Dusted off an anecdote from June 2013 about flags, colors, policy, politics. Written during the Taper Tantrum, a time that rhymes with QT (see below). I take August off from writing to recharge, read, roam. Hoping the same for you and your crew. See you again in September with full weekend notes.
Week-in-Review (expressed in YoY terms): Mon: PBOC cuts 1y MLF rate 10bps (unexp) in response to much weaker than exp economic data (IP 3.8% (4.3%e) / ret sales 2.7% (4.9%e)), US congressional delegation lands in Taiwan / China resumes military patrols in response, London’s Heathrow extends capacity limits to end of Oct, Germany gas storage rises to 75% (2w ahead of plan) despite continued low NS1 flows, Fed’s Barkin wants to see positive real rates across the curve, Japan 2Q GDP 2.2% (2.6%e), US empire mfg -31.3 (5e), US NAHB housing index 49 (54e), S&P +0.4%; Tue: Home Depot and Walmart beat earnings, BBBY up over 75% in return to meme stock craze, Iran responds to EU proposed text to revive deal / Iran foreign min says deal with US could be reached in next few days, China announced new sanctions on “Taiwan separatists”, Germany to keep last 3 nuclear plants running, Australia household spending 12.2% (8.7%e), UK unemp 3.8% as exp, India wholesale prices 13.93% (13.7%e), German ZEW -55.3 (-52.7e), Turkey house prices 16.57%, Canada housing starts 275.3k (264.1k exp), US housing starts 1.446m (1.527m exp) / -9.6% MoM (-2.1%e), Canada CPI 7.6% as exp / Core CPI 5.5% (4.7%e), US IP 0.6% MoM (0.3%e), S&P +0.2%; Wed: RBNZ hikes 50bp as exp / lifted terminal rate from 3.95% to 4.1% / hawkish details, FOMC minutes reiterate data dependence going forward, Liz Cheney loses reelection primary to Trump backed candidate, Norway sov wealth fund lost $174b in 1H of 2022, Israel/Turkey agree to resume full diplomatic ties, CDC announces overhaul after Covid missteps, US/Taiwan start formal negotiations on trade initiative, S. Africa CB gov says nearing peak but return of inflation to target will be sluggish, Japan impts 19% (17.6%e) / expts 47.2% (45.5%e) / Machine orders 6.5% (7.7%e), Singapore non-oil expts 7% (6.4%e), Australia wage price index 2.6% (2.7%e), UK CPI 10.1% (9.8%e) / RPI 12.3% (12%e), US ret sales 0.8% MoM (0.6%e), Russia PPI 6.1% (9.4%e), S&P -0.7%; Thur: Norges bank hikes 50bp as exp, Philippine CB hikes as exp, Turkey CB cuts 100bp (unchanged was exp), Fed’s Bullard says leaning towards 75bp hike in Sept, ECB’s Schnabel emphasized inflation relative to growth slowdown, Fed’s George suggests Fed has already done a lot on raising rates and highlights that policy operates with a lag, Fed’s Kashkari unsure if inflation will drop without a recession, Australia emp change -40.9k (+25k exp) / unemp 3.4% (3.5%e), US init claims 250k (264k exp), US Philly Fed 6.2 (-5e), US existing home sales 4.81m (4.86m exp) / -5.9% MoM (-5.1%e), S&P +0.2%; Fri: RBNZ gov Orr wants to see rates above neutral but wants optionality over the pace of future increases, China fixes yuan above 6.80 – weakest level since 9/2020, rumors that Xi and Putin likely to attend G20 meeting in Indonesia later this year, polls in Brazil continue to show Bolsonaro narrowing Lula’s lead, UK cons conf -44 (-42e), Japan CPI 2.6% as exp / Core CPI 1.2% (1.1%e), UK ret sales -3.4% (-3.3%e), UK public borrowing 4.9b (3.2b exp), Germany PPI 37.2% (31.8%e), Mexico ret sales 4% (5%e), Canada ret sales 1.1% MoM (0.4%e), S&P -1.3%.
