“When anyone studies a little or pays a little attention to the rules of Islamic government, Islamic politics, Islamic society and Islamic economy he will realize that Islam is a very political religion,” said Ayatollah Khomeini, Iran’s first Supreme Leader, sometime back before his death in 1989. “Anyone who will say that religion is separate from politics is a fool; he does not know Islam or politics.”

Overall: “It is the mission of the Islamic Republic of Iran to erase Israel from the map of the region,” mumbled Ayatollah Khamenei to himself, out for walk at dusk, sweating profusely, thick clouds overhead, not a pager or walkie talkie within a mile. He couldn’t quite remember the first time he’d made that statement publicly, which had grown into something approaching a stutter. Was it back in 1989, on his first day as Ayatollah, or was it shortly after the victorious revolution in 1979? He honestly couldn’t recall; the decades had taken their toll, and now at 85 it all seemed a blur. Back in those early years after the revolution, life was simpler, clean, pure, filled with fervor. The Revolutionary Guards answered to the Ayatollah back then, but Khamenei knew it was no longer true. This 150,000-man private militia now controlled vast swaths of the economy, energy infrastructure, black market oil exports, contraband of all kinds. Its Quds expeditionary force controlled Khamenei’s foreign policy through organizations it supported financially and militarily. Hamas, Hezbollah, the Houthis, so many others. “Our relationship has become symbiotic,” he said, but knew it had evolved into something sinister. Just as his Morality Police had started with the purest of intentions, only to have grown grotesque, an oxymoron, corrupt beyond comprehension, like so many aspects of the political establishment that had metastasized around him. “What is the mission of the Islamic Republic of Iran?” he muttered to himself, having utterly failed his young people, who grow more secular with every passing year, their protests more frequent, his crackdowns more vicious. “To erase Israel from the map,” he answered, nervously glancing up into the darkening sky, his ears attuned to the slightest sound. “The Islamic Republic is proud to be the target of the rage of the world's greatest Satan,” whispered the Ayatollah, as had so many times before, desperate to reassure himself, terrified that it has all been for nothing.

Week-in-Review: Mon: China equity market set to reopen from Golden Week with markets focused on potential fiscal stimulus announcement. Israel intercepted most of Hamas’s rockets towards Tel Aviv as country marks anniversary of attack. Brent crude topped $80 a barrel for first time since August. Hurricane Milton strengthened to a Category 5 as it heads to Florida. The US launches investigation into potential Chinese hacking of American telecom firms. Non-partisan Committee for a Responsible Federal Budget publishes report warning of heightened risk a fiscal crisis in the US. India unveils a $760mn bailout for the Maldives to stave off a sovereign default. UK house prices rising at fastest pace since November 2022. Q3 earnings season kicks off. US Conference Board index 108.48 (109.04p), S&P -1.0%; Tue: Russia bombards Odesa with ballistic missiles/drones. UK puts sanctions on Russian military for using chemical weapons in Ukraine. Hezbollah fires rockets at Haifa. Saudi’s MBS hosts Iran’s Foreign Affairs Minister. China escalates trade war by imposing anti-dumping measures on French cognac and says it is weighing raising tariffs on EU large-engine vehicles. Brazil’s supreme court restores access to X as Musk back down. Crypto.com warns of lawsuit from SEC and countersues. World Bank expects China to grow by less than 5% despite stimulus measures. Hong Kong equities suffer one of the worse losses since GFC as assets flow to onshore markets. US Trade balance -$70.4b (-$70.5b e), US NFIB Small Business Index 91.5 (91.8e), Germany IP MoM 2.9% (0.8%e), Japan household spending -1.9% (-2.7%e), Japan full-time workers base pay growth YoY 2.9% (2.6%p), S&P +1.0%; Wed: Biden urges Netanyahu to find diplomatic solution to conflict in Lebanon. Donald Trump pledges to end double taxation for expat Americans. Fed minutes show support for a gradual pace of rate cuts. EU countries back €35bn loan to Ukraine. India Repurchase rate 6.5% as exp / Cash reserve ratio 4.5% as exp, New Zealand Cash rate 4.75% as exp, Mexico CPI 4.58% (4.61%e) / Core 3.91% (3.94%e), S&P +0.7%; Thur: French PM unveils a 2025 budget with €60bn of spending cuts and tax increases on companies and the wealthy. Taiwan’s president calls on China to maintain peace in first national speech. Hurricane Milton leaves millions without power in Florida. Russia says 'Nuclear Five' states to meet in New York. US CPI YoY 2.4% (2.3%e) / Core CPI YoY 3.3% (3.2%e), US Initial jobless claims 258k (230k e) / Cont claim 1861k (1830k e), US CPI 2.4% (2.3%e), S&P -0.2%; Fri: US expands sanctions on Iran’s oil sector. Tesla shares tumble on investor disappointment over robotaxis. Germany pledges a further €1.4bn in military aid to Ukraine. VW issues its second profit warning in three months, pointing to intense competition in China. Kamala Harris calls for ceasefires in Lebanon and Gaza. US Mich sent 68.9 (71.0e), US PPI MoM 0% (0.1%e), Germany CPI 1.6% as exp, UK quarterly GDP 0.2% (0.3%e), Canada Unemp rate 6.5% (6.7%e), Russia CPI 8.63% (8.55%e), S&P +0.6%.

