Weekend Reading #147

This is the hundred-and-forty-seventh weekly edition of our newsletter, Weekend Reading, sent out on Saturday 4th December 2021.

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What we're thinking.

Most market commentators have attributed the stock market weakness over the past week to the emergence of the Omicron variant. However, that is simply not clear. We have learnt over many years that markets very rarely sell off materially for a second time about something they have seen before. The variables around what a new variant means are well known and understood by market participants (even if it’s bad). The market is always positioned in a certain way, and it is the positioning and the risk that lays the foundation for anything that comes after, whatever that trigger may be. For what it’s worth, we are also wary of the coverage around this variant and its mildness (or not). We really don’t know as the sample size is so small. There is much information and discovery to come. We hope that it will be favourable.

What has however unfolded over the past days is a new approach from the Fed. Chairman Jay Powell has famously retired the word “transitory” from his vernacular. This came along with what to many is a surprising desire to accelerate the tapering of Fed bond purchases. In our investment letters some months ago, we wrote about a situation where the Fed might find itself behind the curve and attempt to catch up. The is a very dangerous place to be. We were last in that position in 2008/9 when the Fed was behind the curve for very different reasons. The narrowing breadth of the market seems to support this, as any long-duration equity that’s not a megacap continues to be decimated. This is unlikely to cease until the Fed is once again in control. The question is whether the Fed will actually increase interest rates or whether they will simply talk tough and hope this achieves the desired effect given the US’s gargantuan debt burden. Until this question is clearly resolved, the market is faced with uncertainty which it doesn’t like. That being said, headline indices are still near highs given the sheer mass of inflows into passive products (and some gaming of this by active managers) and there is also an argument to be made for a final vertical move in the megacaps. As always, we will look to price action for our clues.

Another thing which has been fascinating us is the reaction of cryptocurrency prices. If someone had said to us many months ago that we would be in the inflation regime we are currently in with the Fed behaving as it is, we would probably have expected most cryptocurrencies to have weakened dramatically much like most long-duration tech stocks have. There are two things we can think of which may be responsible for the strength of crypto. Firstly, is crypto finally living up to its inflation-hedge hype? Second and most likely is the stampede of inflows into crypto. There is so much money being deployed that in the absence of a leverage-induced flash crash, there is just perennial support for prices. We don’t really know and if anyone has ideas please reach out!

Regular readers will know our positive structural views on the play to earn blockchain gaming space and our admiration for genuine projects like Axie infinity and Yield Guild. There are many others that are also innovating and working hard to bring products which fit the market. But recently we have been quite simply astonished at the amount of money being thrown around. The parabolic price action of what we consider to be really poor-quality projects, never mind the outright manipulation that is evident to seasoned eyes like ours, is also worthy of note. When the chickens come home to roost, it will be spectacular. All we say to everyone who has made seemingly easy money is to be very careful and make sure you don’t just “ape” in. 

What we're reading.

This week we read how China is taking over yet another piece of key infrastructure in the developing world. Uganda has defaulted on its debt repayments on a $200 million loan from China related to its Entebbe International Airport. According to the article the Chinese rejected an attempt to renegotiate and are the proud new owners of the only international airport in the country. Upon reading further we discovered that, in fact, Uganda has until April 2022 to make the repayment as a seven-year grace period ends then. Whether they make the payment or not is irrelevant. We’ve seen this happen a few times and most likely will happen even more. In life, you sleep in the bed you make.

On a less serious note, earlier this week I finished a humdinger of a sci-fi novel. It’s called Rosewater by Tade Thompson and is set in 2066 in Nigeria. The book won the Arthur C. Clarke award in 2019 and the series was a finalist for the 2020 Hugo Award for best series. There are aliens, mind readers, secret government agencies and some more incredibly weird stuff. If you fancy something a bit more hardcore that really does bend your mind, give it a whirl. Every once in a while, you read something and think how the authors brain must work to create something so utterly original. I loved it. There are two more in the trilogy as well to come.

