“The guy said he was exhausted, couldn’t go on, so I had him hand me his M240,” said Kara, 20, Minnesota, distance runner, my daughter’s roommate. She and Liv had returned from field training exercises, having led their platoons for weeks. “I’m 64 inches and he was 74, but I needed to make the point, so I slung it over my shoulder and kept up the hill.” He followed. “I came up to another who stopped marching. Real big kid. Had him give me his gun. He didn’t even hesitate. So now I was carrying 70 pounds of machine guns, plus my ruck,” she said, inhaling deeply at the memory of the heat, humidity, the load. “I earned their respect, not just those two, them all. That’s how you lead, especially as a woman in this world, by example.”

Overall: “Nothing in our manifesto requires tax rises, over and above the ones we’ve already set out,” said Keir Starmer. “It’s not just a question of tax, it’s also because the focus is on growth,” added the Labour Party candidate, quite likely to become the UK’s Prime Minister. Let’s hope for Britain’s sake he means that, because there’s not a single G7 economy that’s going to get out of this debt debacle without focusing on boosting growth. Austerity would produce an economic catastrophe, dampening growth just as it’s already slowing, reducing tax receipts, lifting debt-to-GDP ratios, just as interest payments are ballooning, sparking a negative feedback loop. The window of opportunity for austerity may have been open in 2021 and 2022 when the US economy was growing at 10-12% in nominal terms, but in 2024 it has slammed shut. And the only practical way forward is to grow and inflate our way out. It’s at least worth a try. But as obvious as this path may be, it will be politicians who decide what we do. And the voters choose our politicians. So each election is worth watching. Some look at Millei’s election in Argentina as an indication of what’s to come. But the real lesson of Argentina is that it can take more than a century of overspending, mismanagement, political division, and chronic corruption, for a great nation to finally grow so agitated by hyperinflation and economic depression that it votes for austerity. The west is far away from that. So, France will vote today. The UK on Independence Day. And the US election is now anyone’s guess as the Democrats will almost certainly replace Biden. But no matter who runs this year, in no election will austerity be on the ballot.

Week-in-Review: Mon: PBOC sets weakest fixing since Nov23, Japan officials increase verbal intervention as USDJPY approaches 160, China / EU agree to start negotiating EV tariffs, BOJ mins show 1 member thought they should hike before too late, NVDA sell off weighs on market on little news, Russia blames US for Ukrainian missile strike on Crimea, Indonesia’s Prabowo stresses commitment to 3% GDP budget deficit cap, Fed’s Daly says infl not the only risk we face, Netanyahu says will soon end major operations in Gaza and divert resources to northern Israel to combat Hezbollah, Germany IFO bus climate 88.6 (89.6e), Argentina 1Q GDP -5.1% (-5.3%e), US Dallas Fed mfg activity -15.1 (-15e), S&P -0.3%; Tue: Israel’s top court say ultra-orthodox men can be drafted, Fed’s Bowman doesn’t expect a cut this year, reports that BOJ may deliver a hawkish double surprise, BRL weakens despite hawkish BCB minutes, Japan PPI serv 2.5% (3%e), Canada CPI 2.9% (2.6%e) / trimmed mean 2.9% (2.8%e), US C/S home prices 7.2% (7%e), US Cons conf 100.4 (100.0e), S&P +0.4%; Wed: MOF’s Kanda continues to try to stem JPY collapse via verbal intervention as USDJPY exceeds the highs of when they intervened in April, attempted coup in Bolivia, ECB’s Rehn says mkt’s exp of 2 more cuts this yr is reasonable, Beijing eased rules on home purchases, AMZN tops 2T mkt cap for first time, Fed’s stress tests show banks are in strong position, Australia CPI 4% (3.8%e), UK cons conf -21.8 (-19.5e), Brazil IPCA infl 4.06% (4.11%e), US New home sales 619k (633k e), Russia IP 5.3% (2.3%e), S&P +0.2%; Thu: Riksbank unch as exp – suggests could cut 2-3 more times (2 cuts priced in), Czech CB cuts 50bps – most people expecting 25bp cut, CBRT unch as exp, Mexico CB unch as exp, S. Africa’s DA party threatens to pull out of GNU amid cabinet debates, China announces 3rd Plenum to take place 7/15-7/18, Fed’s Bostic reiterates his view for one cut this yr, Japan ret sales 3% (2%e), EU M3 money supply 1.6% (1.5%e), Mexico unemp 2.62% (2.68%e), US GDP Q1 (final) 1.4% as exp, US Initial jobless claim 233k (235k e), US Durable goods orders 0.1% (-0.5%e), S&P +0.1%; Fri: US PCE 2.6% as exp / Core PCE 2.6% as exp, Biden performs terribly in debate – fails to assuage fears that he’s too old, MOF’s Kanda to be replaced by Mimura on 7/31, SCOTUS throws out Chevron doctrine which gives power to regulators in the event a law is ambiguous, RBA dep gov Hauser says mistake to set policy based on one data print, Fed’s Daly says recent data is sign that monetary policy is working, Columbia CB cut 50bp as exp, S. Korea IP 3.5% (3.1%e), Japan Jobless rate 2.6% as exp, Tokyo CPI 2.3% as exp / Core 1.8% (1.7%e), Japan IP 0.3% (0.0%e), UK GDP 0.3% (0.2%e), France CPI 2.5% as exp, Germany unemp 6% (5.9%e), ECB 1y infl exp 2.8% as exp, Canada GDP 1.1% as exp, US Personal income 0.5% (0.4%e) / Spending 0.2% (0.3%e), US Chicago PMI 47.4 (40.0e), US UofMich sent 68.2 (66.0e) / 1y inlf exp 3% (3.2%e) / 5-10y infl exp 3% (3.1%e), S&P -0.4%.

