Dusted off an anecdote from late 2018 on the illusion of certainty (see below). I take the late summer off from writing, to squeeze in some reading. Recharge. Hoping the same for you. All the very best, Eric
Israel’s far right gov’t moves forward with controversial judicial reform / protests grow in response, China’s Politburo meeting slightly beat the downbeat expectations on property policy and local debt disposal, wheat prices jump after Russia attacked Ukraine’s Danube ports, UK Job vacancies rise for 5th month, EU Mfg PMI 42.7 (43.5e) / Serv PMI 51.1 (51.6e / comp 50.7 (52.3e), UK Mfg PMI 45.0 (46.0e) / Serv 51.5 (53e) / comp 50.7 (52.3e), Mexico Bi-Weekly CPI 4.79% (4.77%e) / Core 6.76% (6.73%e), US Chicago Fed Nat Activity Index -0.32 (-0.13e), US S&P Mfg PMI 49.0 (46.2e), S&P +0.4%; China removed Qin Gang as foreign minister just seven months into the job / replaced by his predecessor Wang Yi / Pan Gongsheng appointed PBOC gov, IMF increases global GDP forecast to 3% in 2023 (2.8% prev), chipmakers warned that shortages of skilled labor are threatening US plans for rapid expansion domestically, Hungary CB cut rates by 100bp as exp, Indonesia CB unch as exp, Czech CB’s Prochazka pushes against market expectations for rate cuts this year, Teamsters agree to contract with UPS – avoiding strike, ECB BLS shows weaker credit demand but the tightening in credit standards moderated, MSFT fell despite beating earnings (weak sales growth) and Google surged after beating eps and rev estimates, South Korea GDP 0.9% (0.8%e), Germany IFO 87.3 (88.0e) / Expectations 83.5 (83.4e), Poland unemp 5% as exp, Brazil IPCA infl 3.19% (3.24%e), Mexico Economic Activity 4.31% (3.50%e), US FHFA house px index 0.7% MoM (0.6%e), US Case-Shiller home prices -1.7% (-2.35%e), US consumer confidence 117 (112e), US Richmond fed mfg index -9 (-10e), S&P +0.3%; Fed hikes 25bp as exp – highest level in 22y / Powell highlights data dependent path forward / Staff no longer forecasting a recession, Joe Lewis charged with insider trading, Senate requires some US investments in China to be reported, BoC mins confirm data dependent going forward, META beat earnings est, Australia CPI 6.0% (6.2%e) / Trimmed mean CPI 5.9% (6.0%e), US New Home Sales 697k (725k exp), Russia IP 6.5% (5.4%e), Brazil FDI $1.88b (6.3b exp), S&P flat; ECB hikes 25bp as exp / Lagarde highlights data dependency going forward, Turkey revises infl forecast to 58% (22.3%p), Nikkei publishes article suggesting BOJ YCC tweak at tomorrow’s meeting, only 17 African heads of state attend Putin’s summit (down from 43 in 2019), Germany cons conf -24.4 (-24.8e), Italy cons conf 106.7 (107.3e), Mexico unemp 2.65% (3.00%e), S. Africa PPI 4.8% (5.8%e), US Durable Goods Orders 4.7% (1.3%e), US init claims 221k (235k exp), US 2Q GDP 2.4% (1.8%e) / core PCE index 3.8% (4%e), US wholesale inventories -0.3% MoM (-0.1%e), US KC Fed -11 (-10e), -0.6%; BOJ tweaks YCC as leaked – loosens cap to 1% but says will manage any extreme volatility below that cap / infl forecasts slightly weaker than exp / Ueda says today’s moves are not a step toward normalization, Senate speeds up production of semiconductor facilities by exempting certain environmental reviews, Chile CB cuts 25bp as exp, S. Korea IP -5.6% (-5.5%e), Japan Tokyo CPI 3.2% (2.9%e), France 2Q GDP 0.9% (0.4%e), France CPI 5.0% (5.1%e), Germany 2Q GDP -0.2% (-0.3%e), Germany CPI 6.5% (6.6%e), EU eco conf 94.5 (95e), Brazil unemp 8% (8.2%e), US employment cost index 2Q 1% (1.1%e), Canada GDP 1.9% as exp, US Personal inc 0.3% (0.5%e) / spending 0.5% (0.4%e), US PCE 3% as exp / Core 4.1% (4.2%e), S&P +1.0%.
