One River Asset Management, LLC | Terms of Use

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wknd
notes

Wknd Notes
White Papers
wknd notes: The Hardest Thing There is to Do

wknd notes: Towns Where They Fear Avalanches

wknd notes: Towns Where They Fear Avalanches
December 22, 2024
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wknd notes: Ten Septillion Years

wknd notes: Ten Septillion Years
December 15, 2024
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wknd notes: Money Is an Invention That Allows Us to Store Time

wknd notes: Money Is an Invention That Allows Us to Store Time
December 01, 2024
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wknd notes: Combining our Strategies into a Total Portfolio

wknd notes: Combining our Strategies into a Total Portfolio
November 24, 2024
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wknd
notes

Each Sunday morning for over a decade, One River’s CIO, Eric Peters, has published “Wknd Notes.” It is an unorthodox take on markets, politics, and policy that’s widely read across our industry and within global policy/political circles. Eric has written for as long as he has traded and the discipline is part of his investment process. Drawing on wide-ranging, multi-disciplinary research, historical study, and discussions with interesting characters throughout the world, Eric collects those things he finds most thought-provoking each week and distills them into a concise letter. At times the ideas and views are consistent with his own, but just as often, they challenge his positions and it is this openness to opposing views that helps him maintain a flexible mind in the search for emerging opportunities and risks. His writing is a reflection of how he thinks, and as such it is as focused on identifying the right questions to ask as it is on seeking answers. The publication of this work is Eric’s way of exchanging ideas/information and developing dialogue with a network grown over his thirty-one-year career.

wknd notes: The Hardest Thing There is to Do

December 08, 2024

“Opposition fighters in Syria, in an unprecedented move, have totally taken over numerous cities, in a highly coordinated offensive, and are now on the outskirts of Damascus, obviously preparing to make a very big move toward taking out Assad,” wrote Trump on Truth Social, providing a taste of what’s to come in foreign policy. He made America’s position clear: “Syria is a mess, but is not our friend, & THE UNITED STATES SHOULD HAVE NOTHING TO DO WITH IT. THIS IS NOT OUR FIGHT. LET IT PLAY OUT. DO NOT GET INVOLVED!”

 

Overall: Something weird happened in South Korea. No one really cared, nor understood. It might have been an attempted coup, led by the incumbent President, which isn’t how such things tend to roll. “I am deeply sorry and sincerely apologize to the citizens who must have been greatly shocked,” said Yoon in a national address, following his perplexing own goal. Clown show. The French government fell apart. Circus Incognitus. German politics is not really any more stable. The UK is a mess too. Although perhaps not quite as Cirque du Soleil as Syria, where some group of Sunni rebels may finally overthrow Assad. The dictator cannot stand without aggressive support from both the Ayatollah who has his own domestic issues, and Putin who is rather preoccupied with taking ground in Ukraine ahead of January 20th. What comes next, no one knows. Especially not the Neocons, who juggled one too many bad guys in recent decades and lost the support of America’s voters for at least a generation. Which leaves a vacuum so big that not even Trump would want to fill it. Bitcoin topped $100,000. The price is determined by buyers and sellers in humanity’s first truly 24x7x365 global market. No central bank or government stands behind the asset, which has grown to have a $2trln market cap. Bitcoin is just code of course, and as such was utterly unaware of this week’s acrobatics. It simply runs, uninterrupted, uncaring, unconcerned about anything. Which in an increasingly unstable world, on the precipice of a historic economic and geopolitical reordering, is a large part of its appeal. Trump nominated a new SEC Chairman. And added a new Crypto/AI Tsar, with a mission to bring sensible market-friendly regulation to these emerging industries. Providing America’s dominant entrepreneurs with the clarity needed to build yet another generation of innovative and disruptive businesses.

