wknd
notes


                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        wknd notes: Life's Greatest Risks Emanate From Within

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wknd
notes

Each Sunday morning for over a decade, One River’s CIO, Eric Peters, has published “Wknd Notes.” It is an unorthodox take on markets, politics, and policy that’s widely read across our industry and within global policy/political circles. Eric has written for as long as he has traded and the discipline is part of his investment process. Drawing on wide-ranging, multi-disciplinary research, historical study, and discussions with interesting characters throughout the world, Eric collects those things he finds most thought-provoking each week and distills them into a concise letter. At times the ideas and views are consistent with his own, but just as often, they challenge his positions and it is this openness to opposing views that helps him maintain a flexible mind in the search for emerging opportunities and risks. His writing is a reflection of how he thinks, and as such it is as focused on identifying the right questions to ask as it is on seeking answers. The publication of this work is Eric’s way of exchanging ideas/information and developing dialogue with a network grown over his thirty-one-year career.

wknd notes: Life's Greatest Risks Emanate From Within

Snuck out to the Tetons with the kids for a little spring skiing. Altitude. Dusted off one of my favorite climbing anecdotes, about risks, managing them. Training. Luck too. See below. Back next Sunday with full wknd notes.

 

Week-in-Review: Mon: OPEC+ cuts oil production 1.16m bpd unexpectedly, Israel CB hiked 25bps (as exp), ECB’s Holzmann says a 50bp hike is still on the cards, Fed’s Bullard says macroprudential response allows the Fed to proceed with appropriate monetary policy, Japan’s Tankan shows building price pressures, UBS to lay off 20-30% of workforce following CS acquisition, US/S. Korea/Japan start naval drills off Korean Peninsula, popular Finland PM Marin loses election to pro-business/anti-immigration coalition, Australia building approvals 4% MoM (10%e), China Caixin mfg PMI 50 (51.4e), Indonesa CPI 4.97% (5.12%e) / Core CPI 2.94% (3.03%e), Swiss CPI 2.9% (3.2%e) / Core CPI 2.2% (2.5%e), Turkey CPI 50.51% (51.25%e) / Core CPI 47.36% (47.85%e) / PPI 62.45% (76.61%p), EU final mfg PMI 47.3 (47.1e), US final mfg PMI 49.2 (49.3e), US ISM mfg 46.3 (47.5e) / prices paid 49.2 (51.1e), S&P +0.4%; Tue: Trump arrested and arraigned on 34 counts / pleads not guilty, RBA paused as exp (4bp hike priced), US JOLTS openings weaker than exp (9.931m vs 10.5m exp), NATO officially ratifies Finland’s membership, BoE’s Pill warns on infl persistence, SNB's Schlegel says central bank will do everything it can to bring inflation down, JPM’s Dimon warns bank crisis is not yet over but warns regulators from overreacting, Europe PPI 13.2% (13.3%e), S&P -0.6%; Wed: RBNZ hikes 50bp (only 25bp exp), House Speaker McCarthy meets with Taiwanese president Tsai Ing-wen, ECB’s Vujcic says more hikes to come if inflation remains above 4%, Fed’s Mester says rates to go ‘a bit higher’ and ‘hold there’, RBA’s Lowe says recent pause doesn’t mean hiking is done, Chile CB unch as exp / hawkish rhetoric, Poland CB unch as exp, Thailand CPI 2.83% (3.25%e) / Core CPI 1.75% (1.8%e), Singapore ret sales 12.7% (2%e), Germany factory orders -5.7% (-9.3%e), Hungary IP -4.6% (-1.5%e), France IP 1.3% (-0.1%e), EU final serv PMI 55 (55.6e) / comp 53.7 (54.1), Mexico cons conf 44.5 as exp, Mexico CPI 6.85% (6.89%e) / Core CPI 8.09% (8.07%e), US ADP chng 145k (210k exp), US final serv PMI 52.6 (53.8e) / comp 52.3 (53.3e), US ISM Services 51.2 (54.4e), S&P -0.3%; Thu: RBI unexpectedly paused (25bp hike exp), BOJ’s outgoing Kuroda says economy is no longer in a state of deflation, Japan PM Kishida says it’s likely Ueda confirms intentions of maintaining monetary easing for a while / Kishida and Ueda to meet 4/10, ECB’s Lane reiterates it will be appropriate to hike if banking stresses remain muted, Fed’s Bullard notes that despite banking stresses the Q1 data has been strong, S. Africa cancels energy emergency amid legal challenges / calls fiscal sustainability into question, IMF warns 5y growth outlook is weakest since 1990, China Caixin serv PMI 57.8 (55e) / Comp 54.5 (54.2p), Swiss unemp 1.9% as exp, Germain IP 0.6% (-2%e), Hungary ret sales -10.1% (-5.9%e), S. Africa electricity prod -9.7% / consumption -8.7%, US init jobless claims 228k (200k exp), Canada emp change 34.7k (7.5k exp) / unemp 5% (5.1%e) / hourly wages 5.2% (5.5%e), S&P +0.4%; Fri: Multiple markets closed for Good Friday holiday, US NFP 236k (230k exp) / Unemp 3.5% (3.6%e) / AHE 4.2% (4.3%e), Kuroda held retirement news conf and states can exit ultra-easy policy without financial instability, Turkey increases reserve requirement ratio for FX deposits from 25%-30% (deters banks from holding foreign currency in effort to stem Lira weakness), Japan labor earnings 1.1% as exp / real earnings -2.6% as exp, Japan leading index 97.7 (97.5e), S&P Closed.

