By Eric Peters, CIO of One River Asset Management
Hope all goes well… “Miami’s yachts are way bigger than a few years ago,” bellowed Biggie Too in baritone. “And it’s getting crowded on the water,” he said. “All my boys say this isn’t 2008, we still got time.” Like in 2007. “But things are feeling weird to Biggie,” said Too, sliding comfortably into 3rd person, like a warm bubble bath.
“We been here, seen this, like right before the pandemic, like when we all were saying this is just another SARS, MERS – like a few hundred get sick in some crowded Hong Kong block, the media gets hysterical, then it’s over,” barked Biggie Too, global chief strategist for one of Wall Street’s too-big-to-fail affairs.
“But now it’s Putin on the border, and Biggie’s starting to feel like we’re all complacent. Like we think it’ll play out just fine, like it has for decades,” whispered Too. “And this rotation in equities feels like a real bear market.”
And the Fed hasn’t even hiked or sold a single bond yet. “Biggie smells the kind of market that grinds, churns, until one day the bottom just falls out.”
“We are facing a blatant attempt to rewrite the rules of our international system,” said Von der Leyen. “China and Russia seek a ‘New Era’ as they say, to replace the existing international order,” continued the EU Commission Chief. “They prefer the rule of the strongest to the rule of law, intimidation instead of self-determination, coercion instead of cooperation.” The existing international order is a historical anomaly. It took a second world war to thrust humanity sufficiently deep into the darkness that we came to see the light – the first world war was insufficient.
The 1944 Bretton Woods agreement between 44 allied nations marked a departure from all previous post-war accords. The US could have demanded anything it wanted in exchange for supporting our allies and winning the war. But instead, it agreed to secure global trade routes, and open America’s vast consumer market to imports from allies (even from adversaries). In exchange the US asked for allegiance, but little more.
It was an utterly extraordinary display of using strength in the service of good, and in so doing, lifting us all, inspiring our better angels. The rise in human prosperity that followed Bretton Woods is unparalleled in human history. We came to accept the resulting stability as a permanent state. This encouraged entrepreneurs to optimize the economy for low latency, just-in-time delivery. It allowed our financiers to leverage balance sheets to generate the highest possible returns.
The process, in all its complexity, was disinflationary. The pendulum swung from a pre-war position of low profitability and high redundancy to a recent extreme of extraordinary profitability and high fragility. Irrespective of how events unfold in Ukraine and Taiwan in the months and years ahead, that pendulum has begun its long arc back.