Dusted off an anecdote from 2013 about taking reckless risks. A harrowing story from my early years in the Chicago commodity pits. You know, it’s not only the UK pension system that got itself irresponsibly overleveraged over the past couple decades. We’ll discover plenty of others before long. See you next Sunday with full weekend notes. E
One River Digital’s Deputy CIO, Marcel Kasumovich, and Mathias Nwokejiobi in research published an interesting note on the history of bimetallism, and the parallels between gold/silver and bitcoin/Litecoin [click here].
Week-in-Review (expressed in YoY terms): Mon: Brazilian presidential election results in Lula vs Bolsonaro run off / Lulu underperformed recent polls that showed chance of 1st round victory / second round on 10/30, UK gov’t scraps tax cut for highest earners, mkt speculation of imminent Credit Suisse collapse increases, Israel CB hikes 75bp as exp, OPEC+ said to be considering 1m bpd output cut (larger than exp), Gazprom unable to deliver gas to Italy, Fed’s Williams says policy is not yet restrictive, signs of increased gas usage amid cold snap in northern Europe, Indonesia CPI 5.95% (6%e) / Core CPI 3.21% (3.5%e), Swiss CPI 3.3% (3.6%e), Turkey CPI 83.45% (83.5%e) / Core CPI 68.09% (68.6%e) / PPI 151.5% (143.75%e), US ISM mfg 50.9 (52e) / emp 48.7 (53e), S&P +2.6%; Tue: RBA hikes ONLY 25bp (50bp exp), N. Korea fires missile over Japan, Dalio gives up voting rights in final step of Bridgewater succession, JPM keeps India on watch for Global Bond Index inclusion (expected to join), Musk confirms plans to move ahead with Twtr acquisition, BOE doesn’t buy any long-dated Gilts in its “emergency operation”, ECB’s Villeroy supports hiking to ~2% by year end without hesitation, Tokyo CPI 2.8% as exp, Australia building approvals 28.1% MoM (10%e), EU PPI 43.3% (43.2%e), US factory orders unch MoM as exp, US JOLTS job openings 10.053m (11.088m exp), S&P +3.1%; Wed: RBNZ hikes 50bp as exp / says 75bp was considered, Poland CB unch (25bp exp), Gazprom to resume gas supplies to Italy, Putin signs annexation laws for Ukraine territories (but borders are unclear), EU backs more Russia sanctions (including oil price cap), OPEC+ agrees on 2m bpd production cut (closer to 1.2m bpd cut considering number of participants are underproducing), UK outlook revised to negative by Fitch, Fed’s Daly and Bostic don’t see cuts in 2023, BOE purchases no long dated gilts for second consecutive day, S. Korea CPI 5.6% (5.7%e) / Core CPI 4.5% (4.4%e), Germany trade balance 1.2b (4.7b exp), France IP 1.2% (-1.5%e), EU final serv PMI 48.8 (48.9e) / Composite 45.7 (45.9e), US mortgage apps -14.2% MoM, US ADP emp change 208k (200k exp), US trade balance -67.4b (-67.7b exp), US final serv PMI 49.3 (49.2e) / comp PMI 49.5 (49.3e), S&P -0.2%; Thur: Sweden says NS damage from detonation, Fed’s Waller sees more hikes in 2023 / not worried about financial stability, Fed’s Evans looking for 4.5-4.75% by early 2023, Fed’s Kashkari says pause is long way away, Fed’s Cook says aware of int’l spillovers but has a domestic mandate, BOC’s Macklem says more to be done / not ready for more finely balanced rate policy, Musk announces start of Semi output, BOE gilt purchases resume but still seeing large gilt sell off, Australia trd bal 8.324b (10b exp), Germany factory orders -4.1% (-5.5%e), EU ret sales -2% (-1.7%e), US init claims 219k (204k exp), S&P -1.0%; Fri: US NFP 263k (255k exp) / unemp 3.5% (3.7%e) / AHE 5% as exp, CS offers to buy back bonds that are trading at substantially lower prices, Fed’s Mester says won’t be cutting rates in 2023, largest inflows into money mkt funds since April 2020, Japan household spending 5.1% (6.7%e) / real cash earnings -1.75 (-1.8%e), Japan leading index 100.9 (100.3e), Swiss unemp 1.9% (2%e), Germany impt prices 32.7% (30.1%e), Germany ret sales -1.75% (-4.1%e), Germany IP 2.1% (2.3%e), Italy ret sales 4.3% (4.1%p), Mexico CPI 8.7% (8.75%e) / Core CPI 8.28% (8.34%e), Brazil ret sales 1.6% (0.0%e), Canada emp chg21.1k (20k exp) / unemp 5.2% (5.4%e), Russia CPI 13.68% (13.59%e) / Core CPI 17.11% (17.1%e), US consumer credit 32.24b (25b exp), China Caixin serv PMI 49.3 (54.4e) / comp PMI 48.5 (53p), S&P -2.8%.