Manufacturing PMI (high-to-low): India 56.5 (previous month 57.5), Brazil 53.2 (previous 50.4), Spain 53 (previous 50.5), Norway 51.8/52.04, UK 51.5/52.5, Sweden 51.3/52.6, Singapore 51/50.9, South Africa 51/50.5, Taiwan 50.8/51.5, Canada 50.4/49.5, Greece 50.3/52.9, Hong Kong 50/49.4, Switzerland 49.9/49, Hungary 49.7/47.7, Japan 49.7/49.8, Russia 49.5/52.1, China 49.3/50.4, Indonesia 49.2/48.9, Poland 48.6/47.8, Italy 48.3/49.4, South Korea 48.3/51.9, Netherlands 48.2/47.7, Vietnam 47.3/52.4, Mexico 47.3/48.5, United States 47.2/47.2, Czech Republic 46/46.7, France 44.6/43.9, Turkey 44.3/47.8, Austria 42.8/44.4, Germany 40.6/42.4. Services PMI: India 57.7/60.9, Spain 57/54.6, Brazil 55.8/54.2, Ireland 55.7/53.8, US 55.2/55.7, Japan 53.1/53.7, UK 52.4/53.7, Germany 50.6/51.2, Italy 50.5/51.4, Russia 50.5/52.3, Australia 50.5/52.5, China 50.3/51.6, France 49.6/55, Sweden 49.1/52.4.

Weekly Close: S&P 500 +1.1% and VIX +1.25 at +20.46. Nikkei +2.5%, Shanghai -3.6%, Euro Stoxx +0.7%, Bovespa -1.4%, MSCI World +0.9%, and MSCI Emerging -1.7%. USD rose +2.8% vs Brazil, +1.4% vs Canada, +0.8% vs Russia, +0.7% vs China, +0.7% vs Australia, +0.6% vs Indonesia, +0.4% vs Sterling, +0.3% vs Euro, +0.3% vs Yen, +0.1% vs India, +0.1% vs Turkey, +0.1% vs Chile, and +0.1% vs Sweden. USD fell -2.7% vs Ethereum, -1.0% vs Bitcoin, -0.4% vs South Africa, and flat vs Mexico. Gold +0.3%, Silver -2.0%, Oil +1.6%, Copper -1.8%, Iron Ore -2.9%, Corn -2.1%. 10yr Inflation Breakevens (EU +8bps at 1.93%, US +10bps at 2.33%, JP +5bps at 1.26%, and UK flat at 3.54%). 2yr Notes +3bps at 3.96% and 10yr Notes +13bps at 4.10%.

2024 Year-to-Date Equity Index Close: Argentina +59.1% priced in US dollars (+91.8% priced in pesos), HK +25.3% in US dollars (+24.7% in HK dollars), NASDAQ +22.2% in US dollars, S&P 500 +21.9% in US dollars, Taiwan +21.4% in US dollars (+27.7% in Taiwan dollars), Malaysia +20.2% in dollars (+12.3% in ringgit), MSCI World +17.8% in dollars, South Africa +16.3% (+10.7%), Hungary +15.5% (+22.5%), Netherlands +15.2% (+16.4%), Spain +14.8% (+16%), Germany +14.4% (+15.7%), Belgium +14.3% (+15.5%), India +13.7% (+14.9%), Canada +12.1% (+16.8%), Japan +11.9% (+18.4%), Italy +11.8% (+13%), Singapore +11.6% (+10.3%), Denmark +10.3% (+11.6%), Russell +10.2% in dollars, Ireland +9.9% (+11.1%), Philippines +9.7% (+13.3%), Euro Stoxx 50 +9.5% (+10.7%), UK +9.3% (+6.7%), Czech Republic +8.9% (+12.7%), China +8.7% (+8.2%), Greece +8.4% (+9.6%), Norway +7.8% (+13.9%), Thailand +7.1% (+3.8%), Australia +7% (+8.2%), Switzerland +6.9% (+9.1%), Poland +6.6% (+6.4%), Israel +5.6% (+10.6%), New Zealand +5.2% (+9.1%), Sweden +4.7% (+8%), Austria +4.1% (+5.2%), Turkey +2.4% (+18.8%), Indonesia +2.1% (+3.4%), Colombia +1.8% (+11%), Chile +1% (+6.1%), Saudi Arabia +0.1% (+0.2%), Finland -0.5% (+0.6%), France -0.6% (+0.5%), UAE -3.3% (-3.3%), Portugal -3.6% (-2.6%), Korea -6.7% (-2.2%), Brazil -16.5% (-3.1%), Mexico -20.2% (-8.7%).