This tweet really captured well something I think about a LOT. It’s the hot-house effect of money inside the world of crypto. So much money has been made and kept inside crypto that re-risking it does seem a bit like a game sometimes and the rules in the “real” world don’t seem to apply. This thread is excellent in comparing it to early online poker whales. DC

An odd but oddly entertaining book I read this week was Louis Theroux's COVID diary, Theroux The Keyhole. It's a strange read and, at times, you're unsure why you're reading a diary of someone else's COVID-enforced lockdown. We all experienced the stresses, strains, boredom and monotony first time around, so why do I want to revisit that experience through someone else's lens? But, if you're a fan of Theroux's TV, like I am, his writing, humour and unique take on the world make this a fascinating look back at a truly weird and distinct time in all our lives. Like all of us, Theroux's plans, both personal and professional, were mothballed by the onset of Covid. So, he wrote this diary, reporting on a location even more full of pitfalls and hostile objects of inquiry: his own home during a pandemic. He also describes how he launches his podcast, finally gets to the US to film a new Joe Exotic documentary and gets to grips with doing so much business from his spare room. Reading Theroux’s experience, which, for me, had the added interest in that he lives about 500yds from my house, took me back 18 months to when all this madness began. Sitting up in bed and having Louis tell me about his lockdown, I got an odd sense of nostalgia, a feeling of not wanting to be back there but a sense that, perhaps, in hindsight, those strange, scary months were actually, in some way, special. I went back through photos of that time, seeing me, my wife, and my daughter locked in our house and garden for so long. It brought back memories, most of them good, and for that reason alone, this is a worthwhile read. EJP

What we're watching.

Another week gone in the blink of an eye, and I feel that I had no chance to sit and chill until I came across a mutual friend’s suggestion to watch Netflix's latest release, “14 Peaks: Nothing Is Impossible. Fearless Nepali mountaineer Nirmal Purja embarks on a seemingly impossible quest to summit all 14 of the world's 8,000-meter peaks in seven months. This is a documentary about a Nepalese man who comes from a Sherpa background. He has experience in climbing but he was never known by the other climbers. Suddenly he comes out of nowhere and climbs the 14 highest peaks in the world, all 8,000+ meters high. They tell you that the first person to do this feat does it in 16 years. The record recently was 7 years. Nirmal Purja does it in 7 months! The movie touches on significant points in his life to date which is truly inspirational to say the least. If you are looking for good content and want to believe that anything is possible or nothing is impossible, this is for you! DK

What we're listening to.

One thing we really love about Spotify only happens once a year. It's their annual look back at each user's year in music and this year it arrived earlier this week in a neat email titled, Your 2021 Wrapped Is Finally Here. What follows is a fantastic and fascinating look back at your year in music, with incredible detail given over to what you consumed and how much of it you consumed. Top podcast (for me, Tim Ferris), top track (Summer Wind, Frank Sinatra), number of different artists listened to (1,656) and total minutes (40,876 minutes, which must be wrong as that’s nearly a month of music!) etc, the metrics go on and on. This year, the look back confirmed a lot of what I already knew about my year in music (Let It Go was my most listened to track, which is no surprise seeing as I have to listen to it at least five times every breakfast with my daughter) but it also revealed some neat things I didn't know about my tastes, such as Malian was one of my top genres of music. Reassuringly, it also confirmed my place in the top 0.2% of users worldwide when it came to listening to Bruce Springsteen. Whilst the years roll by, somethings never change, and that's good to know. Cheers Spotify. EJP

And on the subject of music that I’ve spent a lot of time listening to this year, this week I got back into the soundtrack from the film, Last Night. This is a great one for working to, from the always excellent Clint Mansell, and is a nice arrangement of piano and not much else. Very good for late nights or early mornings at the desk with headphones. Oh, and the film, starring Keira Knightley and Sam Worthington about a philandering pair of couples, is also an interesting watch, too. EJP

In doing the research for today’s blogpost I listened to this podcast featuring Patrick Stanley, founder of City Coins, which is the platform used to power Miamicoin and soon New York Coin, cryptocurrencies issued by two of the US’s largest cities with forward looking mayors. City Coins is built on top of Stacks, the subject of todays’ newsletter and if it gets traction has the potential for a very sizeable total addressable market. Worth a listen. DC