Weekly Close: S&P 500 -0.1% and VIX -0.76 at +12.44. Nikkei +2.6%, Shanghai -1.0%, Euro Stoxx -0.7%, Bovespa +2.1%, MSCI World +0.1%, and MSCI Emerging -0.1%. USD rose +4.8% vs Bitcoin, +3.0% vs Brazil, +2.2% vs Ethereum, +1.2% vs South Africa, +1.1% vs Mexico, +0.8% vs Sweden, +0.7% vs Yen, +0.1% vs China, and flat vs Sterling. USD fell -0.5% vs Indonesia, -0.4% vs Australia, -0.3% vs Turkey, -0.3% vs Chile, -0.2% vs Euro, -0.2% vs India, and -0.1% vs Canada and flat vs Russia. Gold +0.4%, Silver -1.3%, Oil +1.0%, Copper -0.8%, Iron Ore -1.8%, Corn -7.2%. 10yr Inflation Breakevens (EU -1bp at 2.00%, US +6bps at 2.29%, JP flat at 1.53%, and UK -1bp at 3.59%). 2yr Notes +2bps at 4.76% and 10yr Notes +14bps at 4.40%.

June Monthly Close: S&P 500 +3.5% and VIX -0.48 at +12.44. Nikkei +2.8%, Shanghai -3.9%, Euro Stoxx -1.3%, Bovespa +1.5%, MSCI World +1.9%, and MSCI Emerging +3.6%. USD rose +10.8% vs Bitcoin, +10.3% vs Ethereum, +7.7% vs Mexico, +6.6% vs Brazil, +2.4% vs Chile, +2.3% vs Yen, +1.6% vs Turkey, +1.3% vs Euro, +0.8% vs Indonesia, +0.8% vs Sterling, +0.6% vs Sweden, +0.4% vs Canada, and +0.4% vs China. USD fell -5.3% vs Russia, -3.2% vs South Africa, -0.3% vs Australia, and -0.1% vs India. Gold -0.3%, Silver -3.9%, Oil +6.3%, Copper -4.8%, Iron Ore -6.3%, Corn -9.9%. 10yr Inflation Breakevens (EU -10bps at 2.00%, US -6bps at 2.29%, JP -2bps at 1.53%, and UK -17bps at 3.59%). 2yr Notes -12bps at 4.76% and 10yr Notes -10bps at 4.40%.

