Dusted off an anecdote from 2021 about finding nobility in great struggles (see below). I take August off from writing to recharge, read, roam. Hoping the same for you and your crew. See you again in September with full weekend notes.
Week-in-Review (expressed in YoY terms): Mon: US Senate passes $739b climate/healthcare/tax deal – the Inflation Reduction Act – revives Biden’s agenda, China extends military drill near Taiwan, FBI conducted unannounced search of Trump’s home, US pledges an add’l $1b in military equipment to Ukraine (brings total to ~$9b), Ukrainian grain shipment seeks new buyer after Lebanese buyer backed out, Putin/Erdogan bilateral talks led to agreement to increase bilateral trade and energy cooperation, TSLA secures a $5b deal for nickel from Indonesia, EU investor conf -25.2 (-29e), S&P -0.1%; Tue: China announces surprise audit of $3T Trust industry, Russia gas flows to eastern Europe halted as sanctions prevent payment of transit fee, UK braces for blackouts/gas cuts in January in a “reasonable worst-case scenario”, BOE deputy gov Ramsden says will have to hike again to control infl/ but may need to cut quickly at some point, Taiwan began live-fire artillery drills simulating defense against Chinese invasion, DOJ poised to sue Google over ad market monopoly, Micron lowered guidance due to decreased demand, new polls show Lula’s lead over Bolsonaro shrinking in upcoming presidential election, US NFIB 89.9 (89.5e), Mexico CPI 8.15% (8.14%e) / Core CPI 7.65% (7.61%e), Brazil IPCA infl 10.07% (10.10%e), US unit labor cost 10.8% (9.5%e) / productivity -4.6% as exp, S&P -0.2%; Wed: US CPI 8.5% (8.7%e) / Core CPI 5.9% (6.1%e), Rhine River effectively impassible at key point due to fall in water level, China ends Taiwan military drills / plans regular patrols, Trump pleads the 5th in NY probe, VIX dips below 20 for first time since April, Fed’s Kashkari says far away from victory on inflation / expects hikes in 2023 rather than cuts, Russia to restart gas flow to eastern Europe, Thailand CB hikes 25bp as exp, WSJ Fed reporter Timiraos says 75bp hike in Sept remains possible due to accelerating jobs/wage growth, Japan PPI 8.6% (8.4%e), China PPI 4.2% (4.9%e) / CPI 2.7% (2.9%e), Russia CPI 15.1% (15.3%e), S&P +2.2%; Thur: US avg gas prices fall below $4/gal, OPEC sees global oil market tipping into surplus this quarter, Mexico CB hikes 75bps as exp, Fed’s Daly indicates support for 50bp hike but doesn’t rule out 75bp, Turkey records record current account deficit ($3.5b vs $3.4b exp), PBOC says CPI to remain range bound and likely reach 3% goal / will continue to provide plenty of liquidity, China covid cases reach 3m high amid summer travel but primarily in smaller provinces, N. Zealand house sales -36.7% (-38.1%p), Australia infl exp 5.9% (6.3%p), Sweden unemp 3.2% (3.1%p), US init claims 262k (265k exp), US PPI 9.8% (10.4%e) / Core PPI 7.6% (7.7%e), S&P -0.1%; Fri: Xi to meet with Biden in Asia in November, FBI reportedly found 11 sets of classified documents and removed 20 boxes from Mar-a-lago, China says companies’ decision to delist in US is based on their business decisions, Peloton to cut 800 jobs / close stores, Peru CB hikes 50bp as exp, China new loans 679b (1,125b exp), Argentina CPI 71% (70.7%e), France unemp 7.4% (7.3%e), Sweden CPIF 8% (8.3%e) / Core CPIF 6.6% as exp, UK 2Q GDP 2.9% (2.8%e) / IP 2.4% (1.6%e), Turkey IP 8.5% (6.7%e), Tukey exp inflation 41.99% (40.23%p), HK 2Q GDP -1.3% (-1.4%e), Taiwan 2Q GDP 3.05% (3.10%e), EU IP 2.4% (1.2%e), India IP 12.3% (10.3%e) / CPI 6.71% (6.75%e), US Impt prices 8.8% (9.4%e), US UofM 55.1 (52.5e) / 1y infl exp 5% (5.1%e) / 5-10y infl exp 3% (2.8%e), S&P +1.7%.