Market Gods: “Let me start with the psychology that governed the gold market for years,” I said. It was our IC meeting and the topic of gold’s recent outperformance versus bitcoin came up. “When Bernanke unleashed QE during the GFC, a lot of very smart people rushed to hedge themselves against a massive monetary inflation. Gold was an obvious hedge, and the Baby Boomers were in their investing prime back then. They felt highly exposed to an inflating-away of their life savings. They already owned homes. Many bought gold. Some bought far too much.

Market Gods II: “Republican’s prevented Obama from the wild stimulus spending he sought. And China’s deflation-exporting economy was still being brought online in the aftermath of its WTO ascendance. Plus, Beijing pumped it up through massive subsidies/stimulus. There were surely other reasons why inflation didn’t take off back then. Expectations remained generally stable. And despite Europe’s response to an existential sovereign debt crisis, and Draghi’s 2012 commitment to do “whatever it takes”, the Germans never let spending get out of control.

Market Gods III: “Gold peaked in the summer of 2011 at over $2500/oz and turned lower. By 2015, it had fallen roughly 40%, back to the $1400 level it hit in March 2008. All these Baby Boomers with gold buried in their backyards were gutted. They prayed that if they ever got back to the highs, they’d sell. We’ve all prayed like that. Every one of us. Those who held until July 2020 got the chance to sell again near the 2011 highs at $2400. Covid stimulus sparked that rally. Some sold. Gold fell. The holders begged forgiveness. Then sold. Gold fell 30% over 2yrs.

Market Gods IV: “Baby Boomer bulls eventually lost faith. Many needed cash, they were retiring. Some got bearish gold and pointed to the EU’s confiscation of Russia’s foreign reserves following the Ukraine invasion. “If gold couldn’t rally on that, then would it ever,” they asked. The last disillusioned bulls sold their final ounce. Then gold started rallying. It has not looked back. That’s what can happen to a market once you clean out the remaining stale positions. A clean market can really move, given a clear fundamental catalyst; gold has at least two.

Market Gods V: “The confiscation of Russian assets means governments will increasingly diversify their foreign reserves into non-sovereign assets. Gold is one. And now that China is committing to stimulus, every major economic zone appears to be doing the opposite of austerity. So, in a world of potentially infinite fiat, scarce assets should appreciate. Gold has. It’s +40% over the past 12mths. Bitcoin is +134% over that period. But for the past 7mths, Bitcoin has chopped around in a 30% range (13% below all-time highs), while gold continued upward. Why?

Market Gods VI: When Bitcoin hit $59k in Apr 2021, the bullishness was insane. It fell nearly 50% through that summer and made new highs around $65k in Nov 2021. Then it collapsed to the $15k area on the FTX failure. A material portion of bulls who endured that net worth crash prayed to God that they’d sell some, most, maybe even all (probably not all, this is crypto) if they ever got back to the highs. Bitcoin hit $72.75k this Mar. There’s been selling into every market rally since, even as clear fundamental catalysts appear (the same ones as for gold). And as this happens, market positioning gets cleaner.

Anecdote: “No longer than a year,” said the young programmer, a proud Persian. His colleagues nodded in agreement. I had asked how much longer Ayatollah Khamenei and his regime would remain in power. Reformists had won a parliamentary majority only to have the conservative-controlled Guardian Council, judiciary, and Supreme Leader limit their ability to enact meaningful reforms. Student protests were intensifying. I was in Sharjah, a conservative UAE emirate, engaged in a technology buildout. Many of the programmers were Persian. “I too used to have hopes, but you will see, the regime will not fall for a decade or two, perhaps more,” said an older Persian at the dinner table, US educated, an entrepreneur based in Tehran, a survivor. We were all eating Kentucky Fried Chicken by the bucketful, unavailable in Tehran, and like so many American exports was more desired for its prohibition. I first learned of Iran’s Morality Police at that dinner, their hypocrisy, and how the youth mocked them. They discussed a wing of Evin Prison, where they tortured political dissidents. They called it Evin University. “Iran is run by the Revolutionary Guard; the economy, the government, everything, and the Guard grows stronger each year. All those in power are corrupted by it. And so, to remove the Ayatollah, is to remove the Guard, and to remove the guard is to remove everyone who has any power,” continued the older Persian, describing the complexity of untying the knot. The younger programmers argued passionately for a peaceful revolution. But he was as unmoved. “The uneducated youth outside the cities will fall for the Mullah’s lies, propaganda, and this will prolong the life of the regime. Yet someday it will come to an end, it is too corrupt to last, but corrupt regimes can live on for a very long time. The knot will need to be cut, and it will end in violence.” The year was 2000, on one of my earliest trips to the UAE.

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.