Hope all goes well… “Our class of 40 were called into a room,” said Liv, from Cyber Warfare School, having just learned where she’ll be stationed for 5 years. “Flashed our names on a screen, and we’d stand up and state our first preference,” she continued. “The first of us stood up and said, ‘2nd Lieutenant so and so – first choice Colorado,’ and the Major running the session said, you’re going to Germany,’” Liv said, laughing, kind of. “The next guy, “2nd Lieutenant so and so - Hawaii,’ and the Major said, Kansas.” On it went. First choice Washington DC, you’re going to Louisiana. Washington State, South Korea. “No one got their first choice. But we’re all in this together, we’re tight. The whole thing was fun in a sick way. It’s what we signed up for.” 

Overall: “Economic activity is expanding at a solid pace. While uncertainty remains elevated - owing, in part, to geopolitical developments - domestic spending has been resilient. Productivity growth is strong, and capital investment is robust. Job gains have kept pace with the workforce, and the unemployment rate has changed little,” said Kevin Warsh to the reporters, describing an economy that should be the envy of the world in any age, let alone one as tumultuous as ours. “The American economy appears to be strengthening. New hiring, private-sector earnings, business capital investment - each of these markers has improved in recent months and is pointing in a good direction. Credit flows have been robust, particularly for businesses,” continued the Fed Chairman. “And as I said at the policy symposium in Jackson Hole, I would be hard-pressed to describe broad financial conditions as restrictive. This view was widely shared by the Committee,” he said. “So, we removed a dose of accommodation.” There are 343 million people in the US. 87 million homeowner households. 3.25 million firms with 5 or more employees. 19,491 municipal governments. 20 major industry sectors. One federal government. And America’s central bank must determine a single overnight interest rate for them all. There’s obviously no way to do it without maintaining rates too low for some and too high for others. Rates are too low for hyperscalers and too high for first time homebuyers. Rates are too low for producers of strategically vital minerals and too high for private equity managers who optimized the economy and left it over-exposed to our adversaries. Rates are too low for weapons makers and too high for a military that has depleted its stockpiles. And now that America has decided to reverse decades of unchecked globalization - rebuilding its economic resiliency to restore its sovereignty - demand for capital will remain robust, no matter the rate. 

For Week-in-Review and Weekly & Year-to-Date market data, scroll to the bottom.

Fourth: “Why did yields rise since the last FOMC meeting until this?” asked Chairman Warsh, rhetorically, in response to a reporter’s question. “I’ll say three things, first is economic strength. Part of the reason why we’ve seen over the course of 2026, long-term yields go up is the economy is strengthened,” he said. “Second reason, competition for capital. The surge in capital expenditures, is real, and the so-called hyperscalers are out in the market raising funding, and so the competition for capital is real and I think it partly explains the increase in yields.” 

Fourth II: “The third, is geopolitics,” said Warsh. “The situation hot spots around the world are driving long-term yields. It’s not simply spot prices of energy, or spot process for corn or soybeans or wheat, but it’s the difference between those spot prices and so-called crack spreads.” Ukraine’s growing attack on Russian refining capacity, and congestion in the Strait continue to push up prices. “What that means for products that find their way into stores across the country. I think those are the three leading explanations, but certainly not an exclusive list.”

Fourth III: The Fed Chairman could have easily included the fourth reason, which is that America’s government has lost the ability to materially control its chronic deficit spending without sparking a severe recession, which would in turn lift the deficit from 6% of GDP to 13% or more. But he didn’t. He knows every bond vigilante in the world already knows these things. They’ve known them for decades. But like many of life’s problems that stem from a lack of discipline and integrity, they can seem to matter little until they really matter, all at once. 

Fourth IV: The three reasons Warsh gave are either long-term positives for America’s deficits and debts, or they are potentially transitory. Sustained economic strength is utterly vital for our ability to shoulder existing debts onto which we will surely add more. The demand for capital from our hyperscalers should ultimately lead to substantially higher levels of productivity, which will increase growth, tax revenues, national security, general prosperity, and our ability to service debt. And our wars will surely someday end, boosting energy supplies, reducing prices. 

Fourth V: Warsh’s first three reasons explain why 10yr yields are already 5% and 30yrs are 5.33%. Bond vigilantes know only the fourth reason will lift yields sharply from here. The question they must answer is whether the time is now. And to make their calculus more complex, Bessent is buying bonds to push yields lower. If the time has come for the world to lose faith in America’s creditworthiness, then nothing Bessent does will reduce long-term bond yields. But if our wars end and if productivity rises further, his buying will devastate the vigilantes yet again. 

Anecdote: “Rolled into some little town in in the middle of nowhere Arizona,” said SEAL. “Something broke in my engine, and I pushed my truck the last twenty feet into the Ford dealer.” I had asked SEAL for a few good stories. “Told the mechanics I had to get to Maryland for a wedding in three days.” Ford’s service waiting list was five days. “I basically begged. They said leave it overnight, they’d look at it. I wasn’t going to push it anywhere, so I said, ‘Sure, but I got some gear in the back and if it goes missing, they’re kicking me out of the military.’” The boys in the shop asked to see my gear. They called the head mechanic over, and he posted a guard on the truck, the new kid. The head mechanic told SEAL to get a bite, relax. They’d see what they could do. “I try to not pull out the military card, makes me feel like a douche, but it was unavoidable, there was no way I was leaving that gear alone.” SEAL told me all sorts of stories at the wedding. The gritty tales you kind of expect, but you hang on every word, images of what these great Americans do grab you by the throat. This story was different from the rest. “They called me back. There was no replacement part in a 400-mile radius. So, they took the part out of a new car in the showroom. They figured out how to slip it under warranty. Changed my oil. Cost me nothing. Thanked me for my service. Sent me off,” he said. “You hear all the things wrong with this country, social media, news, people all divided. But none of our adversaries have what we have here. Not a single one. We got something real special, it’s our fabric.” The best of us. “I got into my truck to go but stopped. I went into the back and pulled my knife out. A few other things that mean something. Handed them to the boys. That’s when they figured out I’m a SEAL. Blew their minds.” Off he drove. “I’m gonna miss that knife, been through a lot with it. But for four hours, I just couldn’t stop smiling.”

