wknd notes: What Real Progress Looks Like

“Imagine what government agencies could look like in 4yrs,” wrote an X employee as a caption for two images, presented side-by-side [here ]. On the left was a SpaceX Raptor engine from 2020, the mechanics of it a jumbled mess, wildly intricate, but still impressive, functional. On the right was the 2024 version of that same Raptor engine, its mechanics simple, sleek, as elegant as one could rightly imagine. More powerful, efficient. And Elon, fresh off the maiden return of a Starship Super Heavy booster, reposted the dual image, captioned with a single word: “Yup”.

Overall: “This is a custom-built tower with arms that are designed to catch the largest flying and heaviest flying object ever made and pluck it out of the air,” said Elon, pre-launch, his magnificent Starship on the launchpad, the largest and most powerful flying object ever made with more than 2x the thrust of the Saturn V moon rocket. “It’ll weigh about 250 tons. We’ll make that lighter over time,” pledged the immigrant from South Africa, now suing the state of California for limiting his ability to increase SpaceX’s launch pace for purely political reasons. Even Democrat Governor Newsom came out in support of Elon on this one, chastising his own bureaucratic appointees, as the political winds show signs of shifting. “You got a couple hundred tons plummeting at more than half the speed of sound. So this thing is still coming in really fast,” said Musk, his Super Heavy Booster as tall as a 19-story building. “When the engines land... it’s gonna drop the velocity to basically zero and come in between the arms,” he said, describing the landing into his Mechanzilla. “The arms will be wide, and as it’s coming in, the arms will, will close, go flush against the side of the vehicle, and the vehicle will be descending through the arms,” said Elon, as Christine Lagarde cut rates 25 one hundredths of one percent, for the third time this year in an attempt to revive Europe’s moribund economy, admitting that she has not yet broken the neck of inflation, but believes she’s in the process of doing so. And as China pledged to print 4trln yuan ($562bln) in additional support for housing projects to try and support its slowly suffocating economy. “Excitement guaranteed, success is possible,” said Elon, willing to embrace the uncertain outcome, the risk of televised failure. “It is important in this often difficult and troubled world for there to be things that also inspire and make you feel great to be part of humanity.”

Week-in-Review: Mon: Fed Governor Waller calls for more caution on rate cuts. Google becomes first tech company to order nuclear reactors for its data centres. China holds military drills off Taiwan coast over the weekend to warn the island to halt “separatist acts”. OPEC trimmed its forecasts for oil demand growth for the third consecutive month. India recalls diplomats from Canada in dispute over killing of Sikh activist. China Trade balance $81.71b ($90.5b e), China Expts 2.4% (6.0%e) / Impts 0.3% (0.8%e), China M2 6.8% (6.4%e), India CPI 5.49% (5.10%e), Singapore YoY GDP +4.1% (+4%e), S&P +0.8%; Tue: US warns Israel that humanitarian situation in Gaza could threaten military aid while US troops and advanced anti-missile system parts begin arriving. Market bellwethers ASML and LVMH report disappointing results and downgrade outlook. Number of US workers filing petitions to form unions grows by 27%. IMF warns global public debt will exceed $100tn by the end of this year. IEA predicts sharp fall in growth of global demand for oil. UK PM Starmer unveils package to stimulate housing starts. EZ IP YoY +0.1% (-1.2%e), Germany ZEW sentiment current cond -86.9 (-84.3e) / expectations 13.1 (9e), US Empire Mfg Idx -11.9 (3e India Impts 8.55% (12.15%e) / Expts 6.44% (8.10%e), UK ILO unemp rate 4.0% (4.1%e), France 1.1% (1.2%e), Canada CPI 1.6% (1.8%e), New Zealand CPI 2.2% as exp, South Korea Unemp rate 2.5% (2.6%e), S&P -0.8%; Wed: US announces new $425mn military aid package for Ukraine, Amazon buys stake in nuclear energy developer, Starmer confirms Britain considering sanctions against far right Israeli ministers, UK house prices rise for sixth straight month as mortgage costs fall, China to expand lending to approved property developers to $562bn. UK CPI 1.7% (1.9%e) / Core 3.2% (3.4%e) / RPI 2.7% (3.1%e), Thailand interest rate 2.25 (2.50%e), Philippines Overnight rate 6.0% as exp, Indonesia BI-rate 6.0% as exp, S&P +0.5%; Thur: ECB cuts rates, Israel kills Hamas leader Yahya Sinwar in southern Gaza, Yellen warns against sweeping and untargeted tariffs for economic and security reasons, Ukraine president pushes EU leaders to unlock €35bn loan, Pres. Trump blames Zelensky for allowing war to start, US charges Indian official over plot to kill Sikh activist in New York. US Initial jobless claims 241k (259k e) / Cont claims 1867k (1865k e), Eurozone CPI 1.7% (1.8%e) / Core 2.7% as exp, ECB Deposit facility rate 3.25% as exp / Main refinancing rate 3.40% as exp / Marginal lending facility 3.65% as exp, Turkey One-week repo rate 50.0% as exp, Egypt Deposit rate 27.25% as exp, Chile Overnight rate 5.25% as exp, S&P flat; Fri: China Q3 growth comes under the CCP's 5% target, UK foreign secretary visits China with view to rekindle ties on trade and investments, US to pay up to 40% of $50bn G7 loan for Ukraine, Pres. Trump calls on Murdoch to stop Fox News from airing “negative commercials” against his campaign, Gold crosses 2700$/Oz. Credit spreads narrow to 20y low. China retail sales YoY 3.2% (2.5%e) / IP YoY 5.4% (4.7%e) / GDP YoY 4.6% (4.5%), US housing starts MoM -0.5% (-0.4e), Japan Core CPI 2.4% (2.3%e), UK retail sales 3.9% (3.2%e), S&P +0.4%.

