Weekend Reading #133

Photo by Tim Mossholder on Unsplash

This is the hundred-and-thirty-third weekly edition of our newsletter, Weekend Reading, sent out on Saturday 28th August 2021.

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What we're thinking.

So, the long-awaited central bankers’ symposium at Jackson Hole, now in its second virtual incarnation, came and went without much fanfare. Or did it? After Fed Chair Powell’s speech which seemed to say that there was a taper coming but at the same time that it wasn’t coming, markets took that as a dovish signal and continued their seemingly unending march upwards. Notwithstanding the multitude of ostensibly hawkish comments from other Fed members past and present prior to Chair Powell’s speech, one cannot help but wonder which degree of the common knowledge game (as described by Ben Hunt’s Epsilon Theory, most recently in the context of Afghanistan) is being played here.

For now, the Fed seems to have won the narrative battle again, managing to convince markets that a taper will be orderly, decoupling the relationship between tapering and hiking rates. So far, so good, it seems. That may well be the case, although the nature of the common knowledge game is such that even if everyone is sceptical, insofar as everyone thinks that everyone else is confident that it will be orderly, they will behave as if it were orderly, contrary to their private beliefs. The reality is that liquidity is becoming tighter around the world, with the Bank of Korea most recently joining the tightening party, and the ECB signalling awareness of inflationary risks.  In the end, only if (or when?) common knowledge changes and an “emperor has no clothes on” moment comes along will collective behaviour change.

For now, markets have resumed “up only” mode. But as we all know, things can change very quickly, especially when positioning is as aggressive as it currently is.

“Don’t fight the Fed” works 99% of the time. For the remaining 1%, keep an eye on the ever-narrowing emergency exit.

What we're reading.

There are lots of Marc Andreessen interviews and podcasts around including a recent one on Invest Like the Best but this one on the CSPI podcast with Richard Hanania was so good (I read the transcript rather than listened). It’s called Flying X-Wings into the Death Star and covers so much ground you have to take a breath along the way. Some is the obligatory industry and company level excitement but there is so much substance here. They disagree a lot which is great, and some highlights include the messed-up incentives in US health sciences, a great analogy around a16z’s portfolio as flying X-wings into the Death Star - especially the statistics of how they think about success rates. Two highlights for me though are the origin of the word “carried interest” which we all use all the time (from the whaling industry 400-500 years ago) and a new twitter account to follow (@pessimiststarc) which is an archive of technophobia and moral panics. Here is one snippet from the Philadelphia Times in 1888. Reminds me of the Josh Wolfe comment on “things that will rot your brain” becoming multibillion dollar industries (TV, Computer and video games and now social media). DC

With the eyes of the global geopolitical community firmly fixed on Afghanistan, this article in The Atlantic by a former US Air Force intelligence officer about his 600 hours of listening into conversations of Taliban fighters sheds fascinating light on what goes on “on the other side”. Whatever one’s views may be, this is a lesson in not letting stereotypes and memes cloud the perception of reality. Years of fighting and combat appear to have forged a singular determination within the Taliban to take Afghanistan back for themselves and form it in their image. Rather than the motley crew of ragtag militiamen they are made out to be, there is a singular alignment of interest that runs through their veins, to the point of paying for it with their lives. And it is perhaps this lack of understanding that led to the miscalculations and the ramifications we see today.

In the realm of the digital, as many look upon the seemingly ridiculous prices that rocks and other digital artefacts transact at, trying to make sense of it from an external point of view might be the wrong approach. After all, not everyone is an anonymous crypto-billionaire that has millions to splurge on a pixelated JPEG. So why not ask one of those anonymous crypto whales themselves? This article published by an anonymous panda (yes, he calls himself a panda, but we won’t believe it) known only as “fooo” sheds some fascinating light into the psychology behind NFT flexing, the value and the role the search for prestige plays in this NFT euphoria. Or put differently, the rock is irrelevant – owning the NFTs is like having an exclusive club membership. The form of the membership card isn’t the point at all. EL

The Mission Song is one of John Le Carre's lesser-known books but, in my opinion, as a very big Le Carre fan, it's one of his best. It tells the story of Bruno Salvador, a man who has been abandoned by both his Irish father and Congolese mother, but who has, as a result of his unique upbringing and the multiple languages he speaks, been given a home by the British intelligence services. As ever, the book is filled with the usual Le Carre excellencies in terms of character and storytelling but this book, set in 2006, is a contemporary spy thriller that is a great example of how Le Carre, the master, can do both old and new. A fantastic holiday read if you're lucky enough to be in need of one. EJP

What we're watching.

Despite being an enormous sports fan – I'd watch any competitive sport at any time of day on any day of the week – I had a strange relationship with this year's Olympics. I couldn't quite get on board with it and, for the first time in my living memory, I found myself showing little interest in either my home country's efforts or even the headline-grabbing events, such as the 100m. Something to do with the time of day it was showing, the poor-quality coverage (sorry BBC), and the complications surrounding its scheduling in spite of the pandemic made it a sporting event that, largely, passed me by. However, what I've been hugely enjoying is the 2020 Paralympic Games and the superhuman feats that you get to watch by tuning in to watch the extraordinary achievements of all the competitors. The action, the fortitude, the will on display simply blows my mind and I've not shouted at the television louder in recent times (Euro 2020 aside!) than when I watched Hannah Russell and Reece Dunn win their respective swimming finals by inches this week. In a world where, for me, sport can sometimes feel a little facile and unimportant at the moment given the magnitude of other world events, the Games are a great reminder of its magic and power. EJP 

What we're listening to.

This podcast featuring Louis Gave on Afghanistan, China and “De-Dollarization” is a worthy listen. He is someone who has been around a long time and whose insights I’ve always enjoyed. Apart from covering many other things, the one takeaway is a story of a mentor of his in the 90s telling of how the Fed will always look after the US equity holder while the Bundesbank always the German bondholder. In the context of today’s world, Gave speaks of how in his view today the Us still looks after the equity holder but today’s Bundesbank is not the ECB (by a long way) and in fact the People’s Bank of China. While everyone is wondering whether Chinese tech names are a buy after the bloodbath we have seen, it is worth bearing in mind that Chinese stocks in the US are held by foreigners. But Chinese bonds are held by locals. He views a Chinese bond investment as one of the safest bets around. This is a great insight and worth considering when trying to work out if Chinese equities are “cheap” enough to buy. Regular readers will know our view.

Another one I listened to was this one on the Value Hive Podcast with Dan McMurtrie of Tyro Partners, a young portfolio manager who made his name on Twitter. His insights are so visceral and real that one can’t actually believe he is 29. This is a long interview and covers everything from portfolio construction to risk, to his views on subindustries and a few diversions along the way. I find him really interesting as he has become the poster child for “emerging managers” and his path has not been smooth at all.

And finally, to round off a trio of podcasts and on a completely different topic, this one on the Tim Ferris show was outstanding. We all spend a lot of time trying to be successful in business but the real success in life is from the quality of the relationships we have with people who we care about. Dr Sue Johnson is an “iconic” therapist, and this episode is filled with such deep insights into our most important relationship – the one with our spouse. Highly recommend taking a step back from all the day-to-day hustle and bustle and listening to this. DC

An excellent and informative podcast I enjoyed whilst on a long, solo (no child in the car) car journey this week was from the Guardian with guest Michael Pollan who asked whether it was time for us to give up caffeine. This is a question that I'm often asking myself and I'm often messing around with my caffeine intake, alternating my intake from one month to the next. Having listened to Pollan's arguments in this fascinating pod put me in mind of giving giving up another go.  EJP