Weekend Reading #135 — Three Body Capital

Photo by Michał Parzuchowski on Unsplash

This is the hundred-and-thirty-fifth weekly edition of our newsletter, Weekend Reading, sent out on Saturday 11th September 2021.

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What we're thinking.

In case you miss the link to this 2016 paper by Edward Castronova that we discuss in the main blog post entitled “Players for hire: Games and the future of low-skill work”, here it is again for easy reference. Not only is it thought provoking as a read, but it is also unbelievably prescient given it was written in 2016 when the world had scarcely a clue about what would come to pass at the crossroads between crypto, the pandemic, global income inequality and play to earn.

On another note, as we trudge towards what is seeming like an eventuality of a Fed taper, one cannot help but wonder if this is going to be another “sell the news” (or in this case, “buy the news”) event. That a taper is coming, along with the withdrawal of liquidity from markets, is a well-known and well-expected occurrence... right?

It is said that in markets, the events that you hedge for don’t come to pass, while those that you don’t hedge for do. So, we thought it would make sense to look at the most recent “big shock” event and how markets were positioned before it – the US presidential elections. Here we have the VIX term structure from 3rd Aug 2020, ahead of the election:

*Source: https://www.cboe.com/tradable_products/vix/term_structure/*

That term structure – a hump in near-term volatility – suggested that the market was well-positioned for a high-volatility outcome from the election, whatever the result may be. And because it was hedged, it never came to pass. Will history repeat itself this time? Well, the term structure of volatility currently looks like this:

That looks pretty smooth, a textbook term structure curve of volatility over time. No humps. No hedges. Complacency? Or perhaps the Fed has truly mastered the art of narrative control. Time will tell, but it never hurt to be careful.

And in what is shaping up to be a lawsuit of epic proportions, the US courts have struck at the heart of Apple’s app store monetisation strategy, forcing them to allow developers (including plaintiff Epic Games) to send their users to other payment systems rather than be forced to exclusively use in-app payments by Apple, which attract a 15-30% commission. Arguably, Apple has prevailed on many of the other points brought against it, but this concession as ordered by the courts is significant. For now, developers have made a dent in Apple’s armour – this may well give them the motivation to keep at it. At least that will be the case for Epic Games.

What we're reading.

This was a fascinating article from Sarah Zhang in the Atlantic about the different ways in which the world should think about combatting airborne viruses, such as COVID-19. Comparing what we’ve been through in the past 18 months to how London dealt with a cholera outbreak in the 1800s, Zhang espouses a complete rethink of the way that we’re building our world in order to reduce the potentially devastating effects of future pathogens. We all hope that we’re approaching the tail end of the current pandemic, but it won’t be the last airborne pathogen to threaten our lives and our way of life. Yes, vaccines and masks seem to have done a lot, at last, to combat and, dare I say it, beat the virus, but Zhang profiles a group of scientists who want to think bigger and more ambitiously about ways in which we can prevent this sort of event happening again. This means thinking beyond people and, for example, rethinking the way we build buildings so that we mitigate the possibility of respiratory viruses being able to spread by air. This means redesigning offices, schools and homes to prevent that, reimagining how air flows through all the places we work, learn, play, and breathe. It is this sort of radical thinking that is required if we want to make drastic changes and prevent history repeating itself in the not-too-distant future when another coronavirus or infectious disease comes knocking. EJP

Dean Buonomano’s book Brain Bugs is an illuminating jaunt through the architecture and functioning of the brain. The fact that we’re really bad at maths compared to a £2.95 calculator, and that our memory is flawed and unreliable he explains as a consequence of the massive parallel associative nature of our brains, and the fact that as switches neurons aren’t binary. The book explains the phenomenon of priming as well as our susceptibility to advertising and propaganda. It is helpful in terms of understanding how we function and what to look out for in a world that is very different to the one for which our brain evolved. LM

What we're watching.

There are many ways to judge the quality of a TV show. The story. The characters. The acting. Another way is to, simply, assess how it looks. A lot of shows today have either the same glossy palette (think high-end dramas such as Pretty Little Lies etc) or a washed-out, grey-ish look (think true crime such as Time, Luther or Line of Duty). But one show that I recently watched looked, largely, like nothing I’ve ever seen before on television. The Serpent is a thriller set in the 1970s in Asia. It tracks the underhand activities of a gem dealer, Charles Sobhraj, played by the excellent Tahar Rahim, who committed a spree of crimes along the Hippie Trail in 1975 and 1976, the travelling community of the day the unsuspecting victims of robbery, fraud and murder. Set in this place and time, the show looks beautiful and unique. It is colourful, striking and interesting and bears little resemblance to anything else I’ve seen on screen. The story is great, too, if not a little depressing and sinister, but the show is one of the best I’ve seen in a long while thanks to the production values that make the action leap off the telly. EJP

I also greatly enjoyed this YouTube clip from GQ featuring Matt Damon who talks about his movie career and the characters that have shaped him. The list of characters that Damon has brought to life is actually remarkable and really does chart my interest in movies. Not that I'm some movie connoisseur, I just like what I like, but Will Hunting, Tom Ripley, Jason Bourne and Mark Watney are some of my favourite leads in some of my very favourite films. Damon is a smart, likable guy and the way he describes how each film and character came to be makes you like him even more. It also makes me want to watch the Bourne movies all over again, so there's this weekend's filmic entertainment sorted. EJP

What we're listening to.

If you’re into odd music, here is an album for you. Carnage is a 2021 album by the great Nick Cave and his longtime collaborator, Warren Ellis. Carnage was recorded during the COVID-19 lockdown and is Cave and Ellis’ first full-length studio album as a duo, apart from their extensive work in film music, the score for the modern Western, The Assassination of Jesse James By the Coward Robert Ford, being one of my favourites. This is a unique and creative album, quite unlike anything else you’ll have heard before (unless you’re a long-time Cave fan) and it is a great example of two fantastic musicians enjoying a wonderful creative renaissance in the latter stages of their careers. Weird. Haunting. Powerful. Highly entertaining. EJP

This Delphi Digital podcast is awesome. It features one of the most famous NFT investors, Aftab Hossein, who goes by the Twitter handle @DCInvestor. He has been collecting since 2017 and started with the iconic CryptoKitties. His approach is great and something we would recommend for anyone looking to get into NFTs. Only buy what you like and what you are prepared to stick with as liquidity in NFTs is not quite enduring just yet. Think long term, don’t flip. He covers his thoughts on NFT art and digital assets and his ideas around what the future may hold. Really recommend! DC