Weekly Close: S&P 500 +0.9% and VIX -2.43 at +18.03. Nikkei -1.6%, Shanghai +1.4%, Euro Stoxx +0.6%, Bovespa +0.4%, MSCI World +0.6%, and MSCI Emerging -0.4%. USD rose +3.2% vs Chile, +3.1% vs Mexico, +1.5% vs Brazil, +1.4% vs Sweden, +1.1% vs South Africa, +0.7% vs Australia, +0.6% vs Euro, +0.5% vs China, +0.3% vs Canada, +0.3% vs Yen, +0.1% vs Sterling, and flat vs India. USD fell -9.6% vs Bitcoin, -7.6% vs Ethereum, -0.7% vs Indonesia, -0.6% vs Russia, and -0.1% vs Turkey. Gold +2.0%, Silver +4.7%, Oil -8.4%, Copper -2.4%, Iron Ore +0.1%, Corn -2.6%. 10yr Inflation Breakevens (EU -11bps at 1.82%, US -3bps at 2.31%, JP -1bps at 1.25%, and UK -7bps at 3.48%). 2yr Notes -1bp at 3.95% and 10yr Notes -2bps at 4.08%.

2024 Year-to-Date Equity Index Close: Argentina +61.7% priced in US dollars (+96.1% priced in pesos), Taiwan +25% priced in US dollars (+31% in Taiwan dollars), NASDAQ +23.2% in dollars, S&P 500 +23% in dollars, HK +22.7% (+22%), Malaysia +20.6% (+13.2%), MSCI World +18.4% in dollars, South Africa +16.7% (+12.3%), Spain +15.9% (+18%), Germany +15.3% (+17.3%), Hungary +15% (+22.4%), Belgium +14.5% (+16.6%), Italy +13.9% (+16%), Canada +13.4% (+18.4%), India +13.2% (+14.4%), Singapore +13.1% (+12.3%), Netherlands +12.8% (+14.8%), Russell +12.3% in dollars, Czech Republic +10.7% (+15.1%), Ireland +10.7% (+12.7%), Philippines +10.5% (+15%), UK +10.5% (+8.1%), Japan +9.8% (+16.5%), Greece +9.6% (+11.6%), China +9.6% (+9.6%), Thailand +8.6% (+5.2%), Euro Stoxx 50 +8.3% (+10.3%), Denmark +8.3% (+10.3%), Israel +7.9% (+13%), Switzerland +7.4% (+10.7%), Australia +7.1% (+9.1%), Indonesia +6.2% (+6.7%), Poland +4.4% (+5.3%), New Zealand +4.3% (+8.9%), Norway +4.2% (+12.5%), Austria +3.7% (+5.6%), Sweden +3.2% (+8.3%), Colombia +3% (+14%), Turkey +1.6% (+17.7%), Chile -0.6% (+7.2%), Saudi Arabia -0.7% (-0.5%), Finland -0.8% (+1%), France -0.9% (+0.9%), UAE -3% (-3%), Portugal -5.6% (-3.9%), Korea -8.1% (-2.3%), Brazil -16.9% (-2.7%), Mexico -21.1% (-7.6%).

Progress: “A fully and rapidly reusable rocket is barely possible. SpaceX is going to try to do it. We could fail, but we're going to try to do it,” declared Musk in 2013. “The pivotal breakthrough that’s necessary, that some company has to come up with to make life multiplanetary, is a fully and rapidly reusable orbit-class rocket. This is a very difficult thing to do because we live on a planet where that is just barely possible. If gravity were a little lower, it would be easy. If it was a little higher, it would be impossible. It's just a very tough engineering problem.”

