wknd notes: Dispassionate Science-Based Discourse

“Our model - which uses known data on 121 variables, from recorded deaths to demography - suggests that COVID-19 has claimed 7.1mm-12.7mm lives,” wrote The Economist. “Our central estimate is the real tally of ‘excess deaths’ is over three times the official count,” continued the publication, proceeding to explore the enormity of risks facing the developing world. The West’s pandemic response exposed the weaknesses of our institutions at a time when faith in them was already low and fading. And yet, with the devastation and deficits still mounting as if the world were at war, the issue of how it all started remains unsettled.

Overall: “On 30 December 2019, the Program for Monitoring Emerging Diseases notified the world about a pneumonia of unknown cause in Wuhan, China. Since then, scientists have made remarkable progress in understanding the causative agent, severe acute respiratory syndrome coronavirus 2 (SARS-CoV-2), its transmission, pathogenesis, and mitigation by vaccines, therapeutics, and non-pharmaceutical interventions,” wrote 18 leading biologists - including the world’s foremost coronavirus researcher - in Science, one of the world’s most prestigious journals. What follows is the reminder of that letter, the beginning of an investigative process with the potential for profound geopolitical consequences. “Yet more investigation is still needed to determine the origin of the pandemic. Theories of accidental release from a lab and zoonotic spillover both remain viable. Knowing how COVID-19 emerged is critical for informing global strategies to mitigate the risk of future outbreaks. In May 2020, the World Health Assembly requested that the World Health Organization (WHO) director-general work closely with partners to determine the origins of SARS-CoV-2. In November, the Terms of Reference for a China–WHO joint study were released. The information, data, and samples for the study’s first phase were collected and summarized by the Chinese half of the team; the rest of the team built on this analysis. Although there were no findings in clear support of either a natural spillover or a lab accident, the team assessed a zoonotic spillover from an intermediate host as “likely to very likely,” and a laboratory incident as “extremely unlikely”. Furthermore, the two theories were not given balanced consideration. Only 4 of the 313 pages of the report and its annexes addressed the possibility of a laboratory accident. Notably, WHO Director-General Tedros Ghebreyesus commented that the report’s consideration of evidence supporting a laboratory accident was insufficient and offered to provide additional resources to fully evaluate the possibility. As scientists with relevant expertise, we agree with the WHO director-general, the United States and 13 other countries, and the European Union that greater clarity about the origins of this pandemic is necessary and feasible to achieve. We must take hypotheses about both natural and laboratory spillovers seriously until we have sufficient data. A proper investigation should be transparent, objective, data-driven, inclusive of broad expertise, subject to independent oversight, and responsibly managed to minimize the impact of conflicts of interest. Public health agencies and research laboratories alike need to open their records to the public. Investigators should document the veracity and provenance of data from which analyses are conducted and conclusions drawn, so that analyses are reproducible by independent experts. Finally, in this time of unfortunate anti-Asian sentiment in some countries, we note that at the beginning of the pandemic, it was Chinese doctors, scientists, journalists, and citizens who shared with the world crucial information about the spread of the virus—often at great personal cost. We should show the same determination in promoting a dispassionate science-based discourse on this difficult but important issue.”