Weekly Close: S&P 500 -1.2% and VIX +1.06 at +20.59. Nikkei +1.3%, Shanghai -0.6%, Euro Stoxx -0.8%, Bovespa -1.1%, MSCI World -0.3%, and MSCI Emerging -0.7%. USD rose +11.3% vs Bitcoin, +11.2% vs Ethereum, +7.8% vs Chile, +5.3% vs South Africa, +3.8% vs Sweden, +3.5% vs Australia, +2.6% vs Sterling, +2.6% vs Yen, +2.2% vs Euro, +1.9% vs Brazil, +1.7% vs Canada, +1.6% vs Mexico, +1.2% vs Indonesia, +1.1% vs China, +0.9% vs Turkey, and +0.2% vs India. USD fell -1.5% vs Russia. Gold -3.0%, Silver -8.4%, Oil -2.2%, Copper -0.2%, Iron Ore -3.9%, Corn -3.0%. 5y5y inflation swaps (EU +8bps at 2.16%, US +8bps at 2.64%, JP +3bps at 0.85%, and UK +25bps at 3.80%). 2yr Notes -1bp at 3.24% and 10yr Notes +14bps at 2.97%.
YTD Equity Indexes (high-to-low): UAE +18.8% priced in US dollars (+18.8% priced in dirham), Turkey +18.8% priced in dollars (+62.6% priced in lira), Argentina +18.5% in dollars (+56.9% in pesos), Brazil +14% (+6.4%), Saudi Arabia +11.9% (+11.9%), Chile +11.2% (+22.8%), Indonesia +4.4% (+9%), Portugal +3.6% (+17.5%), Singapore +0.7% (+3.9%), Israel -2% (+2.4%), Norway -2.4% (+8.7%), Venezuela -2.6% (+25.7%), India -4.6% (+2.3%), Canada -7.7% (-5.2%), Mexico -7.7% (-9%), Thailand -8.6% (-1.9%), Australia -9.7% (-4.4%), UK -10.7% (+2.2%), Malaysia -10.8% (-4%), S&P 500 -11.3%, Greece -11.3% (+0.7%), South Africa -12% (-6.1%), Philippines -12.2% (-3.6%), MSCI World -12.5% priced in dollars, Russell -12.8%, Colombia -13.8% (-7.3%), Spain -15.1% (-4.3%), Japan -15.4% (+0.5%), HK -16% (-15.5%), China -16.5% (-10.5%), Switzerland -17.4% (-13.4%), Denmark -17.8% (-7.3%), NASDAQ -18.8%, New Zealand -19.2% (-10.3%), France -20% (-9.2%), Netherlands -20.5% (-9.8%), Taiwan -22.1% (-15.4%), Belgium -22.9% (-12.5%), Czech Republic -23.4% (-14.3%), Euro Stoxx 50 -23.5% (-13.2%), Germany -24.4% (-14.7%), Finland -24.4% (-14.8%), Ireland -25.2% (-15.1%), Korea -25.4% (-16.3%), Italy -26.9% (-17.6%), Russia -27.5% (-42%), Sweden -28% (-15.8%), Austria -30.8% (-22%), Hungary -31.4% (-15.2%), Poland -32.7% (-21.5%).
Anecdote (June 2013): I got a thing for flags. The more colors the better. Naturally, I love diversity. Stars and stripes. Red, white, blue. I despise solids flags. They’re so definite. Black in particular. Yeah, that’s the color of the tall dude on dialysis (Osama bin Laden). Solid red sucks. It is bloody soul destroying. Saudi Royalty pumps and prophets, chanting green is great, so naturally, their flag is solid emerald. Anyhow, hundreds of thousands stormed Paris. The City of Love. To protest the Rainbow Flag – mankind’s sublime symbol of diversity, inclusiveness, tolerance, respect. Which is as sad as it is unsurprising. You see, in tough times, people seek simple solids. And European unemployment hit new 12.2% all-time highs. 95,000 people lost their jobs in April, the 24th consecutive monthly loss. 19,380,000 are out of work. 24.4% of workers under 25-yrs-old are idle. That young army is 3,600,000 strong. And growing. Swedish riots subsided, as Europe’s most welcoming nation considers how to artfully mix new colors into their blue and blonde cross. France has the same problem, just much bigger. But while moderate European’s are artistically challenged, their far right paint a simple solution. And have a growing audience. Yup, when people feel scared, subtle shades fade, replaced by black and white. So fanatical fringe forces paint their flags in those two contrasting colors, with a dramatic splash of red. But enough of stubby mustaches. Let’s talk markets. Bond yields continued higher, everywhere. And increasingly nervous investors looked to the Fed, hopeful for some color, wondering if tapering talk was anything more than idle flag waving. They got nothing. And Tokyo’s unsure policymakers made assurances that the success of Abenomics is most assuredly assured. But true to Japan’s national colors, it amounted to white noise. So investors fled. Painting every asset on the planet red.
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.