 

Week-in-Review: Mon: Trump threatens 100% tariffs over BRICS currency. US imposes more restrictions on China’s access to chip components and blacklists 140 new entities. Fed’s Waller leans ‘toward supporting a cut to the policy rate’ in Dec despite ‘stalling’ inflation. New NATO chief Rutte warns Trump of deepening ties between US adversaries. French far right threatens to topple the government. German Chancellor Scholz pledges €650mn in weapons on surprise Kyiv visit. UK to allow Saudi Arabia to join alliance with Italy and Japan to develop fighter jet. Biden pardons his convicted son. China’s 10-year yields under 2% for first time since 2002. US PMI mfg 49.7 (48.8e), US ISM mfg 48.4 (47.5e) / Prices paid 50.3 (55.2e), China Mfg PMI 51.5 (50.3p), Eurozone PMI mfg 45.2 as exp, UK House Price Idx 3.7% (2.2%e), Eurozone Unemp rate 6.3% as exp, S&P +0.2%; Tue: US imposes new sanctions on Iran’s ‘shadow fleet’. China bans shipments to the US of ‘dual use’ items used in semiconductor manufacturing and military applications. South Korean President declares martial law, accusing opposition of colluding with North Korea. South Korean parliament votes to block martial law. US consumers spend record $10.8bn on Black Friday. Chicago Fed Goolsbee believes rates need to ‘come down a fair amount from where they are now’ next year. US JOLTS job opening 7744k (7519k e), Turkey CPI 47.09% (47.60%e), South Africa GDP 0.3% (1.1%e), Brazil 4.0% (3.9%e), S&P +0.1%; Wed: Fed Chair Powell and governors Daly and Musalem signal cautiousness about further cuts. French parliament votes to oust PM Barnier’s government. UK military chief warns that the world is entering 3rd nuclear age with no guardrails. CEO of UnitedHealth’s insurance division fatally shot in NYC. Eurozone PMI serv 49.5 (49.2e) / comp 48.3 (48.1e), UK PMI serv 50.8 (50.0e) / comp 50.5 (49.9e), China Services PMI 51.5 (52.0p), Eurozone PPI -3.2% as exp, US ADP Emp change 146k (150k e), US PMI serv 56.1 (57.0e) / comp 54.9 (55.3e), US Factory orders 0.2% as exp / durable goods orders 0.3% (0.2%e), S&P +0.6%; Thur: French PM Barnier resigns after no confidence vote by parliament. Macron vows to serve the rest of his term. Opec+ extends oil production cuts. BoJ’s Nakamura expresses doubt on sustainability of wage and GDP growth. After Aleppo, Syrian rebel forces claim major city of Hama. Italy halves GDP growth estimates. Bitcoin hits $100,000. US Jobless claims 224k (215k e) / Cont claims 1871k (1904k e), Japan household spending -1.3% (-2.6%e), France IP -0.6% (-0.2%e), Eurozone Ret sales 1.9% (1.7%e), US Trade balance -$73.8b (-75.0b e), S&P -0.2%; Fri: US court upholds law that could ban TikTok. Electoral filings show that Musk donated over $250mm to Trump and GOP. EU and Mercosur clinch trade deal after 25 years of talks. Israeli president calls Elon Musk to revive Gaza hostage talks. South Korea’s ruling party calls for removal of its President and defense ministry suspends three major commanders over their roles in martial law imposition. Romania annuls presidential election after alleged Russian interference. US change in nonfarm payrolls 227k (220k e), US Unemp rate 4.2% (4.1%e), US Mich sent 74.0 (73.2e), Eurozone GDP 0.9% as exp, Central Bank of India rate at 6.5% as exp, as Canada Unemp rate 6.8% (6.6%e), S&P +0.3%.

 

Weekly Close: S&P 500 +1.0% and VIX -0.74 at +12.77. Nikkei +2.3%, Shanghai +2.3%, Euro Stoxx +2.0%, Bovespa +0.2%, MSCI World +1.2%, and MSCI Emerging +2.5%. USD rose +1.9% vs Brazil, +1.9% vs Australia, +1.1% vs Canada, +0.3% vs China, +0.3% vs Sweden, +0.2% vs India, +0.2% vs Turkey, +0.2% vs Yen, +0.1% vs Chile, +0.1% vs Euro, and flat vs Indonesia. USD fell -9.6% vs Ethereum, -5.8% vs Russia, -0.9% vs Mexico, -0.9% vs Bitcoin, -0.2% vs South Africa, and -0.1% vs Sterling. Gold -0.8%, Silver +1.5%, Oil -1.2%, Copper +1.4%, Iron Ore +1.0%, Corn +1.6%. 10yr Inflation Breakevens (EU -4bps at 1.74%, US -2bps at 2.25%, JP flat at 1.38%, and UK -5bps at 3.46%). 2yr Notes -5bps at 4.11% and 10yr Notes -2bps at 4.15%.

