Hope all goes well… “My English not so good,” said Bojan, eager, making eye contact in the rearview. “I learn little each day, I get better.” He had leapt out of the black Mercedes Uber, a rainy Zurich morning, insisting he take my bag. Shook my hand, a joyous gesture, authentic, the strength of Bojan’s grip more mechanic than chauffer. “I from Serbia, work construction for my life, now drive. I marry new woman, have baby girl, she five. I now not too tired to play when get home.” I nodded, smiled. “This good country, take care of people, you sick, hurt, the country pays you money. But America best country live, make business. I want live in New York.”

Overall: “The United States still thinks in terms of the Cold War and is guided by the logic of bloc confrontation, putting the security of ‘narrow groups’ above regional security and stability, which creates a security threat for all countries in the region,” read the 7,000 word Joint Statement of the People’s Republic of China and the Russian Federation on Deepening the Comprehensive Strategic Partnership of Coordination for the New Era in the Context of the 75th Anniversary of China-Russia Diplomatic Relations. Quite a mouthful. “The US must abandon this behavior.” The statement followed a two-day meeting between Putin and Xi in Beijing. It is a strong signal, the kind of thing that matters greatly, for decades to come. “Russia and China are determined to defend their legitimate rights and interests, resist any attempts to hinder the normal development of bilateral ties, interfere in the internal affairs of the two states, and limit the economic, technological or foreign policy potential of Russia and China.” The joint release went on to explore areas of cooperation/coordination between the neighboring autocracies: North Korea, Nuclear War, Markets, Industry, Agriculture, Technology, Energy, Ukraine, and of course Taiwan. “The parties oppose the hegemonic attempts of the United States to change the balance of power in Northeast Asia by building up military power and creating military blocs and coalitions.” The crack between East and West, the Global South and North, is rapidly widening. America’s competitors and adversaries appear to think that the window of opportunity is now open to divide the world before their collapsing demographics deny them any realistic chance of success. Given their trajectories, it is probably a risk worth taking for Putin and Xi. “The China-Russia relationship today is hard-earned, and the two sides need to cherish and nurture it,” Xi told Putin during the press conference. “China is willing to… jointly achieve the development and rejuvenation of our respective countries and work together to uphold fairness and justice in the world.” And to win, the US must simply have faith that the weight of the world’s nations will follow our lead, if only we have the courage and determination to live up to our founding principles.

Week-in-Review: Mon: Israel’s Security Cabinet approved “measured expansion” of Rafah operation / Blinken said they lacked a credible plan to protect civilians, BOJ announced smaller JGB purchase operation – first downsize since YCC ended in March, Fed’s Jefferson says appropriate to hold rates until more confident on infl, meme stocks soar as @RoaringKitty returns, Putin replaces defense minister with technocrat, India CPI 4.83% (4.80%e), US NY Fed 1y infl exp 3.26% (3%p), S&P flat; Tue: Biden hikes tariffs on wide range ($18b) of Chinese impts, Powell repeats patience required to see further disinflation, Fed’s Mester prefers to not have to hike again, Egypt considering downgrading diplomatic ties with Israel / could join S. Africa in int’l court case, BOE’s Pill (hawkish) says monetary policy can remain restrictive during small rate cuts, ECB’s Wunsch and Knot are cautious about consecutive cuts, US Core PPI higher than exp (0.5% MoM (0.2%e)) but components for PCE fairly neutral, Japan PPI 0.9% (0.8%e), Germany CPI 2.2% as exp, UK Unemp rate 4.3% as exp / avg weekly earnings 5.7% (5.5%e), Germany ZEW 47.1 (46.4e), EU ZEW 47 (43.9p), US NFIB 89.7 (88.2e), S&P +0.5%; Wed: US CPI 3.4% as exp / Core 3.6% as exp, Biden / Trump agree to 2 debates with the first on 6/27, rumors that China is mulling program to have gov’t purchase unsold homes from distressed developers, China leaves MLF unch as exp, Fed’s Kashkari says should stay on hold for a while longer / Goolsbee says what happens with infl will depend on housing, ECB’s Villeroy says cuts rely more on data than the Fed, OpenAI releases GPT-4o, Slovak PM Fico wounded by gun shot in assassination attempt, Australia wage price index 4.1% (4.2%e), France CPI 2.4% as exp, Poland 1Q GDP 1.9% (1.8%e), EU 1Q GDP 0.4% as exp / IP -1% (-1.3%e), US Empire mfg -15.6 (-10.0e), US ret sales -0.3% (0.1%e), US NAHB housing index 45 (50e), S&P +1.2%; Thu: Lula fires Petrobras CEO, 3 Fed members (Williams, Mester, Barkin) suggest restrictive policy is appropriate to continue to bring infl to target, Japan 1Q GDP -2% (-1.2%e) / Deflator 3.6% (3.3%e), US Init claims 222k (220k e), US Housing starts 1360k (1421k e) / Building permits 1440k (1480k e), US impt prices 1.1% (0.4%e), US IP 0% MoM (0.1%e), S&P -0.2%; Fri: China unveils property market support - scraps minimum mortgage rate / cut down-payments / released $41.5b to help SOEs buy unsold homes, China begins auctioning 30y bonds for first time, ECB’s Schnabel warned against back-to-back cuts, China IP 6.7% (5.5%e) / Ret sales 2.3% (3.7%e), EU final CPI 2.4% as exp / Core 2.7% as exp, US Leading index -0.6% (-0.3%e), Russia CPI 7.84% (7.80%e), S&P +0.1%.