Progress II: “I wasn't sure it could be solved for a while. But then, relatively recently, probably in the last twelve months or so, I've come to the conclusion that it can be solved,” continued Elon racing forward, pursuing his American Dream. “And I think, SpaceX is going to try to do it. Now, we could fail. I'm not saying we’re certain of success here, but we're going to try to do it. And we have a design that, on paper, doing the calculations, doing the simulations, it does work. And now, we need to make sure that those simulations and reality agree, because generally when they don't, reality wins.”

Progress III: “The strong gravity of Earth makes the physics of a fully reusable rocket with positive payload margin extremely difficult to solve, which is why it has never been done before,” said Elon in 2014. “Removing the mass of landing legs from the booster and ship by making the tower do the work of final velocity attenuation greatly improves payload margin. This architecture also simultaneously substantially increases launch cadence, because the same arms that lift the booster and ship onto the launch stand also catch them, allowing immediate placement of the booster back on the launch stand and the ship back on top of the booster.”

Progress IV: “If you can move mass from the rocket to the ground site, it’s better to move mass to the ground site,” said Musk in 2021. “That’s why we took legs off the booster and just have the tower catch it. It sounds mad. I know it sounds insane. When I suggested that, people thought I lost my mind. Maybe I have,” he said, explaining the need to build Mechanzilla’s vast arms to catch his returning booster rockets, improving efficiency, lowering launch costs, one incremental improvement at a time. “It might take a few kicks at the can, but we’ll get it right.

Progress V: “Achieving materially positive payload margin to a useful orbit with a fully and rapidly reusable rocket has eluded prior attempts,” said Musk on Monday. “Many have tried to embark upon this path only to give up when it became clear that their design would have negative or negligible payload margin. This is an extremely difficult problem to solve, given the strong gravity of Earth, whereas it is easy on Mars and trivial on the Moon. In the early years of SpaceX, I was not sure that success was even in the set of possible outcomes! Starship is designed to achieve a >1000X improvement over existing rocket systems and, especially after yesterday’s booster catch and precise ocean landing of the ship, I am now convinced that it can work.”

Progress VI: “The next generation Starlink satellites, which are so big that only Starship can launch them, will allow for a 10X increase in bandwidth and, with the reduced altitude, faster latency,” said Elon on Friday, as SpaceX requested the FCC make “several small but meaningful updates” to its 2nd-generation Starlink network. “Together, this modification and its companion amendment will enable the Gen2 system to deliver gigabit-speed, truly low-latency broadband and ubiquitous mobile connectivity to all Americans and the billions of people globally who still lack access to adequate broadband.”

Anecdote: “I’m really not sure,” said Jackson, six weeks into The Basic School (TBS), Quantico, Virginia. I had asked what direction he hoped to take his service as a Marine. “No particular path seems clear yet,” he added, outwardly relaxed, unperturbed, but as his father I heard the inner unease. He’s always been a linear person, goal oriented, a lover of games. Tell Jackson the rules and he’ll find the shortest path from point A to point B. Nothing wrong with that whatsoever. But real-life bends toward chance, chaos even, no matter how hard we may fool ourselves into believing otherwise. It is one of the many profound lessons that markets teach those who trade them. The world can change in an instant. Big things like 9/11, Russia’s invasion, Covid, October 7. Brexit, Trump’s 2016 win, Draghi’s whatever it takes, Powell’s pandemic monetary shock-and-awe. And smaller signals, like when Japan’s yen failed to rally after Ukraine was invaded. Or when crypto stopped falling shortly after the FTX failure. “You know Jackson, embracing uncertainty is a competitive advantage in any pursuit,” I said. “It allows you to be present, perform, and think more clearly as the unexpected pops up,” I said. “It’s something I work hard at, and it’s like a muscle, the more you intentionally develop it the stronger you’ll get.” Jackson nodded, processing, seeing the rough contours of another game unfolding, but bigger, the stakes higher, real. All Marine officers go through an intense six-month training program, at which point they submit their preferences for a MOS (Military Occupational Specialty). Depending on their class ranking, they receive their first, second, third, or fourth preference. It’s a game that will determine their path for at least the next 4.5yrs. “You develop a comparative advantage by embracing uncomfortable things. And that doesn’t just apply to uncertainty, it applies to pretty much everything.”?

Good luck out there, ?

Eric Peters

Chief Investment Officer

One River Asset Management

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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, converse 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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