovespa +15.9%, MSCI World +6.3%, and MSCI Emerging -0.1%. USD rose +35.6% vs Turkey, +12.7% vs Russia, +8.6% vs Yen, +5.8% vs South Africa, +5.5% vs China, +3.7% vs Sweden, +0.9% vs Chile, +0.5% vs Indonesia, and +0.3% vs Australia. USD fell -5.5% vs Bitcoin, -5.3% vs Brazil, -5.1% vs Mexico, -2.8% vs Sterling, -2.0% vs Canada, -0.8% vs Ethereum, -0.6% vs Euro, and -0.2% vs India. Gold -3.9%, Silver -6.4%, Oil -6.7%, Copper -8.1%, Iron Ore -9.0%, Corn -12.6%. 10yr Inflation Breakevens (EU -7bps at 2.29%, US -9bps at 2.23%, JP +46bps at 1.08%, and UK +9bps at 3.87%). 2yr Notes +88bps at 4.90% and 10yr Notes +37bps at 3.84%.

Year-to-Date Close (thru June 30th): S&P 500 +15.9% and VIX -8.08 at +13.59. Nikkei +27.2%, Shanghai +3.7%, Euro Stoxx +8.7%, Bovespa +7.6%, MSCI World +14.0%, and MSCI Emerging +3.5%. USD rose +39.1% vs Turkey, +22.1% vs Russia, +10.5% vs South Africa, +10.1% vs Yen, +5.1% vs China, +3.5% vs Sweden, and +2.3% vs Australia. USD fell -45.2% vs Bitcoin, -35.6% vs Ethereum, -12.2% vs Mexico, -9.4% vs Brazil, -5.7% vs Chile, -4.8% vs Sterling, -3.3% vs Indonesia, -2.3% vs Canada, -1.9% vs Euro, and -0.8% vs India. Gold +2.6%, Silver -6.7%, Oil -11.4%, Copper -1.3%, Iron Ore +1.3%, Corn -18.9%. 10yr Inflation Breakevens (EU +2bps at 2.29%, US -6bps at 2.23%, JP +23bps at 1.08%, and UK +25bps at 3.87%). 2yr Notes +47bps at 4.90% and 10yr Notes -4bps at 3.84%.

Year-to-Date Equities (high to low): Argentina +45.6% priced in US dollars (+110.9% priced in pesos), Greece +40.2% priced in US dollars (+37.5% priced in euros), NASDAQ +31.7% in dollars, Poland +25.9% in dollars (+17.1% in zloty), Mexico +25.7% (+10.4%), Hungary +25.7% (+15.3%), Ireland +25.1% (+22.7%), Italy +21.4% (+19.1%), Spain +18.8% (+16.6%), Brazil +18.7% (+7.6%), Germany +18.2% (+16%), Euro Stoxx 50 +18.2% (+16%), Taiwan +18% (+19.6%), France +16.5% (+14.3%), Chile +16.3% (+10%), S&P 500 +15.9%, Japan +15.4% (+27.2%), Netherlands +14.5% (+12.3%), MSCI World +14% in dollars, Denmark +13.2% (+11.2%), Czech Republic +9.9% (+6.1%), Korea +9.9% (+14.7%), Saudi Arabia +9.6% (+9.4%), Sweden +9.2% (+13%), Switzerland +8.3% (+5.1%), Russell +7.2%, India +6.8% (+6%), Russia +6.4% (+29.9%), Canada +6.3% (+4%), UK +6.2% (+1.1%), Portugal +4.7% (+2.7%), Venezuela +3.2% (+69.1%), Austria +2.9% (+0.9%), Colombia +2.2% (-11.9%), Indonesia +0.9% (-2.8%), New Zealand +0.3% (+3.9%), Australia +0.1% (+2.3%), Philippines -0.8% (-1.5%), China -1.4% (+3.7%), Singapore -2.3% (-1.4%), Belgium -2.4% (-4.3%), South Africa -4.3% (+5.6%), HK -4.8% (-4.4%), Finland -6.1% (-7.9%), UAE -6.5% (-6.5%), Norway -6.8% (+1.7%), Israel -6.8% (-2.1%), Thailand -11.6% (-9.9%), Malaysia -13.1% (-7.9%), and Turkey -24.9% (+4.5%).

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.