Weekly Close: S&P 500 +1.5% and VIX -0.56 at +11.99. Nikkei +1.5%, Shanghai -0.0%, Euro Stoxx +0.4%, Bovespa +0.4%, MSCI World +1.4%, and MSCI Emerging +2.5%. USD flat vs China. USD fell -6.4% vs Bitcoin, -3.9% vs Chile, -3.2% vs Ethereum, -1.5% vs South Africa, -1.4% vs Russia, -1.4% vs Sterling, -1.3% vs Australia, -1.1% vs Sweden, -1.0% vs Brazil, -1.0% vs Mexico, -0.9% vs Euro, -0.6% vs Indonesia, -0.4% vs Canada, -0.2% vs Turkey, -0.2% vs India, -0.1% vs Yen. Gold +1.8%, Silver +9.7%, Oil +2.3%, Copper +8.3%, Iron Ore +0.0%, Corn -3.7%. 10yr Inflation Breakeven (EU -1bp at 2.09%, US -3bps at 2.33%, JP +3bps at 1.47%, and UK +2bps at 3.73%). 2yr Notes -4bps at 4.83% and 10yr Notes -8bps at 4.42%.

2024 Year-to-Date Close: Argentina +44.5% priced in US dollars (+58.5% priced in pesos), Turkey +30.6% priced in US dollars (+42.5% priced in lira), Colombia +20.3% in dollars (+19.6% in pesos), Denmark +17.3% (+19.5%), HK +14.8% (+14.7%), Italy +14.6% (+16.6%), Netherlands +14% (+16.1%), Poland +13.2% (+13.1%), Greece +13.2% (+15.3%), Taiwan +12.6% (+18.6%), Ireland +12.2% (+14.3%), S&P 500 +11.2% in dollars, NASDAQ +11.2% in dollars, Russia +11.1% (+13%), Spain +10.2% (+12.1%), Euro Stoxx 50 +10% (+12%), Germany +9.7% (+11.7%), MSCI World +9.5% in dollars, Hungary +9.1% (+12.3%), Malaysia +8.8% (+11.1%), Czech Republic +8.5% (+10.4%), UK +8.4% (+8.9%), Austria +7.3% (+9.2%), France +6.4% (+8.3%), Venezuela +6.4% (+8.7%), Belgium +6.1% (+8%), Chile +5.8% (+7.4%), Norway +5.2% (+11.2%), Japan +4.9% (+15.9%), South Africa +4.3% (+3.9%), China +4.2% (+6%), Canada +4% (+7.2%), Russell +3.4% in dollars, India +3.3% (+3.4%), Israel +2.9% (+5.8%), Mexico +2.3% (+0.3%), Saudi Arabia +1.9% (+1.9%), Sweden +1.8% (+8.6%), Finland +1% (+2.8%), Australia +0.7% (+2.9%), Singapore +0.3% (+2.3%), Switzerland -0.1% (+8.1%), Philippines -1.5% (+2.6%), Portugal -1.6% (+0.2%), Korea -2.4% (+2.6%), Indonesia -2.9% (+0.6%), New Zealand -3.9% (-0.6%), UAE -5.6% (-5.6%), Thailand -7.6% (-2.3%), and Brazil -9.2% (-4.5%).

