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By Eric Peters, CIO of One River Asset Management

“For complex reasoning tasks this is a significant advancement and represents a new level of AI capability,” wrote OpenAI, describing its latest model release. “Given this, we are resetting the counter back to 1 and naming this series OpenAI o1.” Such is the pace of advancement (and hype) in AI that we need to rebase our calibrations. o1 answered 78% of PhD-level science questions accurately, compared to 56.1% for GPT-4o and 69.7% for human experts, which confirms that o1 is way smarter than I am.

But for some reason I feel I’m probably more intelligent, at least for now. Even if I couldn’t tell you without the help of o1 the precise difference between smarts and intelligence.

Overall:

“For the first time since the Cold War we must genuinely fear for our self-preservation,” Draghi told reporters, working himself up into another ‘whatever-it-takes” frenzy.

“And the reason for a unified response has never been so compelling and I am confident that in our unity we will find the strength to reform,” said Mario, far from confident, his long-awaited report on EU competitiveness hot off the press. But of course, the stock market provides objective, real-time analysis on national competitiveness, and the European benchmark equity index is now just slightly above where it was at the 2007 market high.

Equities are priced in nominal terms though, and the EU consumer price index is roughly 52% higher since 2007. Which means that European equities have fallen 30% in real terms from where they were 17yrs ago (excluding dividends). Relative to where they were at the 2000 highs, European stocks are worth about half what they were nearly 25yrs ago in real terms.

By the same measure, Chinese stock prices are -67% in real terms from the 2007 nosebleed highs (+44% in real terms since 2000 – just before its WTO entry). And the S&P 500 is +60% in real terms from the 2007 highs (+107% from the 2000 highs). As a general observation, the US invents, China builds, the EU regulates.

And the stock market does an admirable job at indicating which of those activities you want to prioritize, if the goal is to aggressively increase overall national prosperity. But the EU’s goal was never really that. That union was formed to avoid another disastrous continental war, which has been a recurring theme since well before the first Italian started shaving coins. The European project as it is currently constituted has narrowly achieved this primary objective, but at the cost of more chronic economic stasis. Naturally though, national weakness invites discontent from within and aggression from without. Which is where Europe finds itself today.

It’s a healthy reminder for Americans, as we enter our political season, to stay true to our system and to that which has led to our greatness. Innovation, invention, risk taking, entrepreneurialism.

Anecdote

“We have 4% of the world’s population and the dominant economy – almost twice the size of China and 5x the next largest,” said the Chairman, an American patriot, a public servant, realist, capitalist.

“US stock market cap is over $50trln, dwarfing China at $11trln and Japan at $6trln,” he continued. “For over five decades, the US has produced the next generation of great global companies.”

As Nippon Steel begs our politicians to buy US Steel for $14.9bln, Nvidia’s market cap is nearly $3trln, and OpenAI is raising a fresh venture round at a $150bln valuation. “Meta started in 2004 and employs 70k people, producing $134bln in annual revenue, much of it from abroad.” Apple, Google, Netflix, the list goes on.

“Silicon Valley is the world’s premier innovation hub and attracts the best and brightest from across the globe.” Technology is helping lift the world’s poor out of poverty at an unprecedented rate, and in today’s hyper-connected world, every person who comes online, becomes a customer of a US tech company.

“Genentech and Amgen were once startups and are now industry leaders. Without the hundreds of billions in they’d invested in R&D, we would never been able to develop the COVID vaccines in record time,” said the Chairman.

“The flywheel effects of being the world’s innovation and growth engine are breathtaking. And are strongly supported by the tax code.”

Since the Revenue Act of 1921, capital gains have been taxed at a lower rate than ordinary income, providing a powerful incentive for individuals to invest in new, often risky ideas. Fueling an entrepreneurial culture, that is the source of America’s prosperity, strength, power.

“Energy is vital to our enduring strength too, economic and geopolitical. We lifted US domestic oil production between 2016-2020 from 9mm barrels per day to 12mm, and natural gas production by 25%.”

Biden quietly continued Trump’s energy policies, lifting oil production another 1mm barrels and natural gas 15%. “Had we not, our military and economic adversaries would have more control over the future of America and our allies,” said the Chairman.

“We need a coherence across economic, national security, and energy policy that is centered on and builds upon all these strengths.”