“Builders make the most money,” I said at the luncheon, high in some tower, looking out over Dallas. “That’s why I’m sitting here today,” said the entrepreneur to my left, confident, smiling. “If you’re not building a company, the next best thing is to own equity,” I said to the oil, gas, tech execs, family offices. We discussed the new administration, geopolitics, markets, risks, opportunities, my worldview. Then I asked them all about Trump’s drill-baby-drill policy, America’s energy supply dynamics, demand. “Biden was bad for business but good for prices,” one said, many nodded. “And Trump will be good for business but bad for prices.”

Overall: “The golden age of America begins right now,” said President Trump, vowing to annihilate the nation’s many challenges, sending a shiver through our country’s allies and adversaries. Economists were quick to spread skepticism. You see, American growth is already quite robust, with GDPNow estimating Q4 real GDP of 3.0%. Unemployment is low at 4.1%. CPI inflation at 2.9% is higher than target but well off the 9.1% high in mid-2022. Nationwide gasoline prices are $3.14 a gallon, not far from levels in Trump’s first term, miles below the $5.03 mid-2022 highs. And the stock market is at all-time highs, with the Shiller P/E ratio at a level exceeded only in the 1999 bubble. So, economists argue that with a 6.3% federal budget deficit, the prospect of massive tariffs, slowing international trade, government layoffs, reduced immigration, and rising inflation, the US economy simply lacks the capacity to power ahead, even with Trump’s pledge to slash red tape. Perhaps they’re right, but economists (and central bankers) have been horribly wrong for so many years that it’s hard to do anything but take the other side of their consensus. Our geopolitical allies and adversaries are another matter altogether. They’re simply praying Trump’s economic experiment fails. With the American economy already outpacing every country that matters, and with those nation’s electorates growing increasingly agitated, restless, riotous, the possibility of the US widening the chasm terrifies their leaders. The prospect of being held to account for their economic mismanagement, like the negligent mayor of Los Angeles, is too much to bear for the globe’s presidents, prime ministers, chancellors, paranoid dictators. And this, in an ironic twist, holds promise for a brighter global future, if the America First agenda forces panicked foreign leaders to adopt more pro-growth policies for their people.

Week-in-Review: Mon: Trump signs action to withdraw from world health organization and Paris accord, ends birthright citizenship, gives Tik Tok a 75-day reprieve, pardons and commutes sentences of Jan 6 rioters. Trump plans to enact tariffs on Canada and Mexico on Feb1. Tue: Trump says he is considering a 10% tariff on China. Trudeau says Canada will respond if US imposes tariffs. ECB may cut rates at each meeting and bring the deposit rate to 2% by summer according to Banque de France governor Villeroy. UK and France attracted record demand in long bond sales. China indicated that sanctions on US Secretary of State Marco Rubio wouldn’t impact official exchanges. US bank regulator to roll back recent changes to facilitate industry consolidation. Aramco CEO sees Chinese demand improving. ZEW survey of econ. expect. 10.3 (15e), UK unemp. 4.4% as exp, CPI Canada 1.8% (1.9%e) / New Zealand 2.2% (2.1%e), Mexico Ret sales -1.9% (-1.4%e), S&P +0.9%. Wed: Trump tells Putin to reach Ukraine ‘deal’ soon or US will increase sanctions. Trump unveils a new AI infrastructure mega-project ‘Stargate’ with OpenAI, Oracle and SoftBank. Russian spy ship found in UK waters. Syria to dismantle Assad-era socialism. China steps up enforcement of global tax collection by asking TikTok’s Chinese staff in Singapore to pay taxes to Beijing. Google invests further $1bn in OpenAI rival Anthropic at a $60bn valuation. South Africa CPI 3.0% (3.2%e), S&P +0.6%. Thur: Trump pressures OPEC to boost production and Fed to cut rates. China says the US has no right to interfere in the South China Sea. Trump to instruct Middle East envoy Witkoff to engage with Iran on nuclear program. Saudi’s MBS says Kingdom plans to invest $600bn in the US. Saudi foreign affairs minister visits Lebanon, reinforcing shift in power in the region. Purdue and Sackler family agree to $7.4bn opioid settlement with US states. Judge halts Trump’s effort to end US citizenship at birth. Israel and Lebanon in talks to extend Hezbollah ceasefire. Beijing tells insurers to buy more domestic stocks. US Jobless claims 223k (220k e) / cont claims 1899k (1866k e), Eurozone Cons conf -14.2 (-14.1e), Turkey One-week repo rate 45.00% as exp, Norway policy rate 4.5% as exp., EZ flash cons. conf index -14.2 (-14e), Japan Core CPI 3% as exp, S&P +0.5%. Fri: Trump reported to have had ‘fiery’ call with Danish PM over Greenland. Rubio demands immediate halt to virtually all US foreign aid. Israeli forces to remain in Lebanon beyond 60-day ceasefire deadline. US securities regulator rescinds SAB121 opening door for Wall Street banks to hold crypto. BoJ raises rates to 0.5% (17-year high). Eurozone PMI comp 50.2 (49.7e) / mfg 46.1 (45.4e) / serv 51.4 (51.5e), UK PMI mfg 48.2 (47.0e) / serv 51.2 (50.8e) / comp 50.9 (50.1e), US PMI mfg 50.1 (49.8e) / serv 52.8 (56.5e) / comp 52.4 (55.6e), US Mich. Sent 71.1 (73.2e), US Existing home sales 4.24m (4.20m e), S&P -0.3%.

