Weekend Reading #194 — Three Body Capital

This is the hundred-and-ninety-fourth weekly edition of our newsletter, Weekend Reading, sent out on Saturday 12th November 2022.

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What we’re thinking

Just when we thought things couldn’t get even more crazy they did. A high-profile blow-up that makes Madoff look like a ponzi for ants, or even tech founders laying off thousands and sending letters to their organisations, justification to their investors etc look trivial. Some time ago, we wrote a blogpost called “Anatomy of a Tech Founder” and sadly, today it makes for good reading.

Away from this the market had its biggest pop of the year this week after the mind-blowingly low USD CPI number of 7.7%! Yes, you read correctly. This is more to do with positioning in terms of its velocity but its undoubtedly a short-term inflection point for many beaten down sectors including US tech. This coincides with yet more evidence of China’s shift in its COVID zero policy. So, it’s all windows facing the sea, right? Right?? Well not if you are in Brazil which despite the biggest one-day rally in US markets since 2020 and a very bad day for the dollar somehow contrived to collapse on Grandpa Lula’s questioning of the fiscal spending cap and some other antics. The reality is that Brazil had a massive rally all year and outperformed everything under the sun so while yes there is concern about Lula and his populist tactics (déjà vu?) it’s more than logical to give back some of those gains especially when there are suddenly a few more places to put your money again.

And then in a piece of news which up until about 2 weeks ago would have had the media jumping around like lottery ticket winners, it seems that Ukraine have retaken Kherson, the one place that the Russians really did not want to lose. If confirmed, then this would surely be the biggest moment since this war began. And it opens up a whole new set of variables. Not all of them are good.

What we are reading.

With all the attention on the latest and most spectacular failure of the cult of the founder in the form of FTX and Sam Bankman-Fried, everyone seems to have forgotten about one of the founders that is still very much there. There has yet again been mockery of Mark Zuckerberg this week following a leaked video of his job cuts message to Meta’s staff. I reiterate my view that for all his seeming faults, Zuckerberg is one of the great entrepreneurs. One way or another he is reinventing his business on the fly. And for all the criticism of his being like a “robot” and his lack of charisma, I find there is real authenticity there. His letter to those staff members that were let go this week is excellent and the terms given to them appear extremely generous. The announcement was met with a favourable response from the stock price itself (before Thursday’s mega rally took it and everything else higher). I’ll say it again. Don’t write this guy off. History is written by the winners in the end, not the middle.

Contrast this with Sam Bankman-Fried’s letter and tweet threads. While there is lots of speculation and we still don’t have the full story, it seems there was malfeasance. Chapter Eleven doesn’t come from nowhere. And in this context, his message to his team is just diabolical. This was followed up by a somewhat unhinged tweet thread that ended with him blaming Binance’s CZ for his actions and then another thread upon the announcement of Chapter Eleven proceedings. The worst part of the first thread was part 20 where he stated that FTX US was not impacted at all. “It’s 100% liquid. Every user could fully withdraw”. 24 hours later? Chapter 11 including FTX US. What is very ominous too is that FTX’s new CEO, appointed to wade through the coming mess and deal with creditors, regulators etc is a chap named John Ray III. What is his claim to fame? Well, he was appointed CEO of none other than Enron, to clean up the mess. That discovery gave me the chills.

CZ had his own message for his staff this week too in the midst of all the rumours and their early assessment of FTX’s records. This message was sent before Binance pulled out of any deal. CZ is also much mocked but he has always behaved consistently. Binance has engaged in obvious “regulatory arbitrage” over the years, but CZ has met every challenge head on and usually communicates publicly and transparently. In the end when you play the Game of Thrones, either you win or you die. It seems CZ has taken the iron throne. Yet as he says, this just makes it more difficult for Binance, given the level of scrutiny that now will follow (as it should).