Manufacturing PMI (high-to-low): Switzerland 57.1 (previous month 56.4), India 55.1 (prev mth 56.2), Indonesia 53.7 (prev 51.7), Vietnam 52.5/52.7, Russia 52/51.7, Brazil 51.1/51.9, United States 50.9/52.8, Japan 50.8/51.5, Mexico 50.3/48.5, Norway 50.03/51.91, Singapore 49.9/50, Canada 49.8/48.7, Greece 49.7/48.8, Hungary 49.6/57.8, Sweden 49.2/50.2, South Africa 49.2/51.7, Spain 49/49.9, Netherlands 49/52.6, Austria 48.8/48.8, UK 48.4/47.3, Italy 48.3/48, China 48.1/49.5, Hong Kong 48/51.2, Germany 47.8/49.1, France 47.7/50.6, South Korea 47.3/47.6, Turkey 46.9/47.4, Czech Republic 44.7/46.8, Poland 43/40.9, Taiwan 42.2/42.7. Services PMI: Sweden 55.1/58.6, India 54.3/57.2, Ireland 54.1/54.7, France 52.9/51.2, Japan 52.2/49.5, Brazil 51.9/53.9, Russia 51.1/49.9, UK 50/50.9, US 49.3/43.7, Italy 48.8/50.5, Spain 48.5/50.6, Germany 45/47.7.
Weekly Close: S&P 500 +1.5% and VIX -0.26 at +31.36. Nikkei +4.5%, Shanghai +0.0%, Euro Stoxx +1.0%, Bovespa +5.8%, MSCI World +4.2%, and MSCI Emerging +4.0%. USD rose +10.6% vs Russia, +1.2% vs India, +1.1% vs Sweden, +0.8% vs Sterling, +0.6% vs Euro, +0.5% vs Ethereum, +0.4% vs Australia, +0.4% vs Yen, +0.3% vs Bitcoin, +0.2% vs Turkey, +0.2% vs Indonesia, and +0.1% vs South Africa. USD fell -3.9% vs Brazil, -3.1% vs Chile, -0.7% vs Canada, -0.5% vs Mexico, and flat vs China. Gold +1.8%, Silver +5.9%, Oil +17.3%, Copper -0.9%, Iron Ore flat, Corn +0.8%. 5y5y inflation swaps (EU +17bps at 2.19%, US +15bps at 2.30%, JP +2bps at 0.91%, and UK -30bps at 3.58%). 2yr Notes +3bps at 4.31% and 10yr Notes +5bps at 3.88%.
YTD Equity Indexes (high-to-low): Turkey +36.7% priced in US dollars (+92% priced in lira), Argentina +19.3% priced in US dollars (+73.2% in pesos), Brazil +18.6% in dollars (+11% in reais), UAE +16.7% (+16.7%), Chile +7% (+17.9%), Saudi Arabia +4.1% (+4.2%), Indonesia -0.3% (+6.8%), Singapore -5.3% (+0.7%), India -10% (-0.2%), Mexico -12.3% (-14.2%), Portugal -14.6% (-0.4%), Venezuela -15.1% (+51%), Thailand -15.5% (-4.7%), Israel -18.6% (-7.5%), Norway -18.8% (-1.4%), Canada -19.2% (-12.4%), Malaysia -19.8% (-10.3%), Australia -20.3% (-9.2%), Greece -21.9% (-8.9%), South Africa -22.2% (-11.6%), UK -22.4% (-5.3%), MSCI World -23.3% in dollars, S&P 500 -23.6%, Russell -24.2%, Colombia -24.4% (-14.3%), HK -24.7% (-24.2%), Japan -25.3% (-5.8%), China -25.8% (-16.9%), Switzerland -26.3% (-19.9%), Spain -26.4% (-14.7%), Denmark -27.7% (-16.1%), Philippines -27.9% (-16.7%), Czech Republic -28.2% (-18%), France -29.7% (-18%), New Zealand -30.2% (-14.8%), Netherlands -30.5% (-18.9%), NASDAQ -31.9%, Euro Stoxx 50 -32.7% (-21.5%), Belgium -33% (-21.9%), Finland -33.1% (-22.5%), Germany -33.3% (-22.7%), Italy -34.1% (-23.6%), Taiwan -34.2% (-24.8%), Ireland -35% (-24.2%), Korea -37.2% (-25%), Russia -37.9% (-48.7%), Austria -38.4% (-28.6%), Sweden -38.5% (-23.9%), Hungary -41.6% (-22%), Poland -44.8% (-32.3%).
Anecdote (February 2013): “Yours,” I yelled, amidst the chaos. And the closing bell rang, surprising me. Frightening me. Leaving me short 100 wheat contracts, which may not sound scary, but in 1990 I was a pit trader, trading my own money. Which wasn’t much but was everything. And 100 contracts was 80 too many – to hold overnight anyway. Naturally, news hit the tape that Egypt purchased wheat. So I raced to call my roommate, who assisted Chicago’s biggest grain trader, and explained my dilemma. “Please dude, just ask where wheat is gonna open tomorrow,” I pleaded, shaking. In the background, I heard the famous wheat trader say, “Yep, Egypt will scare other buyers in, we’ll open up 12 cents, maybe 15.” I hung up. Stunned. You see, 5 cents higher would’ve wiped me out. 6 cents bankrupted me. And 15 cents, well… So I stumbled out to LaSalle. Banged a right, to the lake, where I wandered for hours. Into the abyss. Praying for rains on the plains. A coup in Cairo. Some act of god. Anything. And I felt those conservative folks who told me to take the safe NY investment banking job were probably right. You see, I’d graduated nine-months earlier, and turned JP Morgan down. But what was done was done. So at dusk I trudged home. Busted. Disgusted. Resigned to work for my clearing broker, to pay-off my debts. Swearing to never take reckless risks again, subjecting my future to dumb luck. And my roommate burst in, “Where you been? I’ve looked everywhere, thank god you’re ok, we were winding you up, the market expected the Egypt news — it’s already priced in!” So anyhow, I retraced those steps along Lake Michigan last week. Thinking how I loved Chicago, and the unique breed of cat that wanders off to The Windy City. And smiled. Remembering the day wheat opened a penny lower.
Good luck out there,
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.