wknd notes: Things That Can't Be Taught, Only Found

I take a break from writing each summer, to catch up on reading, recharge, seek solitude. Wishing the same for you. Dusted off a sports anecdote about things that can’t be taught, only found (see below). Back at the end of August. All the best, E

Week-in-Review (expressed in YoY terms): Mon: Chinese researcher/spy arrested in SF consulate, global negatively-yielding debt hits $15.2trln (above March highs but below $17trln Aug 2019 record), Australia state of Victoria reports 384 cases, Germany and Spain report new outbreaks, German July IFO index +4.2 to 90.5, Republicans unveil $1trln stimulus plan (cuts emergency unemployment insurance by 2/3rds), dollar index hits 2yr low (gold +2.4% to record $1,945), Moderna begins 30k-person late-stage US vaccine trial, Google to keep work-from-home policy through July 2021 for 200k employees, S&P +0.7%; Tue: China records 100 new Covid cases, US reports 1,121 Covid deaths, Moderna to price Covid-19 vaccine at $50-$60 per course (far higher than expected), Kodak secures $765mm gov’t loan to start drug arm (sparks uproar over corruption), Barr defends Trump’s handling of Portland protests, 30yr TIPS yield hits -0.39%, consumer confidence -5.7 to 92.6, 85% of S&P companies have beaten expectations (vs long-term avg 73%), S&P -0.7%; Wed: HK makes first 4 arrests under new national security law (for posting secessionist material online), Covid outbreaks spreading globally, Fed rates unchanged (pledges to maintain emergency support), Powell says Covid resurgence is weighing on economic activity (stresses need for monetary and fiscal support), Fed extends most emergency lending programs through year-end (extends swap lines with foreign central banks until March 2021), 4 tech giants face congressional antitrust grilling, Boeing slashes production, Federal anti-riot agents agree to withdraw from Portland, US to reduce troops in Germany by 11,900 (half to return home and half to redeploy in Eastern Europe), S&P +1.2%; Thur: HK disqualifies 12 pro-democracy candidates, Samsung posts +23% profit growth (rising chip sales to support online biz activity), Royal Dutch Shell posts record $18bln Q2 loss, 2020 estimated oil/gas industry capital investment -26%, EU Q2 GDP -12.1% (forecast -8.3% for full-year 2020), German Q2 GDP -10.1% QoQ (France -13.8%, Italy -12.5%, Spain -18.5%), US Q2 GDP -9.5% QoQ (-32.9% annualized), unemployment claims +1.43mm (continued claims +867k to 17.02mm), US daily Covid cases +76k, Trump suggests possibility of delaying election due to Covid and voter fraud (McConnell and senior Republicans reject suggestion), 4 tech giants post strong earnings, infection rates slowing across southern states (rising in mid-western states), S&P -0.4%; Fri: China PMI +0.2 to 51.1 (services -0.2 to 54.2), HK’s Lam delays elections for 1yr due to Covid (shameless subversion of democracy), dollar index falls -4.4% in July (gold +11%), 10yr real rates -1.00%, Reps/Dems fail to agree on new stimulus (talks continue this weekend), S&P +0.8%; Sat/Sun: UAE starts Arab world’s first nuclear plant (South Korean technology), US politicians fail to agree on new stimulus (talks to continue Monday), PredictIt.com odds for presidential election (64% probability of Dem victory – unchanged on week).          

Weekly Close: S&P 500 +1.7% and VIX -1.38 at +24.46. Nikkei -4.6%, Shanghai +3.5%, Euro Stoxx -3.0%, Bovespa +0.5%, MSCI World +0.5%, and MSCI Emerging +2.0%. USD rose +3.8% vs Russia, +2.5% vs South Africa, and +2.0% vs Turkey. USD fell -17.2% vs Ethereum, -15.2% vs Bitcoin, -2.4% vs Chile, -2.2% vs Sterling, -1.0% vs Euro, -0.6% vs China, -0.6% vs Sweden, -0.5% vs Australia, -0.3% vs Brazil, -0.2% vs Yen, -0.1% vs Indonesia, flat vs India, flat vs Canada, and flat vs Mexico. Gold +3.3%, Silver +6.7%, Oil -2.2%, Copper -1.0%, Iron Ore +3.1%, Corn -2.9%. 5y5y inflation swaps (EU +1bp at 1.17%, US flat at 1.87%, JP -31bps at -0.19%, and UK flat at 3.62%). 2yr Notes -4bps at 0.11% and 10yr Notes -6bps at 0.53%.

