Hope all goes well… I take late summer off from writing weekend notes. Reading more, recharging. In the meantime, dusted off an anecdote from 2016 about challenging the status quo, destroying our treasured creations, reinventing ourselves. All things to embrace as we enter an extraordinary decade, in monetary/fiscal policy, geopolitics, markets, inflation, digital assets - the ground beneath our feet already shifting. All the best, E
Weekly Close: S&P 500 -0.6% and VIX +3.11 at +18.56. Nikkei -3.4%, Shanghai -2.5%, Euro Stoxx -1.5%, Bovespa -2.6%, MSCI World -1.4%, and MSCI Emerging -4.7%. USD rose +3.8% vs South Africa, +3.3% vs Australia, +2.5% vs Brazil, +2.4% vs Canada, +2.4% vs Mexico, +1.8% vs Sweden, +1.8% vs Sterling, +1.4% vs Chile, +0.9% vs Russia, +0.8% vs Euro, +0.5% vs Indonesia, +0.4% vs China, +0.2% vs India, and +0.2% vs Yen. USD fell -3.3% vs Bitcoin, -1.5% vs Ethereum, and -0.3% vs Turkey. Gold +0.1%, Silver -3.1%, Oil -8.8%, Copper -4.8%, Iron Ore -19.5%, Corn -6.2%. 5y5y inflation swaps (EU -6bps at 1.65%, US -11bps at 2.28%, JP -3bps at 0.18%, and UK -3bps at 3.78%). 2yr Notes +2bps at 0.23% and 10yr Notes -2bps at 1.26%.
YTD Equity Indexes (high-to-low): UAE +51% priced in US dollars (+51% in dirham), Saudi Arabia +29% priced in US dollars (+28.9% in riyal), Austria +21.8% in dollars (+27.9% in euros), Hungary +21.7% (+22.9%), Czech Republic +21.3% (+24.1%), Denmark +20.8% (+26.8%), S&P 500 +18.3%, Netherlands +18.2% (+23.5%), Sweden +17.3% (+25.9%), Russia +16.9% (+16.5%), Canada +16% (+16.7%), India +15.7% (+17.7%), MSCI World +14.5% (+14.5%), Argentina +14.5% (+32.4%), France +14.3% (+19.4%), NASDAQ +14.2%, Mexico +14.1% (+16.7%), Finland +13.7% (+19.4%), Poland +13.3% (+19.2%), Belgium +13.1% (+18.1%), Ireland +12.4% (+17.4%), Israel +12.2% (+13.3%), Euro Stoxx 50 +11.8% (+16.7%), Switzerland +11.7% (+16%), Taiwan +11.2% (+10.9%), Italy +11% (+16.6%), Norway +10.6% (+16.2%), Russell +9.8%, Germany +9.7% (+15.2%), UK +9.5% (+9.7%), Singapore +5.9% (+9.1%), Spain +5.7% (+10.4%), Australia +5.1% (+13.3%), South Africa +5.1% (+10%), Greece +4.5% (+9.2%), Portugal +2.3% (+6.9%), China -0.9% (-1.3%), Korea -1.5% (+6.5%), Indonesia -1.8% (+0.9%), Thailand -3.7% (+7.2%), Brazil -5% (-0.8%), Chile -5.8% (+4.1%), New Zealand -6% (-1.2%), Japan -7.5% (-1.6%), HK -9.2% (-8.7%), Philippines -11.2% (-7.1%), Malaysia -11.5% (-6.7%), Turkey -14.4% (-2.2%), Colombia -18.4% (-7.7%).
Anecdote (Nov 2016): “Nothing ever stays the same, ever,” he said. “All the people we’ve known over the years,” he said, squinting, looking back through time. “How many are still in the industry?” I considered the question. So many names, faces, personalities. Most gone. “You got to be adaptable. That’s my nature. I challenge the status quo. I’m a destroyer, a disrupter.” I looked around his office, abstract artwork, all different from my last visit. “When things are going great here, I rip them apart. And my people don’t understand. They’re stunned. They ask why?” But results speak for themselves, and he’s amassed one of the world’s great fortunes. “Our data shows that the alpha available in markets has declined over the past fifteen years.” The downward decline shows no signs of abating. A vast database of buy/sell decisions made by hundreds of our field’s best trading minds doesn’t lie. Wishing away this unfortunate fact won’t work. “We need to push our alpha capture back up. But it’s not possible by doing more of what we’ve always done.” You need to innovate. Do things differently. Think differently. “The law of economics is immutable. Excess profits are competed away. It’s not happening in our industry, it’s happened.” So he’s exploring artificial intelligence. Quantitative methodologies. Blending them with traditional approaches. And runs experiments, spreading capital across a range of innovative ideas, knowing that most will fail. But not all. “This game is over as we remember it, but there may be one more act. Maybe we can be the ones to shape it. And if it doesn’t work, at least we tried,” he said, smiling, with nothing left to prove to anyone but himself. “If I can’t outperform over 90% of everyone in the world, why even try? Who wants to be mediocre?”
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, drink 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.