Weekly Close: S&P 500 +1.7% and VIX -1.12 at +14.85. Nikkei +3.9%, Shanghai +0.3%, Euro Stoxx +1.2%, Bovespa +0.1%, MSCI World +2.1%, and MSCI Emerging +1.9%. USD rose +1.2% vs Ethereum, and +0.6% vs Turkey. USD fell -4.6% vs Russia, -2.7% vs Brazil, -2.5% vs Sterling, -2.5% vs Mexico, -2.4% vs Sweden, -2.3% vs Chile, -2.1% vs Euro, -1.9% vs Australia, -1.9% vs South Africa, -1.7% vs Bitcoin, -1.2% vs Indonesia, -1.1% vs China, -0.9% vs Canada, -0.5% vs India, and -0.2% vs Yen. Gold +1.1%, Silver +0.1%, Oil -3.5%, Copper -1.1%, Iron Ore +0.4%, Corn +0.5%. 10yr Inflation Breakevens (EU -2bps at 1.92%, US -1bp at 2.42%, JP +2bps at 1.60%, and UK -2bps at 3.60%). 2yr Notes -2bps at 4.27% and 10yr Notes -1bp at 4.62%.

2025 Year-to-Date Equity Index Returns (Dec 31-Jan 24): Poland +10.8% priced in US dollars (+7.9% priced in zloty), Hungary +9.5% priced in US dollars (+7.4% priced in forint), France +9.1% in dollars (+7.4% in euros), Korea +8.9% (+5.7%), Czech Republic +8.7% (+7.1%), Germany +8.7% (+7.5%), Sweden +8.6% (+7.5%), Euro Stoxx 50 +8.3% (+6.6%), Colombia +8.1% (+2.6%), Norway +7.6% (+5.7%), Israel +7.3% (+5.4%), Italy +7.1% (+5.9%), Mexico +6.9% (+3.7%), Greece +6.7% (+5.1%), Brazil +6.7% (+1.8%), Chile +6.5% (+5.3%), Austria +6.2% (+5%), Finland +6% (+4.8%), Switzerland +5.9% (+5.9%), Australia +5.3% (+3.1%), Ireland +5.2% (+3.6%), Spain +5% (+3.3%), Netherlands +4.2% (+2.6%), MSCI World +4% in US dollars, UK +3.8% (+4%), S&P 500 +3.7%, Russell +3.5%, South Africa +3.4% (+0.8%), Canada +3.4% (+3%), NASDAQ +3.3%, Saudi Arabia +2.8% (+2.6%), Taiwan +2.2% (+2.1%), Singapore +2.1% (+0.4%), Turkey +1.9% (+2.8%), UAE +1.5% (+1.5%), New Zealand +1.5% (-0.7%), Vietnam +1.4% (-0.1%), Belgium +1.4% (-0.2%), Indonesia +1.4% (+1.2%), Portugal +1.2% (-0.3%), Japan +1% (+0.1%), Denmark +0.6% (-0.5%), Argentina -0.2% (+1.3%), HK -0.2% (+0%), Thailand -1.5% (-3.3%), Malaysia -2.1% (-4.2%), China -2.2% (-3%), India -3% (-2.3%), Philippines -4.2% (-3.6%).