July Mthly Close: S&P 500 +5.5% and VIX -5.97 at +24.46. Nikkei -2.6%, Shanghai +10.9%, Euro Stoxx -1.1%, Bovespa +8.3%, MSCI World +4.6%, and MSCI Emerging +8.7%. USD rose +4.5% vs Russia, +2.3% vs Indonesia, and +1.9% vs Turkey. USD fell -34.7% vs Ethereum, -19.4% vs Bitcoin, -7.7% vs Chile, -5.7% vs Sweden, -5.2% vs Sterling, -4.6% vs Brazil, -4.6% vs Euro, -3.4% vs Australia, -3.1% vs Mexico, -1.9% vs Yen, -1.6% vs South Africa, -1.3% vs China, -1.2% vs Canada, and -0.9% vs India. Gold +9.6%, Silver +32.0%, Oil +1.4%, Copper +5.0%, Iron Ore +12.5%, Corn -6.9%. 5y5y inflation swaps (EU +4bps at 1.17%, US +7bps at 1.87%, JP +1bp at -0.19%, and UK -1bp at 3.62%). 2yr Notes -4bps at 0.11% and 10yr Notes -13bps at 0.53%.

YTD Equity Index Close: NASDAQ +19.8% priced in US dollars, Denmark +19.5% priced in US dollars (+13.3% priced in krone), China +8.3% in dollars (+8.5% in renminbi), Taiwan +7.5% (+5.6%), Sweden +2.4% (-3.6%), S&P 500 +1.2%, Finland +0.8% (-4.2%), New Zealand +0.4% (+2.1%), Switzerland -0.1% (-5.8%), Korea -0.9% (+2.4%), Portugal -1.7% (-6.4%), Argentina -2.1% (+18.2%), Germany -2.3% (-7.1%), Malaysia -2.6% (+0.9%), Netherlands -5.3% (-9.8%), Japan -5.6% (-8.2%), Canada -8.3% (-5.2%), Australia -9.8% (-11.3%), Ireland -10.8% (-15.1%), Euro Stoxx 50 -11% (-15.2%), Saudi Arabia -11.1% (-11.1%), Russell -11.3%, Poland -11.5% (-12.7%), HK -12.3% (-12.8%), Belgium -13.1% (-17.3%), Israel -13.4% (-14.6%), India -13.5% (-9%), Italy -14.6% (-18.8%), Chile -14.7% (-14%), UAE -15.2% (-15.2%), France -16% (-20%), Turkey -16.1% (-1.5%), Norway -16.5% (-13.6%), South Africa -17% (+1.1%), Thailand -19.4% (-15.9%), Czech Republic -19.5% (-20.9%), Russia -20.2% (-4.4%), Philippines -21.4% (-24.1%), Indonesia -22.7% (-18.3%), UK -22.8% (-21.8%), Singapore -23.2% (-21.5%), Hungary -24% (-24.7%), Spain -24.4% (-28%), Mexico -27.9% (-15%), Greece -29.3% (-32.6%), Austria -29.9% (-33.4%), Brazil -31.3% (-11%), and Colombia -40% (-31.8%).

Anecdote (Jan 2015): “Can we talk Dad?” asked Jackson (13), serious, solemn. I sat on the couch, curious, prepared for anything. “Can I try out for West Coast Stars again?” he asked, voice strained. He tried out for All-Star lacrosse last January. The rejection letter arrived, he went quiet, retreated to his room. So I went and sat on his bed, explained how I moved to the suburbs from NYC at age twelve, where I’d never played sports. And years behind, had suffered the humiliation of the bench, or worse yet, playing the last few minutes when my team was so far ahead or behind that my impact was meaningless. When my parents didn’t bother coming it hurt. When they did come it was harder. I worked my way up from utterly hopeless to second worst. Then third worst. And so on, to eventually play college ball. I’ll never know if the desire to distance myself from that beginning, or the promise of a higher destination drove me most. Maybe both. In the end, it doesn’t matter. Humiliation is one of life’s greatest gifts. Anyhow, for this past year, the topic died, he never mentioned West Coast Stars. “I’ve been killing myself all year Dad,” Jackson continued. He has; waking early, training tirelessly. Now he travels to LA, playing up, swimming in a bigger pond. “But Jackson, your new club team plays West Coast Stars – go beat them this summer,” I said, taunting. Children can be taught nearly anything, just not the most important things; those must be found – passion, drive, hunger. “I’ve trained all year for this, I secretly think about it every single day,” he admitted. “Why?” I asked. “I don’t know, I just want it, to prove to myself I can do it,” he said. So I said yes, holding back an ocean of emotion. As he wiped away a single tear.

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.