And then last but not least, Elon was feeling a bit left out that the attention was elsewhere this week and he has been firing away all day and night trying to get his new Twitter strategy going. While I am definitely not an Elon fan and I object quite strongly to some of the ways he goes about his business (especially Tesla and the obvious obfuscation of reality), in this particular fight I really hope he succeeds. He is now taking on a rotten establishment and they will throw the kitchen sink at him but if he genuinely delivers a better platform for free speech surely that can only be good for the rest of us. The other part of this is that much like Zuckerberg, Elon is doing this turnaround job very much in public. There is nowhere to hide and no choice but to be transparent for a change. Good luck to him.

As an aside and as he tries to get new accounts verified for $8 a month there have been a few teething errors let's say. Here are a couple which were proper funny as some jokers got hold of the verified checkmark clearly without much due diligence being done by the Twitter team! DC

We included this link in our main post today, but it’s worth highlighting this here. This original link was meant to point to a profile on Sequoia Capital’s website featuring none other than Sam Bankman-Fried, arguably the person of the week. But if you click on it, it takes you to a rather vanilla page saying that FTX has been written off, with a link to an investor letter saying the same thing. So, what’s so interesting here? Thanks to the web archive aka the “Wayback machine”, archives have been made of what was previously on that link, with the original article now immortalised here. The title of the original feature? “Sam Bankman-Fried has a savior complex – and maybe you should too”. We won’t spoil the experience of reading this but it is fascinating how even the best in the business (Sequoia) managed to suspend all disbelief and become so enamoured by SBF – even in the face of outright disrespect for the very people who put up the article in the first place. This particular segment of the article has been making the rounds on Twitter, which sums it all up quite well:

No surprise Sequoia wanted this feature piece forgotten.

The FT has also done a rather entertaining take on this, available outside the paywall here.

On the flipside, it turns out that the wrong-way risk was also significant, with this article in The Information laying out how SBF himself had invested more than US$500m in Sequoia and other VCs. As far as circular relationships go, this is as textbook as it gets.

Word on the street is that Michael Lewis has been working on his next book, on none other than crypto and SBF - we'll find out soon enough if this is true but all of this is going to make for quite the read.

According to FTX’s bankruptcy petition, the company is the myriad of roughly 130 related entities, including FTX.US which had previously been assumed to be “alright” and hived off from the rest of the fallout. 130? According to the sleuths on Twitter, the real company structure looks a bit like this (h/t @basedkarbon). EL

What we’re drinking.

As the week drew to a close, we were cordially invited to a whisky tasting event hosted in the building in Canary Wharf where our humble Nachas Networks offices are located. It was a great experience, and the expert leading the session was fantastic as he really showed a detailed knowledge of the craft, meanwhile being friendly and forthcoming enough to care to explain to those who were only beginners. We tried quite a few different whiskeys from across the world, with notable favourites being the Nikka Coffey Grain Whisky from Japan as well as the Nc’Nean Organic, renowned for its flavours of citrus, peach, apricot and spice. HS

What we’re listening to.

There was an EXCELLENT episode of Invest Like the Best this week with guest, Bob Elliott. The topic was “a Macro Tour” and in it Elliott lays out exactly what the macro regime we are in looks like. He does it clearly and without complex jargon so I highly recommend listening to this in order to get a good idea of where we are in the context of history and today’s world. Even for someone like me who does this stuff every day it was extremely helpful in its clarity. Sometimes the thoughts in your head are there and loosely connected and this will help bring them all together nice and neatly.

Ben Shapiro is a guy I don’t know well and have barely watched but lots of people I know are big fans of him. This week he sat with Lex Fridman and had a long chat about LOTS of very controversial topics. One can certainly not accuse him of a lack of opinion on everything. I was surprised at the intellectuality of the man. This is a smart dude. Yet as he is someone who makes a living from talking, I’m always a bit sceptical. Some very serious issues are discussed here and it was a bit of a whirlwind tour of every single global topic of contention. DC

What we’re watching.

On the weekend I watched a great horror movie called Get Out. It piqued my interest as it apparently is a bit of a cult classic already. With a minimal budget of $4.5m it somehow generated an eye-popping $255.5m globally (according to Wikipedia). It is very cleverly put together and is also a superb bit of racial political satire. I wouldn’t say it was necessarily “scary” per se but the underlying tension, music and pretty good acting all came together for a really enjoyable film. DC