wknd notes: Castles Made of Sand

Dusted off an anecdote from 2011 about castles made of sand (see below). I take my late-summers off from writing, to squeeze in a little more reading. See you again in September with full weekend notes.

Week-in-Review (expressed in YoY terms): Mon: HK dollar nears decade low vs US dollar, iron ore prices +7%, Indonesia GDP +5.0%, South Africa to hold Zuma no-confidence vote, UBS “pilotless planes could save airlines $35bln,” UK home prices +2.1%, German industrial output -2.6 to +2.4%, Fed’s Bullard “even if unemployment rate continues to fall, the effect on inflation likely to be small,” VIX hits 50yr low, credit card debt all-time high, S&P +02%; Tue: China exports -4.1 to +7.2% (imports -6.2 to +11.0%), China renminbi hits 10mth high, Zuma narrowly wins no-confidence vote, NK weighs missile strike on US base in Guam, aluminum prices 3yr highs, German trade and current account surpluses jump, S&P -0.2%; Wed: China CPI -0.1 to +1.4% (PPI unch at +5.5%), UK unemployment 4.5% (1975 lows), Portugal unemployment -1.3 to 8.8% (2009 low), Mexico CPI 6.44% (2008 high), US oil inventories fall 6th week, Atlanta Fed Q3 GDP Now forecast +3.5%, Trump touts “powerful nuclear arsenal,” S&P unch; Thur: China strengthens renminbi trading band midpoint below 6.700, China rebuffs US claims that it subsidizes aluminum producers by up to 81%, Japan PPI +2.6% (7th mthly rise), Japan machine orders -5.2%, RBNZ talks NZ dollar lower, Opec production rises for 3rd mth, Kenya opposition contests presidential election, UK trade deficit 8mth high, Danish CPI more than triples to +1.5% (5yr high), French industrial output -0.5 to +2.6%, Mexico rates unch at 7.00%, US PPI -0.1 to +1.9%, Trump “previous NK warnings not tough enough,” VIX index hits 16.17 (9mth high), junk bonds suffer worst 2-day sell-off in 9mths, S&P -1.5%; Fri: China gov’t fiscal revenues +11.1% (spending +5.4%), Beijing announces cybersecurity probe into social media platforms (Tencent -5%), HK Q2 GDP -0.5 to +3.8%, Australia vows to invoke mutual defense pact if NK attacks US, IEA “commercial oil inventories below 2016 lows,” Russia Q2 GDP +2.5% (fastest in 5yrs), French unemployment 9.6% (post crisis lows), US CPI +0.1 to +1.7% (core +1.7%), Trump “NK military solutions locked and loaded,” S&P +0.1%; Sat/Sun: China’s Xi warns Trump over NK rhetoric, Trump threatens Venezuela with military action.        

Weekly Close: S&P 500 -1.4% and VIX +5.48 at +15.51. Nikkei -1.1%, Shanghai -1.6%, Euro Stoxx -2.7%, Bovespa +0.7%, MSCI World -1.4%, and MSCI Emerging -1.0%. USD rose +2.0% vs Brazil, +0.9% vs India, +0.4% vs Australia, +0.3% vs Indonesia, +0.3% vs Canada, +0.2% vs Turkey, and +0.2% vs Sterling. USD fell -1.4% vs Yen, -1.0% vs China, -0.5% vs Chile, -0.4% vs Euro, -0.3% vs Mexico, and -0.2% vs Russia. Gold +2.4%, Silver +5.4%, Oil -1.5%, Copper +0.9%, Iron Ore +1.4%, Corn -1.7%. 5y5y inflation swaps (EU +1bp at 1.60%, US flat at 2.25%, JP flat at 0.31%, and UK +5bps at 3.36%). 2yr Notes -6bps at 1.30% and 10yr Notes -7bps at 2.19%.

YTD Equity Indexes: Greece +43.4% priced in US dollars (+28.0% priced in euros), Poland +38.4% in dollars (+20.2% in zloty), Turkey +36.4% (+36.9%), Austria +35.4% (+20.8%), Hungary +30.9% (+15.0%), Mexico +28.6% (+11.0%), Czech Republic +28.2% (+10.8%), Portugal +27.9% (+14.2%), Denmark +27.6% (+14.1%), India +25.9% (+18.6%), Chile +25.6% (+21.2%), Italy +24.4% (+11.0%), Spain +23.2% (+10.0%), HK +21.2% (+22.2%), Singapore +21.1% (+13.8%), Korea +21% (+14.5%), Belgium +20.2% (+7.2%), Netherlands +19.9% (+7%), Taiwan +19.2% (+11.6%), New Zealand +18.2% (+12.2%), Finland +18.2% (+5.4%), Germany +17.3% (+4.6%), France +16.7% (+4.1%), NASDAQ +16.2% (+16.2%), Euro Stoxx 50 +16% (+3.5%), Norway +15.6% (+6.3%), Brazil +15% (+11.8%), Argentina +14.9% (+27.9%), Switzerland +14.3% (+8.1%), South Africa +13.6% (+11.1%), Sweden +13.4% (+1.4%), Ireland +13.2% (+1.0%), Philippines +12.6% (+15.9%), Malaysia +12.4% (+7.6%), Indonesia +10.4% (+8.9%), Japan +10.2% (+3.2%), Australia +9.9% (+0.5%), Thailand +9.3% (+1.2%), S&P 500 +9.0% (+9.0%), UK +7.9% (+2.3%), China +7.7% (+3.4%), Colombia +7.7% (+6.9%), Canada +4.3% (-1.7%), Israel +3.2% (-3.7%), Russell +1.3% (+1.3%), UAE +0.1% (+0.1%), Saudi Arabia -0.6% (-0.6%), and Russia -10.9% (-12.9%).

Anecdote (2011): Teddy and I built a castle made of sand. He positioned it just above the water line. We are drawn to risky endeavors. We taunt Mother Nature, tempt fate – always have, always will. Yet before I knew it, his plan changed, they usually do. Teddy transformed the castle into a throne. There he sat, perched high, proud, defiant, smug, as the first waves gently swept in. We contained the damage, made repairs. But before long, the balance of power shifted. At first he kicked the rushing water. Then resorted to lying prostrate, shielding his creation from the approaching menace. As it receded he would jump to his feet, fists raised, growling – “Arghrrr.” I retreated to higher ground, watched, smiled, as his throne’s foundation wasted away. The little fella’s determined efforts grew frantic, manic. A final roller came in, and the once formidable throne slumped. That last wave was nothing special, it just capped the damage done by so many that had come before. And sobbing, Teddy joined me on dry sand. We sat, watching the foam spill over our creation. In no time, the folly of his efforts became clear. He grew quiet. We both did. I broke the silence, told Teddy something fathers have told sons since the dawn of time, “You know little man, no one can turn the tides.” He looked out at the sea, calm, “It’s okay Daddy, I don’t really care.” Most often the things we try so desperately to prevent, aren’t actually that bad in the end (applies to Fed Governors, Presidents too). Within minutes, his throne was reduced to a gentle mound, the adjacent hole filled to a shallow depression of pristine sea water. The landscape restored to balance, filled with possibility.

Good luck out there,

Eric Peters

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.