I take late summer off from writing weekend notes. Reading more, recharging. In the meantime, dusted off an anecdote from 2018 about magic, mysteries, the sublime wonder all around. And where to look for the greatest opportunities (see below).

Week-in-Review (expressed in YoY terms): Mon: ECB’s Weidmann warned inflation in the euro area could pick up faster than expected, intergovernmental panel finds that climate change unequivocally caused by humans, Taliban seizes Aibak – 6th provincial capital, Fed’s Bostic and Rosengren say the Fed should begin slowing stimulus efforts, gold experiences modest flash crash, China expts 19.3% (20%e) / impts 28.1% (33.3%e) / CPI 1% (0.8%e) / PPI 9% (8.8%e), Mexico CPI 5.81% (5.78%e), US JOLTS job openings 10.073m (9.27m exp), S&P -0.1%; Tue: US passes bipartisan infrastructure plan, Cuomo resigns as NY Gov amid sexual harassment scandal, China CB says infl pressures “controllable” while highlighting risks to economic growth forecasts, Fauci strongly supports speeding up booster shots for those most at risk amid rising cases (761k / week – highest since Feb), Japan bankruptcies -39.67% (-30.64%p), German ZEW exp 40.4 (55e), Brazil IPCA infl 8.99% (8.98%e), US productivity 2.3% (3.2%e), US NFIB 99.7 (102e), S&P +0.1% ; Wed: US CPI 5.4% (5.3%e) / Core CPI 4.3% as exp – modestly soft print with “transitory” metrics driving increase, EU says won’t reinstate travel restrictions from the US, S. Korea reports 200 cases – highest ever, Melbourne extends lockdown by add’l week, US senate passes $3.5T budget framework, Fed’s Kaplan supports Sept taper announcement that begins in Oct, US urges OPEC to revive production more quickly to control oil prices, S&P +0.3%; Thur: Chinese equities struggle as further regulatory crackdown implied, Fed’s Daly expects tapering to begin by year end, Canberra enters snap 7 day lockdown after first covid case in over a year, Banxico hikes 25bps as exp, Taliban increases provincial capital take overs to 10 in a week, Japan PPI 5.6% (5%e), UK 2Q GDP 22.2% (22.1%e) / IP 8.3% (9.4%e), EU IP 9.7% (10.3%e), India IP 13.6% (14%e), US init claims 375k as exp, US PPI 7.8% (7.2%e), S&P +0.3%; Fri: Peru CB hiked rates 25bps (unexp) – first hike in over 5y, Taliban capture Kandahar – McConnell likens US exit from Afghanistan to the US exit from Saigon, US regulators authorized covid vaccine booster shots for people with weak immune systems, Ningbo-Zhoushan port (one of the world’s busiest) shut as China has zero tolerance covid policy, US Supreme court upheld Indiana University vaccine mandate – 1st legal test of university vaccine mandate, Argentina CPI 51.8% (51.7%e), France unemp 8% (7.8%e), Sweden CPIF 1.7% (1.6%e), US impt px 10.2% (10.5%e), US UofM sentiment 70.2 (81.2e) / 1y infl exp 4.6% as exp / 5-10y infl exp 3% (2.8%p), S&P +0.2%

Weekly Close: S&P 500 +0.7% and VIX -0.70 at +15.45. Nikkei +0.6%, Shanghai +1.7%, Euro Stoxx +1.2%, Bovespa -1.3%, MSCI World +0.9%, and MSCI Emerging -0.9%. USD rose +0.7% vs South Africa, +0.3% vs Brazil, +0.2% vs Indonesia, +0.1% vs India, +0.1% vs Russia, and flat vs Sterling. USD fell -14.0% vs Ethereum, -12.2% vs Bitcoin, -1.7% vs Chile, -1.3% vs Turkey, -0.8% vs Mexico, -0.6% vs Yen, -0.3% vs Canada, -0.3% vs Euro, -0.3% vs Sweden, -0.2% vs Australia, and -0.1% vs China. Gold +1.0%, Silver -2.4%, Oil +0.3%, Copper +0.4%, Iron Ore -1.4%, Corn +2.8%. 5y5y inflation swaps (EU +6bps at 1.71%, US +2bps at 2.39%, JP flat at 0.20%, and UK -2bps at 3.81%). 2yr Notes flat at 0.21% and 10yr Notes -2bps at 1.28%.

