Weekend Reading #117

This is the hundred-and-seventeenth weekly edition of our newsletter, Weekend Reading, sent out on Saturday 8th May 2021.

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What we're doing.

This Friday marked the first outbound real-life meeting for the Nachas team as we ventured to Chippenham (close to Bath) to meet with our design team who will be brightening up our soon to be released mobile trading app. Having started this segment of our business in the early days of lockdown, it is nice to see things returning to normal and begin to have more in-person chats booked into the schedule. HS

This week, we started supplementing the text content we produce for the deals on our private deals platform, 3BC, with another medium. In the long term, we'd like to produce video (founder interviews, explainer videos, etc.) but the quickest win for us was always going to be audio, and so we’re putting out the recorded conversations we’re having with founders and CEOs of the companies listing on 3BC.

As illustrated by the booming popularity of podcasts and apps like Clubhouse, we all know how many people nowadays now prefer to listen than read, so we hope that the audio content we produce (whilst a little rough round the edges!) should be a nice touchpoint and differentiator. It also gives our issuers a chance to personally communicate with our community of investors, telling them who they are, where they've come from and what drives them.

Audio can be interesting, varied and fun, breaking down the traditional methods (pitch decks, data rooms etc.) that investment propositions typically use. For issuers, the intangibles that can be conveyed via audio can be hugely valuable when seeking to build trust with an investor.

As a first step into the world of audio, this week I had a chat with Casey Golden, CEO and founder of Luxlock, who listed last week on 3BC as they’re seeking to raise $5m to boost growth and help them on their mission of transforming the $1.3 trillion luxury retail industry. You can find the interview and the Luxlock listing on 3BC, so login if you’re already a member or, if you’re not, please create an account by signing up here.

Any feedback on this approach would be most welcome so drop me a line. EJP
What we're thinking.

As we head into the merry month of May, market veterans will never cease to recount the old adage, “sell in May and go away”. To be quite honest, the weather (so far) looks pretty tempting for a “go away”, although everyone else seems to be taking the same view!

This tweet from S&P’s global intelligence team on the state of the leveraged loans market did get us wondering about whether the level of complacency in the market is getting too uncomfortable, with S&P flagging up that 84.4% of more than US$1.2tn of US Leveraged Loans outstanding are covenant lite. Is that a good thing? For issuers, definitely. The justification is that “the market wants it”, thanks to higher yields on these loans, and to some extent, whatever the market wants, the market gets.

This reach for yield is something we’ve covered before when we wrote about the notion of risk drift. And as it is with every other market, losing awareness puts us all at risk of stumbling down the roads that say, “Here be owls.” EL
What we're playing.

We returned to DayZ this week to try out the DLC, Livonia, which we had recently purchased to freshen things up on the game. Whilst continuing the post-Soviet desolate feel, this map is based on the now Poland/Lithuania border, amongst which are sprawling forests and a number of small derelict industrial towns for players to loot. As a standalone map, the servers have a much lower player count making for somewhat of a disappointing player experience given the limited contact with others. In the coming weeks, we will attempt to try out one of the modified servers for this map, in which servers compete with Discord chat servers and organised player events. HS

What we're reading.

Everyone by now is talking about commodity prices and one commodity that has seen incredible price increases is lumber. This tweet brought a smile to my face as I had a little chuckle to myself. In an age of exponential growth, this chart from Bloomberg’s Joe Weisenthal was really clever. DC

This article published by Bloomberg about Hong Kong’s tycoons (and the gradual erosion of their clout and influence) is thought provoking. Where they were previously co-opted by the Chinese government to maintain the status quo in Hong Kong post 1997, it appears that their relevance as an instrument of proxy governance has run dry. Furthermore, they enjoy little favour with the local populace as well, being seen as one of the key drivers and reasons behind the rampant inequality in the city. At the very least, this serves as a cautionary reminder that nothing really lasts forever, regardless of how “solid” regimes may look. Interests shift, and even those at the top may unknowingly find themselves hung out to dry. EL

This amazing thread on twitter from Rex Woodbury of Index Ventures gives an insight into where we are heading for creators. “Miko” is a digital avatar created by an animation artist who calls herself “The Technician”. Her story is almost too good to be true but these types of stories are popping up all over the place as creators are being empowered by social media distribution. The Technician lost her job at the start of covid and YOLO’d her way to this idea of an animated avatar. She did ok for a while until she hit the jackpot when she added a feature that allowed viewers to “mute” or “kill” the avatar.

"My income tripled the day I put in this interaction where the audience could kill me. When I added the nuke and the mute—where the audience could mute me for 30 seconds—I was able to afford my rent and pay off my debt slowly.”

