Weekend Reading #108

Photo by Chris Lawton on Unsplash

This is the hundred-and-eighth weekly edition of our newsletter, Weekend Reading, sent out on Saturday 6th March 2021.

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What we're doing.
 

This week was a crazy week on the markets as US bond yields spiked up and technology shares fell dramatically. The bloodbath made for breathtaking viewing and we needed to use every single trick in our mental book to make sure we stuck to our process. This just served to remind us once again that whatever one’s plans are, it is SO difficult to stay calm in a pressurised situation.  

This is why we pre-plan for each outcome we can think of to prevent making rash decisions. It’s a process that involves the entire team and everyone is served with making sure that each team member sticks to the plan. It is something we have written about before after doing an online course with Yale psychologist, Laurie Santos, in which she identifies the “GI Joe Fallacy" – that knowing is half the battle. It is one thing to know what we should be doing and plan for it and quite another to actually do it! 

What we're thinking.
 

Everyone has been waiting for the Fed to step in and rescue the owners of tech stocks but here is the thing: The S&P 500, the Dow and credit spreads have been fairly oblivious to the tech carnage. What we are seeing is an aggressive rotation. So why should the Fed care if some irrational exuberance is removed from a bubble-like pocket of the market? Jay Powell’s speech this week disappointed many but if one thinks within the above framework, his comments were crystal clear: the outcome the Fed wants is not necessarily the outcome that the market wants. 

The ongoing volatility in markets is undeniably disconcerting. But for anyone who has spent enough time in markets, volatility is par for the course. Yet, one cannot help but wonder if the cracks that are being revealed in market structure hide more serious deficiencies under the surface. 

This week, Credit Suisse Asset Management announced the suspension of their Supply Chain finance funds, with particular reference to “difficulties” in establishing the valuation for funds exposed to Greensill Capital, a supply chain financier affiliated with Softbank. That mini revelation has since exploded into a full blown saga, involving a $160m credit line from Credit Suisse to Greensill, to Greensill’s subsequent potential insolvency. 

Supply chain finance is perhaps one of the more esoteric, risky and potentially lucrative parts of the lending market (great primer from the FT here). Supply chain finance to Softbank’s stable of startups is perhaps at the high end of the risk spectrum. But it’s an entirely different matter to point out one poor operator, as opposed to calling out the breakdown of an entire system. 

Yet, funds shutting down and going insolvent as a result of illiquidity and difficulty in determining fair value of their assets sounds very much like a story from more than a decade ago, then BNP Paribas suspended its real estate funds in 2007, “as problems in the U.S. subprime mortgage sector are preventing it from calculating their value.” 

On the other end of illiquidity is supposed abundant liquidity, as this note from Morningstar on Ark Invest’s recent success and challenges hit the press late this week. The success of Cathie Wood and her team in building up Ark as a successful investment vehicle is undeniable. But at the same time, experimenting with a novel approach to fundraising (an actively-managed ETF) seems to have triggered issues of too much capital (first world problems!) all the way to potential lawsuits and penalties from being too big a shareholder in some of the companies they now own. 

They say there is no smoke without fire. Yet we all know that doomsayers have been calling for a systemic collapse for more than a decade. As far as we can see, there isn’t yet a full-blown conflagration in markets. But there are sparks, and there is lots of dry tinder. Running for the hills too early is as bad as running too late – but most importantly, one must be prepared to run at the right time. 

What we're playing.

It’s all about finding that right family balance and filling parts of the school week with “game” time. And this must be done within reason, I might add, as there is usually electronics ban in our houses during a “regular” school week. However, lock down has put a big spanner in those works!  

Many of us have been eagerly counting down the days to next week's school return – which is near enough 53 hours and 30 mins until the school gates open from the moment this newsletter drops in your inbox! This week, we’ve done our best to go back to old school games to keep the kids’ minds motivated. Family “Monopoly” (Kids Edition) has been played a lot and many an argument has ensued. It's fascinating to see the competitive streak as well as the way they’ve quickly learned the “meaning of money”. Cash is king at the end of the day, and a simple game of Monopoly brings out the investor in all of us. Another firm favourite has been Bananarama. As per the Amazon description, Bananarama is simply addictive... The game requires no pencil, paper or board, and comes in a small portable banana-shaped pouch. “Perfect at home or on the go. Players aim to use all their letters to build a word grid in a race to the finish.“ Enjoy with the family, and then enjoy a bit of peace and quiet as of Monday, 9am!  

What we're reading.

The ongoing Thucydides type situation between the US and China is the most important geopolitical dynamic of our time but what happens if it all tips over into full out conflict? That is a question that was on the mind of novelist, Elliot Ackerman, who teamed up with retired 4-star navy Admiral, James Stavridis, to write a novel entitled 2034: A Novel of the Next World war. The story imagines what a future conflict may look like and excerpts are featured in this Wired Magazine special series. It was a fun read but also quite serious and when one understands the sophistication of the technology involved one can only hope it is just a work of futuristic fiction.  

On a similar subject we read with interest the New York Times’ take on President Xi Jinping’s recent bellicose rhetoric around the US’s global role. The pandemic seemingly has given China the opportunity to stretch its legs globally and this new outward confidence is on display in this article. 