Lone Star: “Remember all that crude exposure we loaded up on in the teeth of the pandemic?” asked Lone Star, and I nodded. We helped execute his strategy when oil futures did what was once considered impossible and traded negative. “We’re lightening up this year, and shifting our energy exposure to natural gas,” continued one of our nation’s top performing endowment CIOs. “I see more LNG permitting ahead, more powergen is clearly needed as new data centers come online, and further out over the horizon is ever increasing rocket fuel demand.”

Lone Star II: “We’re also involved in building out a data center company,” said Lone Star, early to that theme, gobbling up gigawatt after gigawatt. I’d swung through his great state after a quick trip to the Tetons in Wyoming. With America’s inward turn, there are increasing investment opportunities in the vast open spaces that lay between our overcrowded coasts, drowning in red tape and taxes. “We’re also sponsoring the leading liquid-cooling chip technology needed to run the latest Nvidia powerhorse in data centers.” I’d never heard that term.

Lone Star III: I asked ChatGPT to define powerhorse. It’s something I do many times per day, with each question leading to two or three more. AI is crack cocaine for the curious mind. “The term ‘powerhorse’ is often used informally to describe high-performance computing devices or systems. In the context of NVIDIA, it refers to their powerful hardware designed for demanding tasks like AI development, deep learning, and high-end graphics rendering,” answered ChatGPT. So, I asked about graphics rendering, which led me to rasterization and ray tracing. And so on.

Lone Star IV: “I’m anticipating higher back-end rates due to the new administration unleashing GDP through de-regulation and increasing treasury supply,” said Lone Star. “Makes us bullish financial stocks. And we’ve gone very idiosyncratic on the real estate front with allocations to malls, high end developments, and marinas.” Alongside their data centers. “We’re building cash as opportunities wane. We view our liquidity as optionality for the next dislocation, and after re-building 50% of our portfolio over the past two-years, we’re preparing for the next opportunity.”

Lone Star V: “While I’m bullish US GDP and cognizant of pretty elevated valuations here, we’re shifting our long-only equity to strategies that help protect us,” said Lone Star. “We’re combining liquid, equity index longs with proprietary risk mitigants, rebalanced regularly,” he said. “I want to defend my downside, rotate back into equities into dislocations, and then resize my risk mitigation as markets rally back so that they remain in balance,” he said. “Over time, that’s how you compound, and that’s what we’re building here, a compounding machine.”

Anecdote: “The Strategic Asset Allocation approach to institutional investing has dominated for decades,” said Lone Star, passing another couple Ivy’s in the annual performance league tables. “In the coming 5-10 years it’s going to be replaced almost entirely by the Total Portfolio approach,” he said, talking my book, and anchoring the launch of our new Total Portfolio fund. “Optimizing across your entire portfolio as opposed to optimizing within discrete investment buckets is clearly a superior way to invest, both mathematically and evidentially.” Lone Star works with managers to develop specialized strategies to better optimize the risk/return profile of his holistic portfolio. And he leans against rallies as sentiment and valuations become stretched. “Only a few of us CIOs actively manage institutional allocations, as any hedge fund manager does. But more will do so as they realize that being attentive and opportunistic is different than day trading,” said Lone Star. “Having a flexible risk budget means you actively trim positions that have run away on the upside, and when markets dislocate on the downside you take risk up. It’s kind of obviously a superior approach to running risk compared to investing in a static way, spread across buckets, which is how nearly all the big portfolios are run today,” he explained. “The Total Portfolio approach will get institutions an extra 50-100bps of returns, implementing specialized strategies the way we do it can add another 100bps+, while active allocation using a dynamic risk budget can add another 200-300bps. Add it all up and that’s 400-500bps of additional returns that can be added on the liquid part of institutional portfolios,” said Lone Star. “Let’s say the average portfolio is 50% liquid and 50% private, that means portfolios like ours can generate 200-250bps of incremental annual returns using this Total Portfolio approach.” Compound that over a decade or two and the impact is staggering. “That’s enough to cause allocators to consider adding new plays to the old playbook.”

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.