YTD Equity Indexes (high-to-low): UAE +50.5% priced in US dollars (+50.5% priced in dirham), Saudi Arabia +30.4% priced in US dollars (+30.3% in riyal), Austria +26% in dollars (+31.2% in euros), Czech Republic +23% (+24.2%), Sweden +22% (+28.4%), Canada +20.1% (+17.7%), France +19.9% (+24.2%), Russia +19.9% (+17.8%), Netherlands +19.7% (+24.1%), Denmark +19.2% (+24.1%), Hungary +19.1% (+19.8%), S&P 500 +19%, Argentina +17.6% (+35.8%), Mexico +17.3% (+16.8%), Poland +16.9% (+21.4%), Finland +16.9% (+21.7%), India +16.5% (+18.2%), Norway +16.3% (+19.1%), Taiwan +16.3% (+15.3%), Belgium +16.3% (+20.5%), MSCI World +16.2% (+16.2%), South Africa +15.9% (+16.3%), Italy +15.1% (+19.9%), NASDAQ +15%, Ireland +14.9% (+19.1%), Euro Stoxx 50 +14.9% (+19.1%), UK +13.5% (+11.7%), Israel +12.6% (+12.9%), Russell +12.6%, Switzerland +12.3% (+16.5%), Germany +11.8% (+16.5%), Australia +11% (+15.8%), Singapore +8.6% (+11.3%), Spain +7.6% (+11.5%), Greece +6.8% (+10.7%), Korea +3.3% (+10.4%), China +2% (+1.2%), Brazil +0.5% (+1.8%), Indonesia +0.4% (+2.7%), Portugal -1.3% (+2.2%), Chile -3.3% (+5.4%), HK -3.4% (-3.1%), Japan -4% (+1.9%), New Zealand -4.5% (-2.5%), Thailand -5.1% (+5.4%), Malaysia -12.2% (-7.5%), Turkey -14.6% (-2%), Philippines -15.8% (-11.5%), Colombia -21% (-11.8%).

Anecdote (Sept 2018): “I’m fortunate to live in a time where the political system allows my kind of work,” said the Physicist. “Historically, it’s not always so.” Below us particles raced around CERN’s 27km subterranean track, held in precise formation, accelerating toward collision, obliteration, observation. We discussed magic, mysteries, the sublime wonder all around. “It’s incredible that we’ve been able to learn so much about nature, and that the language of mathematics turns out to be so effective in describing it,” he said. I smiled, having never quite considered that fact. “We’re now trying to produce a substance found throughout the universe that interacts with gravity but not light,” he explained. “But so far, no success.” The existence of Dark Matter was first hypothesized in the 1930s, we’ve searched ever since. It accounts for 95% of the Universe’s mass. The Physicist asked me about markets, intrigued by their movements, mechanics. There are parallels with quantum theory. Investor perceptions impact markets, which in turn changes investor perceptions in a reflexive loop that grows highly unpredictable in the extreme. The greatest opportunities in markets often reveal themselves first as mysterious phenomena. When markets move in opposition to general principles, it often means that something fundamental is changing. Reality is always changing. Our job as investors is to identify shifts early and adjust our frameworks accordingly. I asked the Physicist to explain the mystery that confounded Einstein and every physicist since: Quantum Entanglement. “I can understand the equations that describe it. But I’m intuitively mystified by the phenomenon,” he admitted. “In my field of work, I’m astonished often. And each time, I’m reminded that what we know about reality fits within perhaps 5% of all there is. And when you know so little about something so vast, it’s impossible to be certain whether what you believe you know is even reality.”

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.