wknd notes: The Triumph is the Struggle

“I’m just a child who has never grown up. I still keep asking these ‘how’ and ‘why’ questions. Occasionally, I find an answer,” he said, seated, soaring through the cosmos. “I’ve wondered about time all of my life,” he said, clock ticking, body dissolving. “If the rate of expansion one second after the big bang had been smaller by even one part in a hundred thousand trillion, it would have re-collapsed before reaching its present size,” he explained. “But if it had been greater by one part in a million, the universe would have expanded far too rapidly for stars and planets to form,” he said, awed by that incomprehensibly narrow sliver that allowed our escape from nothingness. “The universe is not independent of our existence, it depends on it,” said Stephen Hawking, exploring the sublime. He was born January 9th, 1942, the 300th anniversary of Galileo’s death. In that brief time, scientists advanced human understanding to limits that now threaten our survival. Stephen considered this often. We split atoms, freeze embryos, splice DNA, quantum compute. Artificial intelligence approaches. “We are in danger of destroying ourselves by our greed and stupidity. We cannot remain looking inwards at ourselves on a small and increasingly polluted and overcrowded planet,” he said. “I don’t think the human race will survive the next 1,000 years unless we spread into space.” But for all of Stephen Hawking’s wisdom, it was the advice to his three children combined with the example he set for us - crippled, crumpled, defiant, magnificent - that shall be his extraordinary legacy: “Remember to look up at the stars, not down at your feet. Try to make sense of what you see, wonder about what makes the universe exist. Be curious. And however difficult life may seem, there’s always something you can do and succeed at. It matters that you don’t just give up.”

Week-in-Review (expressed in YoY terms): Mon: China battery company takes controlling stake in Canadian lithium company, Hong Kong pro-democracy group loses 2 of 4 open seats in elections, Saudi Arabia “reviewing” Aramco options (IPO unlikely in 2018), Trump blocks Broadcom bid for Qualcomm on national security, Republican intelligence committee “no sign of Trump/Russia collusion,” S&P -0.1%; Tue: China’s CATL now world’s largest electric auto battery producer, World Bank raises 2018 global growth +0.2 to +3.9% (expects 2019 global GDP +3.9%), Russia accuses UK of meddling in upcoming election, Turkey core CPI +12% (12mth rolling current account deficit jumps $3.4bln to $50.3bln, 10yr yields 12.3%), Trump fires Tillerson via tweet (Tillerson claims he does not know why he was fired), US CEO confidence record high (measure started in 2002), CPI +0.1 to +2.2% (core unch at +1.8%), S&P -0.6%; Wed: China IP +1.0 to +7.2% (urban FAI +0.7 to +7.9%, retail sales +0.3 to +9.7%), Chinese real estate investment accelerates to +9.9%, Japan machine orders jump +2.9% (fastest pace in 2yrs), Opec lifts non-Opec production forecasts (led by US shale), UK expels 23 Russian diplomats over nerve gas scandal, EU IP softens to +2.7%, France FinMin accuses Google and Apple of abusive practices, Google bans cryptocurrency adverts, US retail sales shrink for 3rd mth, PPI +0.1 to +2.8%, Larry Kudlow replaces Cohn as Trump economic advisor, S&P -0.6%; Thur: UK/Germany/France/US issue joint statement condemning Russia for poisoning, Norway central bank “rate rise will soon be appropriate,” Canada existing home sales 5yr lows, US imposes Russia sanctions (accuses it of cyberattacks against infrastructure), S&P -0.1%; Fri: Hong Kong proposes 3yr jail terms for people who disrespect Chinese national anthem, Li Ka-shing retires, Singapore non-oil exports -6%, Russia expels 23 UK diplomats, EU CPI -0.2 to +1.1% (Italy CPI +0.5%), weekly global equity inflows record $43bln, US IP +4.4% (8yr highs), homebuilder confidence 4mth low (but remains near 20yr highs), S&P +0.2%. 

Weekly Close: S&P 500 -1.2% and VIX +1.16 at +15.80. Nikkei +1.0%, Shanghai -1.1%, Euro Stoxx -0.1%, Bovespa -1.7%, MSCI World -0.7%, and MSCI Emerging +0.5%. USD rose +16.1% vs Ethereum, +5.6% vs Bitcoin, +2.8% vs Turkey, +2.2% vs Canada, +1.7% vs Australia, +1.5% vs Russia, +1.4% vs South Africa, +0.9% vs Chile, +0.8% vs Brazil, +0.4% vs Mexico, +0.1% vs Euro, and flat vs China. USD fell -0.8% vs Yen, -0.7% vs Sterling, -0.6% vs Sweden, -0.3% vs India, and -0.3% vs Indonesia. Gold -0.8%, Silver -1.6%, Oil +0.2%, Copper -1.0%, Iron Ore -3.2%, Corn -2.0%. 5y5y inflation swaps (EU -2bps at 1.69%, US +1bp at 2.39%, JP +6bps at 0.44%, and UK -7bps at 3.40%). 2yr Notes +3bps at 2.29% and 10yr Notes -5bps at 2.85%.