Good luck out there,

Eric Peters

Chief Investment Officer

One River Asset Management

Week-in-Review: Mon: China IP 5.2% (4.8%e), ret sales 0.4% (0.8%e). Oil gains as outages from Saudi Arabia pipeline and Libyan oil fields intensify supply concerns. Ten-year treasury yield rises to 5% for first time since 2023. Supreme court rejects Trump’s mail ballot curb for midterms. S&P -0.5%. Tue: OpenAI weighs funding round at over $1.2T valuation. Crypto stocks and tokens drop after Senate blocks landmark digital asset market structure bill. S&P -0.5%. Wed: US FOMC Rate Decision Upper Bound 4.00% Lower Bound 3.75% as exp. Fed Chairman Warsh delivered the Fed’s first interest rate hike in over three years with a unanimous decision. Trump demanded on social media that rates be quickly cut to “1% or less” and faulted the “hostile” board for the hike, backing Warsh. Trump floats EU tariffs if EU proposal to make Canada an associate member is deemed harmful to the US. S&P -0.5%. Thu: US init jobless claims 196k (207k e). BOJ target rate 1.25% as exp. BOJ rate hike fails to buoy yen even as Ueda signals more moves. Oil drops as traders see supply outages proving short-lived. S&P +1.1%. Fri: US said to hold off on announcing new tariffs until after Xi-Trump summit next week. Trump says he’ll ban CNN, MS NOW, Politico from White House, citing unfavorable coverage of his administration. Anthropic moves ahead with IPO plans amid AI safety debate. Nvidia CEO says there is “0% chance” that 2030 will be the end of the world due to AI. S&P +0.2%.

Weekly Close: S&P 500 -0.1% and VIX -1.03 at +14.81. Nikkei +1.6%, Shanghai +0.6%, Euro Stoxx -0.6%, Bovespa -1.1%, MSCI World -0.5%, MSCI Emerging -0.6%, Bitcoin +5.1%, and Ethereum +3.5%. USD rose +2.1% vs Yen, +1.9% vs Chile, +1.5% vs Mexico, +1.3% vs Sweden, +1.0% vs Euro, +1.0% vs Sterling, +0.8% vs Canada, +0.8% vs Indonesia, +0.7% vs South Africa, +0.7% vs Australia, +0.5% vs Turkey, +0.4% vs Brazil, +0.3% vs India, and +0.2% vs Russia. USD fell -0.1% vs China. Gold +0.4%, Silver +3.0%, Oil (WTI) +0.2%, Oil (Brent) -0.7%, NatGas (US) +2.9%, NatGas (EU) -0.0%, Power (EU) +3.9%, Copper +2.2%, Iron Ore -1.1%, Corn -0.5%. 10yr Inflation Breakevens (EU flat at 2.24%, US -5bps at 2.32%, JP +7bps at 2.14%, and UK +3bps at 3.47%). 2yr Notes +12bps at 4.75% and 10yr Notes +3bps at 5.00%.

YTD Equity Index Returns: Korea +70% priced in US dollars (+63.6% priced in won), Taiwan +60.8% priced in US dollars (+62.9% priced in Taiwan dollars), Colombia +46.6% priced in US dollars (+23.2% in pesos), Hungary +42.3% in dollars (+37.6% in forint), Norway +36.3% (+27.3%), Japan +28.8% (+29.2%), Poland +24.9% (+32.2%), Austria +24.6% (+27.6%), Singapore +22.7% (+21.7%), Greece +22.7% (+25.5%), Brazil +22.5% (+15%), Israel +19.5% (+13.7%), Thailand +18.5% (+25.8%), Portugal +17.6% (+20.3%), Russell 2000 +15.2%, NASDAQ +14.1%, Netherlands +12.5% (+15.1%), Italy +11.9% (+14.7%), S&P 500 +11.8%, MSCI World +10.9% in US dollars, Canada +10.7% (+12.9%), Spain +10.2% (+12.7%), Finland +10.2% (+12.9%), Belgium +10% (+12.5%), Australia +7% (+0.2%), UK +6.8% (+7.3%), Ireland +6.1% (+8.5%), Sweden +5.8% (+13.2%), Euro Stoxx 50 +5.3% (+7.7%), Turkey +3.9% (+18%), Mexico +3% (-1.4%), China +2.9% (-1.4%), Vietnam +2.8% (+1.7%), UAE +2.8% (+2.8%), Saudi Arabia +2.6% (+2.7%), Germany +0.8% (+3.3%), New Zealand +0.8% (+1.4%), Switzerland -0.1% (+3.9%), South Africa -0.7% (-2.5%), Malaysia -1.4% (-0.9%), Czech Republic -1.7% (+1.3%), France -3.2% (-1%), Denmark -3.9% (-1.4%), HK -4.2% (-3.4%), Argentina -4.9% (-1%), Philippines -9.5% (-3.3%), India -16.3% (-10.7%), Indonesia -30.1% (-25.5%).

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.