Week-in-Review (expressed in YoY terms): Mon: Colonial pipeline remains shuttered after ransomware attack (3 days), US FDA approves Pfizer vaccine for 12-15yo, New Delhi extends lock down as India’s daily covid deaths remain above 4k/day, Japan’s covid cases top 7k/day for first time since Jan, ECB’s Rehn says ECB should follow Fed by accepting inflation overshoots, SNP falls one seat short of majority thus reducing likelihood of immediate Scottish independence referendum, WHO approved China’s Sinophram vaccine despite doubts over efficacy, Australian ret sales 1.3% (1.4%e), Norway CPI 3% (3.1%e), Turkey unemp 13.1% (13.2%p), S&P -1.05%; Tue: China seeks to limits Australian nat gas consumption as trade war escalates, Israel / Palestine conflict escalates materially – 35 dead in Gaza / 5 in Israel, US coast guard fires warning shots at Iranian vessels, European commission sues AZ for failing to deliver vaccines, China CPI 0.9% (1%e) / PPI 6.8% (6.5%e), Japan household spending 6.2% (1.5%e), Turkey IP 16.6% (14.1%e), Hungary CPI 5.1% (4.8%e), German ZEW 84.4 (72e), Brazil IPCA infl 6.76% (6.74%e), US NFIB small business optimism 99.8 (100.8e), S&P -0.9%; Wed: highest core CPI MoM print in US since 1981: 0.9% MoM (0.3% exp) / CPI headline 4.2% YoY (3.6%e) / lead by used cars, fuel, hotel and air travel, Israel unleashes relentless attack following first Israeli deaths, Liz Cheney ousted as 3rd highest ranking republican congress member due to her insistence that the US election was not stolen, Musk says Tesla to stop accepting BTC payments over the environmental costs of the digital currency, Taiwan deputy finmin says may tap the National Stabilization Fund to stem equity market decline after 8.5% drop, Clarida admits to being surprised by the inflation report but expects it to be transitory, CDC recommends Pfizer vaccine for 12-15yo, 9 US states signaled they would opt out of Biden’s $300/wk unemp payment bc it discourages work, China new loans 1470b (1600b exp), S. Korea unemp 3.7% (3.9%e), UK 1Q GDP -6.1% as exp, UK IP 3.6% (2.9%e), Sweden CPIF 2.5% (2.4%e), EU IP 10.9% (11.8%e), Mexico IP 1.7% (0.6%e), S&P -2.1%; Thur: Colonial pipeline restarts, Kuroda says will take time for Japan to reach 2% infl, CDC says fully vaccinated Americans don’t need to wear masks inside (there are exceptions, ie. crowded areas/healthcare facilities/etc), China threatens Australia with “economic carnage” as trade war rages on, BoE’s Haldane suggests it’s time to tighten policy, global covid cases surpass 160m, BoC’s Macklem highlights that CAD strength could create risks for the bank’s outlook, Banxico unch as exp, Japan bankruptcies -35.8% (-14.3%p), US PPI 6.2% (5.8%e), US init claims 473k (490k exp), S&P +1.2%; Fri: Israeli air and ground troops assaulted the Gaza strip despite appeals for de-escalation (119 Palestinians/ 9 Israelis dead), rising instances of covid variants in the UK raise concerns of possible localized lockdowns, Paris Club willing to delay $2.4b debt payment from Argentina (with conditions), Yankees have 8 players staff test positive despite being vaccinated, Vitalik Buterin donates $1b Shiba Inu coins to India covid relief, Elise Stefanik (Trump loyalist) picked to replace Liz Cheney, Darkside (hackers behind the colonial pipeline ransom) to disband after NSA hacked it, China lands a rover on Mars, Argentina CPI 46.3% (46.2%e), HK 1Q GDP 7.9% (7.8%e), US control ret sales -1.5% (-0.2%e), US impt prices 10.6% (10.2%e), US UofMich sentiment 82.8 (90e) / 5-10y infl expectations 3.1% (2.7%), S&P +1.5%.

Weekly Close: S&P 500 -1.4% and VIX +2.12 at +18.81. Nikkei -4.3%, Shanghai +2.1%, Euro Stoxx -0.5%, Bovespa -0.1%, MSCI World -1.4%, and MSCI Emerging -3.0%. USD rose +12.4% vs Bitcoin, +2.5% vs Turkey, +0.9% vs Australia, +0.8% vs Chile, +0.7% vs Yen, +0.7% vs Brazil, +0.5% vs South Africa, +0.4% vs Russia, +0.3% vs Sweden, +0.2% vs Euro, and +0.1% vs China. USD fell -14.0% vs Ethereum, -0.8% vs Sterling, -0.6% vs Indonesia, -0.3% vs India, -0.3% vs Mexico, and -0.2% vs Canada. Gold +0.7%, Silver -0.1%, Oil +1.1%, Copper -1.8%, Iron Ore -1.6%, Corn -11.8%. 5y5y inflation swaps (EU +6bps at 1.60%, US +6bps at 2.55%, JP +5bps at 0.33%, and UK -4bps at 3.74%). 2yr Notes flat at 0.15% and 10yr Notes +5bps at 1.63%.