Joint Statements: The Chinese/Russian joint statement reads like a playbook for how to create a fully independent political and economic zone. For Industry - develop civil aircraft construction, shipbuilding, carmakers, machine tool industry, electronics industry, metallurgy, iron ore mining, chemical industry, and forestry. For Agriculture - expand mutual access of agricultural products, increase the volume of trade in soybeans, pig breeding, water production, grain, fat and oil, fruits and vegetables, nuts, and other products.

Joint Statements II: For Energy - strive for the stability and sustainability of the global energy market, strengthening value chains in the fuel and energy complex. Develop market-based cooperation in the field of oil, natural gas, LNG, coal, and electricity, ensure the stable operation of relevant cross-border infrastructure and the creation conditions for unimpeded transportation of energy resources. For Nuclear Energy - deepen partnership in peaceful nuclear energy. Including thermonuclear fusion, fast neutron reactors and the closed nuclear fuel cycle.

Joint Statements III: For Taiwan - Russia reaffirms its commitment to the principle of ‘One China’, recognizes that Taiwan is an integral part of China, opposes the independence of Taiwan in any form, and firmly supports the actions of the Chinese side to protect its own sovereignty and territorial integrity, as well as to unify the country. For Ukraine - The Russian side positively assesses China's objective and unbiased position on the Ukrainian issue. China supports the efforts of the Russian side to ensure security and stability, national development and prosperity, sovereignty, and territorial integrity, and opposes outside interference in Russia's internal affairs.

Joint Statements IV: For Technology - develop cooperation in information and communication technologies, including artificial intelligence, communications, software, Internet of things, open source, network and data security, video games, radio frequency coordination, specialized education, and industry research activity. For Markets - increase the share of national currencies in bilateral trade; encourage debt issuance in both markets; develop insurance and financial markets. This process is clearly already underway. And so is their retreat from US markets.

Disentanglement: The West froze over $300bln of Russian reserves following the Ukraine invasion. Moscow will not be buying our bonds again. China has been reducing its US Treasury and agency bond holdings since 2022. It sold another $53.3bln worth in Q1. Holdings are down to $767bln, a level last seen in 2009. Perhaps most interesting is that despite the dollar selling, the renminbi is not stronger, it is weaker. For all of America’s shortcomings, the dollar remains strong, even as China turned from a structural buyer to a seller. No one wants the renminbi.

Disentanglement II: What has rallied is gold, crypto, real assets. Chinese buying of gold continues and the share of its foreign reserves held in the metal climbed to 4.9% (up from 1.5% in 2015). In a world where investors (and rating agencies) are increasingly concerned about US fiscal sustainability but have little interest in buying what China has to offer, it appears that a move is underway to allocate out of fiat currency into those things that cannot be printed on paper, and which both East and West will need to build their newly disentangled zones.

Disentanglement III: The US is in a stunningly strong position in such a world, if only it can get out of its own way and be true to its founding principles. Liberty, equality, democracy, Republicanism, rule of law, separation of powers, checks and balances, individual rights, Federalism, natural rights, limited government, judicial review. The demographic implosion underway in both Russia and China will not be filled by ambitious immigrants, who uproot their families for a better life under those systems. They’ll come here. This is America’s opportunity.

Anecdote: “In California, there is next to no stigma attached to trying and failing, provided you put everything into succeeding and act ethically,” I explained. “In New York there is a greater reputational cost to failing, and I’m pretty sure that’s because the consequences of failure in finance are often higher,” I said. “In technology, if a new product is lousy, the customers delete the app and move on. The founders learn something and iterate, VCs write it off. But when the product itself is an investment that is supposed to generate gains, and customers lose a lot of money, it’s a real problem.” Sometimes both the founders and allocators struggle to find new opportunities. “We are far more like New York than California,” said the Swiss investor. “But even more conservative. There is a stigma to failing here, and it is a very small market, everyone knows everyone. And Switzerland is more entrepreneurial than other countries in Europe.” Switzerland is a place where money goes to sleep. Perhaps it is the nature of its history with private banking, where people come to preserve their wealth, not 10x it. “And there is something else too. Many of our best entrepreneurs believe they can scale their products across the common market,” he said. “Perhaps they develop a good business in one country, and then when they try to spread across Europe, the regulations in new markets make it nearly impossible,” he said. “You need a new website, a new language, new local service providers too.” Costs mount, time slows. “And many of the most promising are drawn to the US, recruited by your VCs - they get absorbed by the American blob.” The massive US market. “There are only two markets in the world where an entrepreneur can really scale operations: the US and China. Those are the only markets where there is enough internal consistency and size for a young company to develop a great product, scale it, and then export it globally.”

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.