wknd
notes


                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   Project Hamilton

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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 note: Project Hamilton

In case you missed it, Jay Clayton, a member of One River’s Academic and Regulatory Advisory Council (click here) penned an important opinion piece in the Wall Street Journal (click here).

Dusted off an anecdote from late 2018 that still cracks me up. It’s about life when you’re last in line (see below). Back in January with full weekend notes. All the best, E

Week-in-Review (expressed in YoY terms): Mon: UK rolls out accelerated booster program to combat omicron surge, Turkey CB intervened again (4th time this month), S. Africa data shows signs omicron wave may be peaking, European gas prices surge as speculation that Nord 2 will not operate this winter increases as well as Belarus threatening to prevent gas transfer into Europe, OPEC increased forecast for global oil demand, G-7 leaders warn Russia to de-escalate military buildup near Ukraine, Japan core machine orders 2.9% (4.2%e), Turkey CA balance 3.16b (2.5b exp) / IP 8.5% (8.6%e), Italy unemp 9.2% (9.4%e), India CPI 4.91% (5.1%e), S&P -0.9%; Tue: study shows Pfizer vaccine is 70% effective at preventing hospitalizations due to Omicron infection, Pfizer’s covid pill lowered hospitalization by 89% if taken within 3days of symptoms, Hungary CB hikes for 5th straight week, UK unemp 4.2% as exp, EU IP 3.3% (3%e), US NFIB 98.4 as exp, US PPI final demand 9.6% (9.2%e), S&P -0.8%; Wed: FOMC unch (obviously) /accelerates taper as exp / 2022 Dot plot shows 3 hikes (2 exp) / Powell highlights flexibility but reaffirms hikes will happen AFTER tapering is completed, US Congress votes to lift debt ceiling by $2.5t, India trade deficit surges to 27y high driven by higher oil prices, Argentina CPI 51.2% (52.15%e), China ret sales 3.9% (4.7%e) / IP 3.8% (3.7%e), Indonesia expts 49.7% (44.86%e)/ impts 52.62% (38.13%e), UK CPI 5.1% (4.8%e) / RPI 7.1% (6.7%e), S. Africa CPI 5.5% as exp / PPI 9.6% (8.7%e), Brazil economic activity -1.48% (-0.7%e), Canada CPI 4.7% as exp, US ret sales -0.1% (0.7%e), US Import prices 11.7% (11.4%e), S&P +1.6%; Thur: BoE hikes 15bps, ECB unch as exp and announces increase in regular QE as emergency PEPP winds down, CB Turkey cut 100bps and pledged to remain on hold thru Q1 but if markets allow will cut more after Q1, Norges bank hikes 25bps as exp, SNB unch as exp, Mexico CB hikes 50bps (25bp exp), Philippines CB unch as exp, Taiwan CB unch as exp, Indonesia CB unch as exp, France bans non-essential travel from UK amid omicron surge, US dems delay consideration of Biden’s $2t economic package until the new year, NZ 3Q GDP -0.3% (-1.4%e), Japan expts 20.5% (21%e) / impts 43.8% (40%e), Australia employment 366.1k (200k exp) / unemp 4.6% (5%e), HK unemp 4.1% (4.2%e), EU prelim PMI mfg 58 (57.8e)/ serv 53.3 (54.3e)/ comp 53.4 (54.4e), UK mfg PMI 57.6 as exp, US init claims 206k (200k exp), US capacity utilization 76.8% as exp, US prelim PMI mfg 57.8 (58.5e)/ serv 57.5 (58.8e)/ comp 56.9 (57.2p), S&P -0.9%; Fri: CB Turkey intervened (5th time) as lira fell more than 20% this week, Russia released list of demands necessary to remove troops amassed near Ukraine border (ie ban on Ukraine joining NATO), US senator Manchin objects to social/climate plan and bill will drop from $2t to ~$300b if he holds firm, BOJ unch as exp, Russia CB hiked 100bps as exp, Colombia CB hiked 50bps as exp, European gas plunged as Russia topped up supplies, US passes a law that requires proof that products from China’s Xinjiang region were not produced with forced labor, a low dose Pfizer covid vaccine failed to produce an adequate response in 2-5yo, German PPI 19.2% (20%e), UK ret sales 2.7% (2.3%e), Germany IFO 92.6 (93.6e), S&P -1.0%