Weekly Close: S&P 500 +3.3% and VIX -1.62 at +19.53. Nikkei +1.3%, Shanghai +1.5%, Euro Stoxx +1.2%, Bovespa +5.9%, MSCI World +3.0%, and MSCI Emerging +1.4%. USD rose +1.3% vs Russia, +0.5% vs India, and +0.2% vs Turkey. USD fell -9.6% vs Ethereum, -4.5% vs Chile, -3.6% vs South Africa, -2.9% vs Australia, -2.7% vs Mexico, -2.5% vs Bitcoin, -1.7% vs Brazil, -1.5% vs Indonesia, -1.2% vs Yen, -1.2% vs Canada, -0.7% vs Euro, -0.5% vs Sterling, -0.3% vs Sweden, and -0.3% vs China. Gold +1.4%, Silver +4.3%, Oil +3.5%, Copper +3.3%, Iron Ore +0.1%, Corn +5.3%. 5y5y inflation swaps (EU -1bps at 2.08%, US -1bps at 2.57%, JP -4bps at 0.82%, and UK -15bps at 3.55%). 2yr Notes +2bps at 3.25% and 10yr Notes +0bps at 2.83%.
YTD Equity Indexes (high-to-low): Chile +21.2% priced in US dollars (+25.2% priced in pesos), UAE +20.7% priced in US dollars (+20.7% in dirham), Brazil +17.8% in dollars (+7.6% in reais), Argentina +15.2% (+50.9%), Turkey +13.7% (+54.2%), Saudi Arabia +11.1% (+11.1%), Indonesia +5.5% (+8.3%), Portugal +3.5% (+14.9%), Singapore +2.8% (+4.7%), Norway -1.4% (+7.2%), Israel -2.4% (+1.8%), Venezuela -2.4% (+25%), India -4.6% (+2%), Mexico -5.5% (-8.3%), Canada -5.9% (-4.9%), South Africa -6.1% (-4.6%), Thailand -7.3% (-2.1%), Australia -7.7% (-5.5%), Colombia -7.8% (-5.7%), UK -9% (+1.6%), Malaysia -10.1% (-3.9%), Russell -10.2%, S&P 500 -10.2%, Greece -11.4% (-1.6%), MSCI World -12.3% in dollars, Spain -12.6% (-3.6%), Philippines -13.8% (-5.9%), HK -14.2% (-13.8%), Japan -14.5% (-0.9%), China -15.1% (-10%), New Zealand -15.3% (-10%), Switzerland -16.1% (-13.6%), Denmark -16.2% (-7.5%), NASDAQ -16.6%, France -17.5% (-8.4%), Netherlands -18.1% (-9%), Czech Republic -18.2% (-11.5%), Belgium -19.7% (-10.8%), Euro Stoxx 50 -20.8% (-12.1%), Germany -21.3% (-13.2%), Finland -21.9% (-13.8%), Korea -22.4% (-15.1%), Taiwan -22.6% (-16.1%), Ireland -23% (-14.6%), Italy -23.9% (-16%), Sweden -25.4% (-16%), Hungary -26.8% (-13.9%), Austria -27.5% (-20%), Poland -27.8% (-19.1%), and Russia -31.2% (-43.3%).
Anecdote (November 2021): Losing money sucks. Lots of other things do too. Most of us hate being wrong. We go to extraordinary lengths to protect our egos. Which is absurd of course, but we are curious little creatures, taught as children to aim for 100% on each test, to win every ball game. At some point in a trading career, we either learn to deal with the humiliation of making mistakes or we fail. And the way karma works, the harder we deny our errors the more public the ultimate humiliation. Lots of investors target longer time horizons so that they make infrequent predictions, which means fewer possible mistakes to confront. Traders on the other hand, make lots of smaller bets, which guarantees frequent winners and losers. But for some odd reason, victories are less pleasurable than defeats are painful, so on balance, trading depletes us. Which is why it often destroys people, slowly devouring them from within. Survivors develop ways to inoculate themselves from the pain, humiliation, defeats, losses. Some train their minds to reverse decisions in an instant. They can appear confused, confusing, contradicting themselves in the same sentence. Such people are masters at self-preservation. The greatest traders and investors eventually build firms around themselves. Team efforts yield psychic benefits that help restore balance to the emotionally drained. Being surrounded by a group of fellow risk takers and business builders allows you to refocus your efforts when you feel you’re probably wrong. Uncertain. Or when you simply lack conviction. And a team gives you leverage to press hard when you feel you’re right and the risk reward is compelling. Because after years of focused effort, introspection, you gain a good feel for when you’re likely right or wrong. And you begin to see the same in others. Better yet, you can sometimes sense when others are wrong and stubbornly unwilling to yet admit it. Large groups of such people present the greatest trading opportunities. And as awful as it all sounds, the truth is, there is nobility in this struggle. Joy in the pursuit.
Good luck out there,
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.