 

Moves Since Nov 4th (pre-election): S&P 500 +6.6% and VIX -9.21 at +12.77. Nikkei +2.7%, Shanghai +2.8%, Euro Stoxx +2.2%, Bovespa -3.5%, MSCI World +5.4%, and MSCI Emerging -2.2%. USD rose +5.2% vs Brazil, +3.0% vs Australia, +2.9% vs Euro, +2.8% vs South Africa, +2.4% vs China, +2.1% vs Chile, +2.0% vs Sweden, +1.8% vs Canada, +1.7% vs Sterling, +1.4% vs Russia, +1.2% vs Turkey, +0.7% vs India, +0.6% vs Indonesia, and +0.4% vs Mexico. USD fell -39.2% vs Ethereum, -31.0% vs Bitcoin, and -1.4% vs Yen. Gold -4.0%, Silver -4.4%, Oil -5.4%, Copper -6.2%, Iron Ore +3.0%, Corn +2.3%. 10yr Inflation Breakevens (EU -11bps at 1.74%, US -3bps at 2.25%, JP +12bps at 1.38%, and UK -12bps at 3.46%). 2yr Notes -6bps at 4.11% and 10yr Notes -13bps at 4.15%.

 

2024 Year-to-Date Equity Index Close (high to low): Argentina +89.1% priced in US dollars (+136.9% priced in pesos), NASDAQ +32.3%, S&P 500 +27.7%, Israel +25% priced in US dollars (+25.3% in shekels), Taiwan +22.1% in US dollars (+29.3% in Taiwan dollars), MSCI World +21.6% in US dollars, Russell +18.8%, HK +17% (+16.5%), Germany +16% (+21.7%), Singapore +15.1% (+17.2%), Malaysia +15.1% (+10.9%), Hungary +14.9% (+30.6%), Turkey +14.7% (+34.9%), Canada +14.4% (+22.6%), Spain +14% (+19.5%), Czech Republic +13.7% (+21.2%), South Africa +12.7% (+11.2%), China +11.7% (+14.4%), India +11.6% (+13.6%), Japan +9.7% (+16.8%), Italy +9.2% (+14.5%), Belgium +9.1% (+14.4%), Netherlands +8.1% (+13.3%), Greece +7.4% (+12.6%), UK +7.1% (+7.4%), Ireland +5.2% (+10.3%), Euro Stoxx 50 +5% (+10.1%), Australia +3.5% (+10.9%), Thailand +2.9% (+2.6%), Norway +2.8% (+13.5%), Poland +2.6% (+5.6%), Denmark +1.8% (+6.8%), Switzerland +1% (+5.8%), Colombia +0.7% (+15.2%), Sweden 0% (+9.1%), New Zealand 0% (+8.8%), Philippines -0.1% (+4.3%), Saudi Arabia -0.5% (-0.3%), Austria -0.5% (+4.3%), Indonesia -1.5% (+1.5%), Chile -3.1% (+7.3%), UAE -3.3% (-3.3%), France -6.1% (-1.5%), Finland -7.8% (-3.5%), Portugal -15.8% (-11.7%), Korea -17.3% (-8.6%), Brazil -25.1% (-6.1%), Mexico -25.1% (-10.5%).

 

Builders: People who make the most money are builders. Creating something new out of nothing, zero-to-one, is the hardest thing there is to do. So, society rewards those who do it best. There are all sorts of builders of course. And the most highly compensated are those who build things that no one has ever dreamt of, or perhaps not ever thought possible. Things which the builder had to imagine would someday be in high demand if only it could be brought to market. Henry Ford dreamt of a Model T. Steve Jobs imagined an iPhone. Musk aspires to Mars.