 

Manufacturing PMI (high-to-low): India 56.4 (previous month 55.3), Hungary 55.3 (previous mth 56.3), Hong Kong 53.5 (previous 53.9), Russia 53.2/53.6, Greece 52.8/51.7, Indonesia 51.9/51.2, Spain 51.3/50.7, Italy 51.1/52, Mexico 51/51, Turkey 50.9/50.1, China 50/51.6, Singapore 49.9/50, South Africa 49.7/50.5, Japan 49.2/47.7, Taiwan 48.6/49, Canada 48.6/52.4, Norway 48.31/47.34, Poland 48.3/48.5, UK 47.9/49.3, Vietnam 47.7/51.2, South Korea 47.6/48.5, France 47.3/47.4, Brazil 47/49.2, Switzerland 47/48.9, Netherlands 46.4/48.7, United States 46.3/47.7, Sweden 45.7/46.9, Germany 44.7/46.3, Austria 44.7/47.1, Czech Republic 44.3/44.3. Services PMI: Spain 59.4/56.7, Russia 58.1/53.1, India 57.8/59.4, China 57.8/55, Italy 55.7/51.6, Ireland 55.7/58.2, Japan 55/54, France 53.9/53.1, Germany 53.7/50.9, UK 52.9/53.5, US 52.6/50.6, Brazil 51.8/49.8, Sweden 48.6/45.6.

 

Weekly Close: S&P 500 -0.1% and VIX -0.30 at +18.40. Nikkei -1.9%, Shanghai +1.7%, Euro Stoxx +0.2%, Bovespa -1.0%, MSCI World -0.0%, and MSCI Emerging -0.3%. USD rose +7.2% vs Russia, +2.9% vs Chile, +2.2% vs South Africa, +1.9% vs Bitcoin, +0.6% vs Sweden, +0.5% vs Mexico, +0.4% vs Turkey, and +0.2% vs Australia. USD fell -1.2% vs Ethereum, -0.7% vs Sterling, -0.6% vs Euro, -0.5% vs Indonesia, -0.5% vs Yen, -0.3% vs India, -0.1% vs Brazil, -0.1% vs China, and flat vs Canada. Gold +2.0%, Silver +3.9%, Oil +6.6%, Copper -1.9%, Iron Ore -3.1%, Corn -2.6%. 10yr Breakevens (EU -5bps at 2.31%, US -6bps at 2.26%, JP +2bps at 0.64%, and UK -5bps at 3.74%). 2yr Notes -4bps at 3.98% and 10yr Notes -8bps at 3.40%.