Q2 Quarterly Close: S&P 500 +3.9% and VIX -0.57 at +12.44. Nikkei -1.9%, Shanghai -2.4%, Euro Stoxx -0.2%, Bovespa -3.3%, MSCI World +2.2%, and MSCI Emerging +4.1%. USD rose +14.2% vs Bitcoin, +11.6% vs Brazil, +10.6% vs Mexico, +6.3% vs Yen, +3.3% vs Indonesia, +2.7% vs Ethereum, +1.2% vs Turkey, +1.0% vs Canada, +0.7% vs Euro, and +0.6% vs China. USD fell -7.7% vs Russia, -4.0% vs Chile, -3.6% vs South Africa, -2.2% vs Australia, -0.6% vs Sweden, -0.2% vs Sterling, and flat vs India. Gold +3.6%, Silver +16.4%, Oil +0.8%, Copper +8.1%, Iron Ore +5.3%, Corn -11.9%. 10yr Inflation Breakevens (EU -5bps at 2.00%, US -3bps at 2.29%, JP +23bps at 1.53%, and UK -6bps at 3.59%). 2yr Notes +13bps at 4.76% and 10yr Notes +20bps at 4.40%.

Year-to-Date Close: S&P 500 +14.5% and VIX -0.01 at +12.44. Nikkei +18.3%, Shanghai -0.3%, Euro Stoxx +6.8%, Bovespa -7.7%, MSCI World +10.8%, and MSCI Emerging +6.1%. USD rose +15.2% vs Brazil, +14.1% vs Yen, +10.9% vs Turkey, +7.9% vs Mexico, +7.0% vs Chile, +6.4% vs Indonesia, +5.2% vs Sweden, +3.3% vs Canada, +3.0% vs Euro, +2.4% vs China, +2.1% vs Australia, +0.7% vs Sterling, and +0.2% vs India. USD fell -31.3% vs Ethereum, -30.1% vs Bitcoin, -4.9% vs Russia, and -0.9% vs South Africa. Gold +9.9%, Silver +19.4%, Oil +13.7%, Copper +11.4%, Iron Ore -20.6%, Corn -16.4%. 10yr Inflation Breakevens (EU +5bps at 2.00%, US +12bps at 2.29%, JP +35bps at 1.53%, and UK +11bps at 3.59%). 2yr Notes +50bps at 4.76% and 10yr Notes +52bps at 4.40%.

2024 Year-to-Date Close: Argentina +53.7% priced in US dollars (+73.3% priced in pesos), Venezuela +33.9% priced in dollars (+36.1% priced in bolivar), Turkey +28.6% in dollars (+42.5% in lira), Denmark +22.4% (+26.5%), Taiwan +21.1% (+28.5%), NASDAQ +18.1% in dollars, S&P 500 +14.5% in dollars, Netherlands +13.7% (+17.4%), Hungary +11.5% (+18.9%), MSCI World +10.8% in dollars, India +10.3% (+10.5%), Poland +10.3% (+12.9%), Colombia +7.1% (+15.5%), Malaysia +6.4% (+9.3%), Italy +5.8% (+9.2%), Germany +5.4% (+8.9%), Norway +5.2% (+11%), Greece +5.2% (+8.6%), Spain +4.9% (+8.3%), Euro Stoxx 50 +4.8% (+8.2%), UK +4.6% (+5.6%), Czech Republic +4.4% (+9.3%), HK +4% (+3.9%), South Africa +3.7% (+3.5%), Japan +3.6% (+18.3%), Russia +3.4% (+0.8%), Ireland +3% (+6.4%), Austria +1.8% (+5.1%), Sweden +1.6% (+7.2%), Belgium +1.5% (+4.8%), Russell +1% in dollars, Canada +0.8% (+4.4%), Switzerland +0.6% (+7.7%), Singapore +0.1% (+2.9%), Australia -0.1% (+2.3%), Israel -1.2% (+3.2%), Korea -1.6% (+5.4%), Saudi Arabia -2% (-2%), China -2.5% (-0.3%), Chile -3.3% (+3.5%), France -4% (-0.8%), New Zealand -4.4% (-0.5%), Finland -4.7% (-1.6%), UAE -5.4% (-5.4%), Philippines -5.8% (-0.6%), Portugal -8.4% (-5.4%), Indonesia -8.6% (-2.9%), Thailand -14.5% (-8.1%), Mexico -15.2% (-8.6%), Brazil -19.5% (-7.7%).

