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

Week-in-Review (expressed in YoY terms): Mon: Taliban captures Kabul – president Ghani flees the country – US troops took over the airport to evacuate Americans and allies – Biden defends decision to withdraw troops, death toll from Haiti’s 7.2 earthquake continues to rise – 1,419, road safety regulators open investigation in Tesla’s partially automated driving system, Trudeau calls for election 9/20 amid strong polling results to regain control over House of Commons, covid hospitalization rates for 30 year old’s reaches record, China ret sales 8.5% (10.9%e) / IP 6.4% (7.5%e), Japan 2Q GDP 1.3% (0.5%e), US emp mfg 18.3 (28.5e), S&P +0.3%; Tue: NZ national lockdown announced after 1 case was found, Walmart earnings beat expectations, Powell says unclear if Delta variant will have noticeable impact on the economy, EU 2Q GDP 13.6% (13.7%e), US ret sales (control grp) -1% MoM (-0.2%e), US IP 0.9% MoM (0.5%e), S&P -0.7%; Wed: FOMC mins show “most” participants envisioned the possibility of tapering by year-end, US extends mask mandate for planes/trains/buses/airports until Jan 18th, US block Taliban from tapping IMF credit line, Biden announced that third booster available for those vaccinated 8m ago starting 9/20, US/Turkey relations stressed over Afghan refugees, UK Core CPI 1.8% (2%e) / RPI 3.8% (3.6%e), S. Africa CPI 4.6% (4.7%e) / ret sales 10.4% (9.5%e), Russia PPI 28.1% (27.8%e), Canada CPI 3.7% (3.4%e), US housing starts -7% MoM (-2.6%e), S&P -1.1%; Thur: RBNZ Gov Orr says would’ve hiked yesterday if lockdowns hadn’t been announced, Toyota to slash production by 40% in September due to chip shortage, Pfizer vaccine found to drop from 85% to 75% effective from 2w to 1m after second jab, Australia emp change 2.2k (-43.1k exp) / unemp 4.6% (5%e), US initial claims 348k (364k exp), US philly Fed 19.4 (23.1e), US leading index 0.9% (0.7%e), S&P +0.1%; Fri: reports that Taliban are reneging on promise not to take “revenge” on NATO collaborators, Sydney extends lockdown until end of Sept, NZ nationwide lockdown extended until at least 8/24, China regulations continue to be rolled out as it tightened data privacy policy, Oregon mandates vaccination for teachers, Australia tops daily case record (700/day), S. Korea PPI 7.1% (6.4%p), Japan CPI -0.3% (-0.4%e), Germany PPI 10.4% (9.2%e), UK ret sales (core) 1.8% (5.8%e), Canada ret sales 4.2% MoM (4.5%e), S&P +0.8%.

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,

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, 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.