YTD Equity Indexes (high-to-low): Venezuela +62.4% priced in US dollars (+314.1% priced in bolivar), UAE +23.1% priced in US dollars (+23.1% in dirham), Austria +21.6% in dollars (+23.1% in euros), Saudi Arabia +18.8% (+18.8%), Sweden +17.8% (+19.9%), Canada +17.1% (+11.1%), South Africa +15.7% (+11.4%), Norway +15.2% (+10.6%), France +14.2% (+15%), Russell +12.6%, UK +12.6% (+9%), Spain +12.5% (+13.3%), Mexico +12.3% (+11.7%), Euro Stoxx 50 +12.3% (+13.1%), Netherlands +11.8% (+12.6%), Belgium +11.5% (+12.3%), Chile +11.5% (+9.5%), Russia +11.4% (+10.6%), Greece +11.3% (+12.1%), S&P 500 +11.1%, Czech Republic +11.1% (+9.2%), Germany +11% (+12.4%), Italy +10% (+11.4%), Hungary +9.7% (+8%), MSCI World +9.2% (+9.2%), Ireland +9% (+9.8%), Poland +9% (+9.1%), Finland +8.8% (+10.2%), Taiwan +8% (+7.4%), Australia +7.6% (+6.5%), Israel +6.7% (+9.1%), Singapore +6.5% (+7.4%), Korea +6.1% (+9.7%), India +4.6% (+5%), NASDAQ +4.2%, HK +2.8% (+2.9%), Denmark +2.2% (+4.1%), Thailand +2.2% (+6.9%), China +1.9% (+0.5%), Switzerland +1.6% (+3.9%), Brazil +0.6% (+2.4%), Portugal -1.4% (-0.6%), Indonesia -1.7% (-0.7%), Japan -3.4% (+2.3%), Argentina -4.2% (+7.1%), New Zealand -4.8% (-5.5%), Malaysia -5.2% (-2.7%), Philippines -11.7% (-12.2%), Turkey -14.1% (-2.4%), Colombia -16.5% (-10.3%).

Imagine: The world’s worst disaster in a century killed 7.1mm-12.7mm across the planet. The total continued rising. No one knew exactly when it would end, only that the poorest nations would bear the brunt. They always do. European and Asian countries lost more citizens than they had since WWII. The US lost more than in any war. Children fell behind. Economic costs spiraled, leaving each nation’s finances forever changed. Monetary and fiscal policy merged in the West. Inflation reappeared. Despots tightened their grip. America’s president was voted out.  

Imagine II: In the emergency of the moment, the world’s leaders mostly kept their nations focused on dealing with the disaster. But as the crisis in the developed world subsided, focus turned to the origin of it all. The world’s leading biologists felt that the preliminary analysis lacked scientific rigor and appeared incomplete. To prevent a repeat of such tragedy, they insisted on doing what they are trained to do. And in this search for the truth, they had to seriously explore the possibility that the disaster was not of natural origin, but an accident. 

Imagine III: Having suffered the consequences, people throughout the world rightly sought the truth. But the hunt for truth in epidemiology is a rather different matter than the search for truth in geopolitics. The former is infinitely cleaner and easier than the latter. And to compound that difficulty, the geopolitical consequences of this disaster having been a laboratory accident are so vast that it is difficult to quite imagine. Would nations hold China to account? If so, how? War reparations? How would international debts be treated? Equity? These barely scratch the surface.

Imagine IV: Every person on the planet should hope the truth is the virus struck humanity naturally, unluckily (I sure do). Beijing certainly wants this to remain the explanation. They rebuked Australia for questioning it. So how hard will Western leaders press for a thorough investigation knowing that if it were to conclude a lab leak, it would require a political response that could turn the world upside down? And yet, if they do not press hard, how will Western governments retain their already diminished credibility when it comes to national security?

Anecdote: “What are you thinking about markets here?” asked the entrepreneur, wedging the question into our conversation, but working hard to sound barely interested. I laughed, unable to contain it. “Oh, so you really called to ask about bitcoin,” I said, smelling his quiet panic. “Well, you know, yeah basically, I mean what do think about all this stuff going on?” he asked, not wanting anything other than reassurance. “You don’t get to make a lot of money without enduring an even greater amount of pain - that’s just the way the universe works,” I explained, having a little fun while trying to be helpful. Don’t get me wrong, I’m not someone who enjoys the suffering of others. It’s just that I’ve endured so much of it myself that when I observe it in people who casually trade, thinking it’s fairly easy, I find it funny they believe trading somehow defies natural law. Ask an athlete or actor how much pain they endured in exchange for glory. Ask an artist or entrepreneur the depth of their sacrifice, made in exchange for even a chance at greatness. You’ll hear stories of endless hours, repeated failures, humiliation, tortured lives, often nearly destroyed. And never in those fields is there a guarantee of ultimate success. Quite the opposite - the odds are stacked heavily against survival, let alone triumph. In any game that does not award participation trophies, it can work no other way. “This week was nothing compared to what you’ll need to endure in the years to come. Three negative headlines hit a market filled with leveraged retail longs,” I explained, sensing longer-term silver linings in each piece of bad news. “It was the kind of week that can get even fairly committed traders to puke, cutting out the source of their pain. That’s how markets operate – trading is truly an awful pursuit,” I said. “And you should generally hope for news that’s just bad enough to maintain the wall of worry, without being fatal. It’s only after the news becomes universally good, volatility collapses, and leveraged carry traders start picking up pennies that you should really worry.”

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.