This piece from Bruno Macaes covers his views on how China beat the virus and the contrast with how it was handled in most of the West. It digs into some of the reasons why China was able to handle it so much better in retrospect and it does make one pause for thought. 

And still on the topic of conflict, we read this piece in Foreign Policy, which talks of a future in which Turkey, Iran and Israel shape the Middle East and the potential conflicts between them. 

Away from all the geopolitical drama we are huge fans of Sir Anthony Hopkins, one of the greatest actors of all time in our view and at the age of 83 h has some great perspectives on pretty much everything. This interview in the New Yorker is a real treat in which he talks about his career, his upcoming role in Florian Zeller’s “The Father” and how he has handled lockdown. A wonderful insight into the man himself and boy does that trailer look good. 

The World For Sale is a recently released exposé of the global commodities market, piecing together the often-murky industry that's been built over the last century or so by the world’s most powerful commodities traders.  

As we all know, the world is squarely built on commodities, from the petrol that we put in our cars to the precious metals that make our mobile phones. But how these natural resources came to be extracted from the ground, bought, traded and sold is a fascinating story that is essential for anyone wanting to understand how the world really works.  

The history of the commodities industry is, in many ways, more interesting than the present, with the 20th century littered with incredible tales of swashbuckling businessmen shaping global markets as they connected resource-rich countries (no matter how corrupt or war-torn) with the world’s financial centres. These individuals have immeasurably moulded the world we live in.  

This book tells stories about those businessmen, taking a wild ride through the wildest frontiers of the global economy. Written by two FT journalists, Javier Blas Jack Farchy, who enjoyed unparalleled access to the key players in the industry, this is a fascinating, fast-paced and highly educational read, just like all good non-fiction should be.  

A nice short read in the daily email we receive from the great Seth Godin talked about how best to setup your day. Titled The most important meal of the day, Godin writes about how, if you’re able, you should optimise its scheduling of your day in order to get the most from it.  

This point is great:  

If a workout at noon makes your afternoon more effective, it’s hard to see why you need to do it at 5 am in a world that’s digital and more asynchronous than ever before. 

Sometimes being productive means being unproductive first or choosing to be productive at times that suit you. Worth thinking about, especially when days get really busy.  

What we're watching.

An excellent series we’ve been enjoying on Sky Atlantic is Zerozerozero. The premise involving drug cartels, large sums of money, guns and a bit of violence is a familiar one but this is a show that actually feels fresh and new. That’s largely thanks to the plot (which takes all manner of unexpected twists) and the way that that plot traverses the globe, reaching locations you’ve rarely seen before in a show like this.  

There are few things we enjoy more than settling down to watch an episode or two of a show where there’s a ridiculous amount of drugs and money in a container on a cargo ship. And Zerozerozero ticks all those boxes within the first episode.  

It is based on the book of the same name by Roberto Saviano and, for the most part, digs into the economics of the global drug trade, which means we get a good look at quite a few continents. But what’s different is the specific cities and towns where we end up in. Calabria in Italy. Monterrey in Mexico. New Orleans in the US. Dakar in Senegal. Taking a familiar feeling story to these far flung destinations gives the show some real energy and vibrancy, making it almost feel like a travel show.  

As we’ve written about previously, watching cricket from India or hearing music from Mali makes us want to travel again, but also provides a brief bit of escapism during these long lockdown days. Zerozerozero does something similar, showing us beautiful Italy or central America, exciting us about a time when we will be able to travel to these countries again, rather than just watching them on television.  

More an inspiration to learn more than a deep look at the topics covered (which would be impossible in the time given) The Most Unknown is a beautiful trip around the world as nine scientists from different disciplines learn about the other’s work. 

Ahead of the hotly anticipated return to school, in the spirit of watching movies as a family this week and doubling down on our passion for sports-themed movies, we chose this week to tuck into several classics and, boy, they didn’t disappoint. In this final week before school, we got through a few “Must See movies that we’d highly recommend for bonding time and family fun with the kids, including Real Steel, Creed I & Creed II, Invincible, Remember the Titans and The Blindside. Hours of fun for all the family and you’re most welcome to help yourself to one of our recommendations. 

What we're listening to.

This week we discovered an interesting podcast, Behind the Influence, that builds on the theme of content creators that we’ve discussed in previous weeks. The episode from May 2020 that we listened to featured founder of Night Media and manager for MrBeast: Reed Duchscher. Alongside him was Jack Conte, the founder and CEO of Patreon, and together with host Tatiana Carrier, it provided a unique perspective into some of the emerging brands that are at the heart of the modern internet age.  

Regular readers will know we are fans of Hidden Forces with Demetri Kofinas and in this episode he speaks with Balaji Srinivasan. Balaji has emerged over the past couple of years as one of the sharpest minds around on everything from cryptocurrencies, to global governance systems and in particular his early warnings on the COVID outbreak in China and its implications globally. His litany of successes is too numerous to list but suffice to say he has become one of our favourite thinkers to follow. This interview covers global governance, political systems, the relative decline of the US, the opportunities and threats around crypto and many other things.