 

Builders II: Investors make less than builders because investing is easier, and moving money provides less value to society. There are all sorts of investors. Naturally, the highest paid are builders of investment firms. Griffin. Schwartzman. Dalio. Buffet’s extreme wealth is an outlier, but he’s been building Berkshire since 1965, compounding longer than any living entrepreneur. Investors generally make money like builders do. Some invest in outcomes no one thought possible. Most buy things they imagine will soon be in high demand.

 

Builders III: The West confiscated $300bln of Russian assets in the days following its Feb 2022 Ukraine invasion. It didn’t take a wild imagination to picture a world where every sovereign nation that had stored its national wealth in assets controlled by western nations would seek an alternative. Gold seemed a good bet. But Powell started his historic rate hike cycle in March of 2022, which pushed the gold price down 20% - investing may be easier than building, but that doesn’t mean it’s easy. Buyers prevailed in time, and gold is now 25% higher than pre-invasion.

 

Builders IV: Investors could have bought Bitcoin instead of gold. Its price fell from $40k pre-invasion to $16k at the FTX lows and now trades $100k. Someone is clearly buying. And like many reflexive bull markets, higher prices create more positives. Bitcoin has quite clearly come to be recognized as an alternative to gold and has deepened what is now the most secure network ever built by humans. Ethereum performance has improved by orders of magnitude, growing faster, cheaper, more secure, versatile. Through the vicious cycle, crypto builders kept building.

 

Builders V: The election marked a shift in US policy away from outward hostility toward the crypto industry. It took little imagination to picture a world where countless uninvested individuals and institutions would finally recognize the asset class and include it in their portfolios. Markets repriced accordingly. But it is also not so hard to imagine other profoundly different futures which as recently as five weeks ago most investors barely considered. This new future will unfold with these technologies now able to really scale. And this curve will steepen.

 

Builders VI: Every major global financial institution must now recognize that its entire trading, settlement, custody and risk infrastructure will likely shift to blockchain rails in the decade to come. Every bank, broker, custodian, exchange, asset manager, and payments provider must imagine a future where its business will be rebuilt on a new platform. They’ll either do it themselves, find an infrastructure partner, or lose to a competitor. It’s not hard to imagine a world where demand for crypto builders and infrastructure providers/partners will be extraordinary.

 

Anecdote: Old photos of decrepit dhows, empty sand bars, pearl divers seared by the sun, smiling, hung in the lobby. Reminders of a simple past, slow, humble, modest in the extreme. The elevators lifted us from that foundation high above the desert. Glass, marble, steel, quiet offices reserved to discuss a matter of the utmost importance. Identifying opportunities, compounding the nation’s vast wealth. The building’s energy-efficient exoskeleton shifted with the sun’s arc. Through it, in the distance, the Arabian Gulf. Beneath its chalk blue lay nearly 100 billion barrels of proven reserves. $7 trillion at today’s prices. But of course, prices always change, nothing stays the same. There are 12.5mm people in the UAE, of which just 11% are Emirati citizens. The Emiratis alive today built something utterly remarkable from nothing. Abu Dhabi was not built by accident, it was not inevitable, it is the product of design, intention, vision, ambition. While the surplus wealth that they have amassed could be squandered, as so many fortunes have throughout history, they continue investing in infrastructure to attract innovators from across the world in every conceivable field. They draw on international investors who partner with them to imagine a range of possible futures, identify unique and convex opportunities, navigable risks, building portfolio constructions that will help them compound wealth at rates higher than equity markets. And they attract business builders who will someday allow the economy to transcend its hydrocarbon dividends. When the last US administration turned hostile to all things crypto, my team moved our infrastructure development project to Abu Dhabi Global Market, the international financial center and free zone here, creating something new out of nothing. Zero-to-one. We call it Project Diamond. And it’ll change the foundation of financial markets.

 

 

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.

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