Weekly Close: S&P 500 -1.9% and VIX +2.88 at +21.57. Nikkei +0.4%, Shanghai -0.9%, Euro Stoxx -0.3%, Bovespa -0.5%, MSCI World -1.5%, and MSCI Emerging -1.8%. USD rose +18.2% vs Turkey, +7.1% vs Ethereum, +4.7% vs Bitcoin, +1.4% vs Brazil, +1.3% vs Canada, +0.9% vs Russia, +0.8% vs Sweden, +0.7% vs Australia, +0.6% vs Euro, +0.4% vs India, +0.3% vs Chile, +0.2% vs Sterling, +0.2% vs Yen, and +0.1% vs China. USD fell -0.6% vs South Africa, -0.3% vs Mexico, and -0.1% vs Indonesia. Gold +0.9%, Silver +0.7%, Oil -2.3%, Copper -0.1%, Iron Ore +6.7%, Corn +0.3%. 5y5y inflation swaps (EU -9bps at 1.79%, US -5bps at 2.42%, JP -7bps at 0.35%, and UK -17bps at 3.73%). 2yr Notes -2bps at 0.64% and 10yr Notes -8bps at 1.40%.

YTD Equity Indexes (high-to-low): UAE +75.5% priced in US dollars (+75.5% priced in dirham), Argentina +34.1% priced in dollars (+62.5% in pesos), Israel +31.7% in dollars (+27.2% in shekels), Saudi Arabia +30.1% (+30.2%), Czech Republic +28.9% (+35.3%), Austria +24.4% (+35.7%), S&P 500 +23%, Taiwan +22.1% (+20.9%), Canada +18.2% (+19%), NASDAQ +17.7%, India +16.8% (+21.5%), MSCI World +16.7% (+16.7%), Norway +16.1% (+21.9%), Denmark +15.5% (+25.9%), France +15% (+24.8%), Mexico +14.4% (+18.9%), Netherlands +13.9% (+23.5%), Russia +13.8% (+13.2%), Switzerland +13.6% (+18.8%), Sweden +10.7% (+23%), Hungary +10.3% (+21%), South Africa +10.1% (+18.9%), Russell +10.1%, Italy +9.7% (+19.7%), UK +9.3% (+12.5%), Euro Stoxx 50 +8% (+17.1%), Indonesia +7.8% (+10.4%), China +7.1% (+4.6%), Venezuela +6.7% (+328.9%), Poland +6.7% (+17.8%), Belgium +6.2% (+15.2%), Singapore +5.9% (+9.4%), Finland +5.8% (+15.4%), Germany +3.8% (+13.2%), Australia +3% (+10.9%), Thailand +1.9% (+13.3%), Ireland +1.8% (+10.5%), Greece +1.1% (+9.7%), Portugal -0.2% (+8.3%), Philippines -1.7% (+2.2%), Korea -3.6% (+5%), Spain -5.1% (+2.9%), Japan -5.5% (+4%), New Zealand -8.8% (-2.9%), Chile -11.6% (+4.3%), Malaysia -12% (-7.7%), HK -15.4% (-14.8%), Colombia -16.4% (-3%), Brazil -18% (-9.9%), and Turkey -36.1% (+41.2%).

Anecdote (Nov 2018): “What the hell Charlie?” said Teddy, “Cover up your arms while we’re eating. Those sores are disgusting.” Charlie shrugged, too accustomed to sibling ridicule to be embarrassed. “That’s what happens when you itch mosquito bites,” said Olivia (15), an authority on basically everything. “And look at your fingernails Charlie, they’re filthy, no wonder you’re infected,” said Jackson (16), always game for gang tackles. “They’re not bug bites, and I don’t itch them,” declared Charlie (9), finally pissed. “You itch them in your sleep,” said Teddy (13), stripping his lifelong roommate of a defense. And while none of us believed Teddy heard Charlie itching at night, one look at the damage to his skin and it was hard to draw another conclusion. “Whatever you do Charlie, don’t touch the little one on your face,” said Mara, promising to cut his fingernails after dinner. On Charlie’s upper lip was a new sore. On his arm were another two, a few biggies dotted his legs. “Those mosquitoes really love you Chuck,” I said, and a wave of doubt washed across the table. “What if it’s something else?” asked Olivia. “Strip down Charlie,” ordered Mara. “Seriously?” he asked, nervous. “Jesus!” gasped the table in unison, his back and chest covered in circles. “Ringworm!” declared Mara. “You gotta be kidding me!” shrieked Charlie. But not one of us knew what that meant, not even Mara. Which didn’t stop her from Googling it, confirming the fake diagnosis, and treating it immediately with a fake remedy: tea tree oil. Such is the life of a 4th child, living in a home too busy to pay attention. And in a world preposterously micromanaged, eating away at our resiliency, we’re all better for it. At least that’s what Mara and I tell ourselves. “Tree tea oil? Seriously?” asked the doctor three days later, shaking her head. And Charlie laughed, prescription in hand, on the road to recovery.

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.

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