Biggie: “There are two types of investors right now,” barked Biggie Too, back from another global tour. “Those who own Nvidia and those who don’t.” I smiled. “Looking out a year or so, there’s going to be a major high in AI and obesity drugs, then it’s two years of a bear. But no one who’s long is selling now, not unless there’s a proper recession,” said Biggie, chief global strategist of one of Wall Street’s too-big-to-fail affairs. “No one talks about China anymore, or potential credit events, or even the Fed. It’s quite simple. All roads lead to Nvidia.”

Biggie II: “For the past decade Europe has been a 0-3 out of 10 in investor’s minds,” bellowed Biggie. “In the past year, it’s bounced back to a 3-5 for a few weeks at a time.” China has been un-investable for the past few years, which pined it at 0. “And now with these French elections, Europe is back to 0-3, a rent-not-own market,” said Too. “US investors are looking for markets that they think can follow the S&P 500 higher so that they can diversify into them. Japan has been one. India too. Mexico was one, but their election killed that too. It’s a narrow field.”

Biggie III: “US stocks have priced in the better inflation story,” said Biggie. “But not the growing possibility of slower growth. What will be important to watch for is a moment where stocks sell off on better inflations news.” And Biggie winked, because you see, PCE inflation came in as expected on Friday, the stock market rallied and closed lower. Nothing big, but not nothing either. “If softer inflation leads people to worry about slowing growth as opposed to being a catalyst for lower rates, then that’s something new,” said Biggie, with his big golden grin.

Shock: “The market has this totally wrong,” said Alpha, a strong H1 banked, now fully in cash to watch summer play out, hoping something corrects. “It’s worried about 3% inflation but the worst thing that could happen would be 1.5%-2.0% inflation, unless it’s triggered by a productivity shock.” Enter AI. “And for the first time in my career, a positive shock like this is a realistic possibility. In the 2000’s and 2010’s I saw no realistic hope for a productivity miracle. You could see rates staying low for that reason, and if anything, you had a chance of stagflation.”

Shock II: “The distribution has now completely shifted,” continued Alpha. “You can’t be bearish on productivity in the long-term, even if you can’t necessarily quantify it now,” he said. “You don’t even need to; you just need to know the tails have shifted to the right.” That’s another reason that rates should be higher. “The IS equilibrium is higher. I don’t know by how much. But it’s higher. Not only because we have a level shift in aggregate demand, but on a pure economic basis, on potential output, it’s going to go up because you’re going to increase labor supply.”

Shock III: “One way to imagine AI is that it improves productivity, and in the first instance, it’ll surely be labor enhancing, not labor negative,” said Alpha. “But another way to think about AI is that it’ll increase labor supply.” Every job that is replaced by AI will be like a new worker entering the labor force, and this will free up the worker to move into some new job, probably assisted by AI in a productive way. “Labor, capital, productivity. These are the inputs into production, growth. And looking out over the horizon, all of these are going to be increasing.”

Anecdote: “Guess what I set as my platoon’s motto?” Asked my daughter Liv, 20, eyes electric, home from a month of field training exercises, Chinooks, mortars, leading her team through the wild. I’d never seen her quite so happy, at ease, comfortable, confident. Throughout high school Liv was too eager to take charge, which naturally produced the opposite effect. She had a touch of Hillary Clinton, highly competent, driven, ambitious, but bossy, difficult to like in certain situations. What made it even harder for Liv was that leadership came so naturally to her older brother, as it does to some. But great leaders are built, not born, and the process requires intention, training, enduring stressful situations, to see what works, what doesn’t. To learn who we really are inside, so that we may build our better selves. Military academies are engineered to do just that. Their foundational lesson is that to lead well, you must first learn to follow. So the academies break their cadets in the first year, then spend the next three rebuilding from the ground up. Freshman year was quite tough for Liv. The second year was better, the machine’s gears turning, a great American institution in motion, helping build the next generation of service-minded leaders that our divided nation so desperately needs. And this summer, something clicked. In listening to her stories, it seemed she came to discover that by being softer, she could perform in ways she once thought required hardness. In Liv’s mathematical mind, a complex equation that eluded her for many frustrating years, started to come into view. “Your platoon motto Liv? No idea,” I answered, and she smiled, a bit mischievous, excited. “My team would repeat it when things got tough. And it carried us through some grueling stretches,” said Liv. “Work hard and be nice to people.”

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.