2018 YTD Equity Indexes: Brazil +11.8% priced in US dollars (+11.1% in reais), Russia +8.8% in dollars (+8.8% in rubles), NASDAQ +8.4% (+8.4%), Argentina -0.1% (+8.3%), Saudi Arabia +7.2% (+7.2%), HK +4.9% (+5.3%), Italy +6.9% (+4.6%), Czech Republic +6.6% (+3.7%), Taiwan +5.6% (+3.6%), Finland +5.7% (+3.4%), Thailand +7.8% (+3.3%), Russell +3.3% (+3.3%), UAE +3.3% (+3.3%), Singapore +4.7% (+3.2%), S&P 500 +2.9% (+2.9%), Malaysia +6.6% (+2.8%), Turkey -1.8% (+1.6%), Greece +3.7% (+1.4%), Korea +1.1% (+1.1%), Portugal +3.2% (+1%), New Zealand +2.6% (+0.9%), Austria +2.9% (+0.7%), Chile +1.8% (+0.6%), Colombia +4.8% (+0.2%), Israel +0.7% (+0.1%), Sweden -0.3% (-0.2%), Belgium +1.8% (-0.4%), France +1.6% (-0.6%), Norway +5.4% (-0.7%), Indonesia -2.1% (-0.8%), China +1.6% (-1.1%), Hungary +1.5% (-1.2%), Netherlands +0.8% (-1.4%), Euro Stoxx 50 +0.3% (-1.9%), Australia -3.1% (-1.9%), South Africa +1.4% (-2.1%), Spain -0.7% (-2.8%), Canada -7.3% (-3.1%), India -5% (-3.2%), Denmark -1.2% (-3.3%), Philippines -7.3% (-3.7%), Mexico +1.2% (-3.8%), Germany -2% (-4.1%), Japan +1% (-4.8%), Ireland -2.8% (-4.9%), Poland -4.1% (-5.3%), Switzerland -3.2% (-5.3%), and UK -4% (-6.8%).

Space Oddity: Sir Ernest Shackleton prepared for his historic expedition. In 1913, searching for a crew, he ran this advertisement in the papers: “Men wanted for hazardous journey to the South Pole. Small wages, bitter cold, long months of complete darkness, constant danger. Safe return doubtful. Honor and recognition in case of success.” Speaking of it afterwards, Shackleton said the response had been so overwhelming that it seemed all the men of Great Britain were determined to join him. It’s humanity’s greatest advertisement. 

Space Oddity II: “It’s difficult, dangerous, there’s a good chance you will die, excitement for those who survive, that kind of thing,” Musk explained, standing on Shackleton’s shoulders at Austin’s South by Southwest conference. “The first test flights to Mars could be ready as soon as the first half of next year,” continued Elon, overly optimistic. “I think there aren’t that many people that want to go in the beginning because all those things I said are true. But there will be some who will, for whom the excitement of frontier and exploration exceeds the danger.” 

Space Oddity III: “Companies and other countries currently don't think it’s possible, so if we show them that it is, then I think that they will up their game and they will build interplanetary transport vehicles as well,” continued Musk. “With the colonization of a new planet, an explosion of entrepreneurial opportunities will open.” Life on our neighboring planet would start by building fundamentals, like a power plant, glass domes for farming, pizza joints. “I think Mars should really have great bars,” he added, “And most likely, a direct form of democracy.” 

Oh Shiite: “Saudi Arabia does not want to acquire a nuclear bomb, but without a doubt, if Iran developed a nuclear bomb, we will follow suit as soon as possible,” announced Mohammed bin Salman, Sunni. Not since World War II have so many major world armies been active in one region. The US, Russia, Iran, Turkey, Israel, Saudi Arabia. “These words are worthless because they come from a simple mind full of illusions who speaks only bitterness and lies,” said Iranian foreign ministry spokesman Bahram Ghasemi, Shiite, responding to the Saudis. Oil is at $62. 

Nerve Agents: “We will always do what is necessary to defend ourselves, our allies, and our values against an attack of this sort, which is an attack not only on the UK, but upon the international rules-based system, on which all countries, all countries including Russia, depend for their safety and security,” said the UK Foreign Ministry, expelling 23 Russian diplomats. “The British side is warned that in case of further unfriendly actions against Russia, the Russian side reserves the right to take further retaliatory measures,” the Russian ministry said.

On Your Mark: “When the Chinese can deploy tactical or regional hypersonic systems (traveling up to 20x the speed of sound; 15k mph), they hold at risk our carrier battle groups, our entire surface fleet. They hold at risk our forward-deployed land-based forces,” said US undersecretary of defense for research and engineering, his nation gradually withdrawing from the world stage. “China in particular has set itself on a course to become a global power and America’s primary adversary,” he said, as the pistol popped, and the arms race began.  

Anecdote: “I’m going to puke,” said Mara. We waited for the call, the text, the result. Our daughter Olivia was attempting the impossible. “Tell me she’s going to make it,” whispered Mara. I quietly considered the odds. Sighed. Olivia is a force of nature, her spirit pure Olympic Gold. But there’s one problem. She’s tiny. Usain Bolt trapped inside a pipsqueak. “We should have heard by now.” Olivia flew to California alone. I’d smiled, proud. At fourteen, she takes the train to the YMCA. Walks to the pool, snow or shine. On a good night, I pick her up after work. If not, she trollies home, still steaming, bursting into dinner on a high. Empowered, independent. “Maybe they’ll see past her height and bet on her drive.” Olivia made the Olympic water polo development program. The coaches had gathered their players in San Fran, culling the herd to build a national team. So our little wildebeest wobbled her way west. “There’s no way, is there?” The mothers of water polo Olympic hopefuls are my height. Their fathers look like Michael Phelps. The fact is, Olivia got cut at conception. “I pray this doesn’t break her spirit.” Sport is a metaphor for life; struggle, risk, failure, triumph. Through it we learn about ourselves, others, our interactions. We learn to connect process and result. “Why would they invite her if she had no shot?” Never in my life have I met a more naturally confident human being than Olivia. It’s at once hysterical, preposterous, intoxicating, inspirational. “You know what my coach said when I told him I got cut?” asked Olivia, returning home, proud. Truth is, the result we want for our kids is not the trophy. We want the triumph. And the triumph is the struggle. “With my spirit and drive I’ll achieve anything I want in life.” 

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.