S&P 500 +1.0% and VIX -0.27 at +13.33. Nikkei +1.4%, Shanghai +3.4%, Euro Stoxx +1.2%, Bovespa -0.0%, MSCI World +1.0%, and MSCI Emerging +2.8%. USD rose +1.6% vs Sweden, +1.5% vs Bitcoin, +1.2% vs Australia, +1.0% vs Euro, +0.8% vs Chile, +0.7% vs Ethereum, +0.6% vs Russia, +0.5% vs Indonesia, +0.4% vs India, +0.1% vs Canada, and flat vs Sterling. USD fell -1.8% vs South Africa, -1.8% vs Mexico, -1.0% vs Brazil, -0.5% vs China, -0.4% vs Yen, and -0.2% vs Turkey. Gold -0.3%, Silver -1.4%, Oil +4.6%, Copper +2.8%, Iron Ore +0.8%, Corn -1.1%. 10yr Inflation Breakevens (EU +7bps at 2.36%, US +4bps at 2.39%, JP +9bps at 1.22%, and UK +1bp at 3.78%). 2yr Notes +3bps at 4.88% and 10yr Notes +11bps at 3.95%.
Greece +47.7% priced in US dollars (+43.5% priced in euros), Argentina +46.6% priced in dollars (+126.5% priced in pesos), NASDAQ +36.8% in dollars, Poland +36.7% in dollars (+25.2% in zloty), Mexico +32.3% (+13.3%), Ireland +30.8% (+27.1%), Hungary +29.7% (+21.8%), Italy +28.1% (+24.4%), Chile +23.2% (+20.5%), Brazil +22.4% (+9.5%), Germany +21.8% (+18.3%), Euro Stoxx 50 +21.2% (+17.7%), Spain +21.2% (+17.7%), Taiwan +19.7% (+22.3%), S&P 500 +19.3%, France +18.9% (+15.5%), Netherlands +18.7% (+15.3%), MSCI World +17.5% in dollars, Japan +16.8% (+25.5%), Czech Republic +16.7% (+12.7%), Korea +15.4% (+16.6%), Saudi Arabia +13.3% (+13.1%), Russell +12.5%, Switzerland +12% (+5.5%), Colombia +11.6% (-9.7%), Denmark +11.4% (+8.5%), Russia +11.3% (+39.7%), UK +9.9% (+3.3%), Sweden +9.2% (+10.3%), India +9.2% (+8.5%), Canada +8.2% (+5.9%), Austria +5.8% (+2.8%), South Africa +5.8% (+9.2%), Portugal +5.7% (+2.7%), Belgium +5.4% (+2.4%), Singapore +4.3% (+3.7%), Indonesia +3.5% (+0.7%), Australia +2.8% (+5.2%), China +2.3% (+6%), Philippines +2.3% (+0.9%), New Zealand +1% (+4.1%), HK +0.7% (+0.7%), Venezuela +0.7% (+69.6%), Norway +0.4% (+4%), Israel -2.1% (+2.7%), UAE -4.4% (-4.4%), Finland -6.1% (-8.8%), Malaysia -6.2% (-3%), Thailand -7% (-7.5%), Turkey -10.9% (+28.3%).
“Why do people feel that to be a good leader, they must absolutely believe in one direction over another, one path over another, one person over another?” asked the investor, an allocator. “Why do most people feel they have to live in a world of absolutes?” We were discussing the illusion of certainty. “We live in a world filled with questions. And the best traders I’ve known have never been sure of anything.” The blessing and curse of this business is that it forces us to come to terms with how little we know. It is at once terribly humbling and awe inspiring, in that to maintain your balance you must continually seek to define a wide range of possible outcomes, possibilities. Which is an exciting journey, requiring imagination, and a recognition that world history is the story of chance, surprise. “The most successful traders speak in probabilities of one thing over another. Not one dares pound the table and state something with absolute certainty.” I have friends who can change their minds twice in the same sentence. They’re the survivors. In their wake are those who needed to be right. “Something in our nature, or perhaps society, leads us to believe that to have gravitas we need to make grand pronouncements, appear definitive. Such statements are almost always wrong.” Yet we continue to listen, in a hopeless pursuit of certainty. “The best leaders amongst us seem to understand that their gift is not in pointing the way, it’s in taking input, maintaining flexibility, openness, adjusting enroute,” he said. “And as a trader, your job is to figure out what others will do because of their political and financial orientation, in a world that is unknowable, forever changing, and then make money with that.”
Good luck out there,
Chief Investment Officer
One River Asset Management