Maybe this is the simulation everyone speaks of! DC

On the other end of the world, this story about a ship’s Chief Mate who was stranded aboard an abandoned cargo ship for four years came up in the Wall Street Journal. Beyond the personal misery of having been kept away from friends and family, the entire incident shines a damning spotlight on the complexity, bureaucracy and cruelty of cross border arbitration, contract laws and maritime legislation governing those who spend more time offshore than on land. It’s an intriguing tale, and a harrowing experience to even imagine being put through. EL

As long-term observers of the country and great fans of Russian history, watching the Putin regime move through the gears is fascinating. This article appeared in The Moscow Times, one of the last remaining more liberal publications in Russia. It is written by Mark Galeotti, a senior associate fellow at the Royal United Services Institute and an Honorary Professor at the UCL School of Slavonic & East European Studies. He is the author of “We Need To Talk About Putin.” We haven’t read his book yet but it goes onto our reading list! In this article Galeotti writes of the more sinister direction that he believes the Putin regime is heading particularly in the context of the recent poisoning and detention of Alexei Navalny. DC

On a more academic tone, one of the big issues in market structure we have been keeping a keen eye on is the rise in correlations and co-movement across the entire market, primarily as a result of the preponderance of passive investment vehicles in traditional markets like listed equities. This paper published just last month by Busse, Chung and Kottimukkalur articulates exactly that, demonstrating that not only does the dominance of passive investment vehicles reduce the availability of “alpha” in their markets, it also compels most large active managers to behave in increasingly predictable ways, with investor flows increasingly inversely related to costs, and ever more sensitive to past performance. We continue to watch these market dynamics with great interest and look upon recognition of these changes in market structure as an immense opportunity to generate even better returns for our investors. EL

A few weeks back we shared a link about an experiment called Prospera, a new type of digital city and more recently we have shared some links to podcasts and articles by Balaji Srinavasan. In this blogpost he writes about Miami as the first “international cloud capital and startup city”. Mayor Francis Suarez is its CEO and the ecosystem being cultivated in Miami is something brand new. This blogpost is an absolute must read. DC

What we're watching.

Goodness me, Mare of Easttown is great. If you haven’t been reduced to it because you’ve been doing more interesting things, such as going to a pub or a restaurant, then pretend it’s lockdown, stay in, and watch the first 3 episodes that are currently available on Now TV (HBO). The Mare in question is a down-at-heel police detective, played by brilliant Kate Winslet, who lives with the rest of her extended family in the messed-up town of Easttown somewhere in the great state of Pennsylvania. It is not a jolly story, but the acting and the intrigue are some of the best I’ve seen in a very long time. It’s also one of those on-demand TV shows that isn’t on demand at all, with a new episode being released every Monday. It was Guinness that said, “good things come to those who wait.” Well, given that you can now, pretty much, watch, listen, play anything whenever you want, there is something refreshing about having to wait a week for the next instalment of high-quality drama. It takes me back to an age when you’d wait for Neighbours to start at 5:36, Monday to Friday, or a new episode of the West Wing on a Sunday. Anticipation creates drama, and that quality is a little lost now that you can just click “Next Episode: Play Now.” Great writing and acting create drama too, and there is no shortage of those qualities in the excellent Mare of Easttown and we really can’t recommend it highly enough. EJP

I'm sure everyone is aware of my “increase” in family members over lockdown, but if you haven't... I am the proud father of identical triplet girls (already 1 years old), in addition to my two boys. This week, Channel 4 released its second episode (of 3-part series) called “Baby Surgeons: Delivering Miracles”. Get the tissues out as you watch the emotional rollercoaster of some really unique pregnancies and you catch a very relevant glimpse of what my wife and I went through during the pregnancy. Another shout out for the NHS & wonderful Doctors who play God in these high pressure scenarios. DK

Then, for a bit of family fun and no surprises for my next endorsement (im a massive sports fan), get your family to watch Finding the Way Back starring Ben Affleck. He plays Jack, a lonely guy whose marriage has failed, owing to a family tragedy; now he works on a building site and drinks himself to a stupor all day every day. But then he gets a call from Father Edward Devine (John Aylward), the shrewd, kindly headmaster of the Catholic school where Jack was once a basketball star: could Jack maybe come back and coach the school’s now floundering and ill-disciplined team? DK

What we're listening to.

In markets, it is often said that while history doesn’t repeat itself, it often rhymes. Used in the context of market cycles, this becomes a somewhat overused one-liner. But when we heard the argument that the Renaissance (think Martin Luther, the printing press, the rise of the Medici and the explosion of creativity and wealth that characterised 15th century Europe) was seeing a second coming, it was something worth paying attention to. This podcast featuring historian turned investor Josh Rosenthal on the Bankless podcast series covers exactly that – looking at the possibility that we may be living through revolutionary times, with the printing press and double-entry bookkeeping – arguably the two most important innovations that drove expression and financial growth in the Renaissance – seeing their modern counterparts in the Internet and Blockchains respectively. EL

Edward PlayfairMay 10, 2021