 

Year-to-Date Equities (high to low): Czech Republic +21% priced in US dollars (+14.9% priced in koruna), Greece +17.9% priced in US dollars (+15.5% in euros), Mexico +17.4% in dollars (+10.4% in pesos), Italy +17.2% (+14.8%), Ireland +16.7% (+14.3%), Euro Stoxx 50 +16% (+13.6%), Spain +15.5% (+13.2%), France +15.5% (+13.1%), NASDAQ +15.5%, Germany +14.4% (+12%), Taiwan +13.1% (+12%), Netherlands +12.6% (+10.3%), Denmark +10% (+8.3%), Hungary +9.4% (+1%), China +8.2% (+7.7%), MSCI World +7.2% priced in dollars, UK +7% (+3.9%), S&P 500 +6.9%, Sweden +6.9% (+6.9%), Korea +6.9% (+11.4%), Switzerland +6.7% (+4.7%), Portugal +6.3% (+4.2%), Belgium +5% (+2.9%), Argentina +4.9% (+25.1%), Russia +4.7% (+16.4%), Canada +4.6% (+4.2%), Japan +4.5% (+5.5%), Austria +4.3% (+2.2%), Saudi Arabia +4.3% (+4.1%), Chile +3.9% (+0.2%), Poland +3.9% (+1.9%), Indonesia +3% (-0.8%), Singapore +2.3% (+1.5%), HK +2.1% (+2.8%), New Zealand +1.9% (+3.5%), Finland +1.1% (-1%), Philippines +0.9% (-1.2%), Australia +0.4% (+2.6%), South Africa -0.3% (+6.6%), Russell -0.4%, Colombia -1.5% (-7.2%), India -1.8% (-2.8%), Venezuela -3.8% (+38.9%), Brazil -4.1% (-8.1%), Thailand -4.2% (-5.5%), Malaysia -4.5% (-4.6%), Norway -5.7% (+0.2%), Israel -6.1% (-4.3%), UAE -7.3% (-7.3%), Turkey -13.1% (-10.6%).

 

Anecdote (Apr 2012): The clank of ice axes shattered our silence. I spun, to see my pack tumble. Twirl. And come to rest, far below. A blue dot, amongst granite boulders. Vincent stood motionless, looking out across the vast glacier, to distant peaks, and said, “You never let go your pack on a ledge, you know this.” And I got hot, knowing then he’d kicked it. “You’re very tired, me too, which is why you will go get it alone, but you’re also very lucky it is only 40 meters, and not lost, we need that equipment,” he told me. Our friendship was simple, strong. We climbed together, trained nearly every day. I taught him basic English, he failed to teach me mountain French. When clients arrived, I was his Sherpa, helping others attain goals. Tethered to men, confronting fear, stress, obstacles. Theirs. Mine too. So it went. For a year (1998). Vincent was 7th generation high-altitude French mountain guide. And filled our climbs with tales, into which were woven threads of wisdom, passed from father to son. Unsurprisingly, most lessons concerned risk management. Of course, life’s greatest risks emanate from within. So naturally, training was inwardly directed, developing physical stamina, core strength, balance, discipline, humility, mental toughness. We never really focused on bagging peaks. But rather, on perfecting the journey. And on each one, Vincent created an unexpected challenge, when I was least prepared, most vulnerable, mentally weakened. You see, in crisis, without mental toughness, the best-rehearsed exit plans crumble. Anyhow, I descended that cliff. Retrieved my pack. Returned to the ledge, still a little hot, and told Vincent that indeed, I felt real lucky it had been only 40 meters. “You will not always get so lucky,” he replied, his cracked, blistered lips unable to hide a smile.

 

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 policymakers, 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.

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