Weekend Reading #197

Photo by Joel Muniz on Unsplash

This is the hundred-and-ninety-seventh weekly edition of our newsletter, Weekend Reading, sent out on Saturday 3rd December 2022.

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What we’re thinking

There is no getting away from the reality distortion of Sam Bankman-Fried’s chat with Andrew Ross Sorkin this week. It was absolutely ridiculous. We like Sorkin, he is an affable chap and he did his best to try be tough and ask the right questions but there was zero cutting edge. It was like he was kindly probing his kid after finding some chocolate missing in the cupboard. Bankman-Fried was embarrassingly basic. He suddenly became slow and stupid overnight right. Right? Lies, lies and more lies. While the audience chuckled along and gave him a rousing applause at the end, the real joke is on those whose cash disappeared. But don’t worry, in case you missed it, he was next on Good Morning America, for his next step of public rehabilitation. After all, that’s what you get when you “allegedly” steal double digit billions from people – celebrity! The whole thing is just so damn disappointing. If you hadn’t already lost faith in the media and the establishment, this will tip you over the edge. We look forward to the Dec 13 when new FTX Ceo, John Ray III, the real-life incarnation of Harvey Keitel’s Pulp Fiction character, Winston Wolf, appears at a US House Committee hearing. We can’t wait to hear how the media spins that one.

Away from the pretend world, in the real world, markets are roaring! What bear market? Another reminder that in markets one should never be too prescriptive and rather let the price action guide you. And nowhere is that more evident than in Chinese equities. The rally continues and boy is it epic. As we wrote a while ago, it's not a structural trade at all, but the under-positioning and short interest was just gargantuan. Now it's less so, but still large. The velocity of the rally may surprise many but it makes perfect sense once you consider these factors.

All that said, the underlying trends of tightening market liquidity continue. This week we saw one of the largest private REITs in the world, Blackstone’s $69bn REIT, pro-rate (i.e. limit the size of) redemptions after redemptions hit the limits laid out in the fund’s prospectus of 2% of NAV per month, and 5% of NAV per quarter. That’s a lot of redemption requests coming fast, as far as absolute size is concerned, and suggests that there is continued demand for liquidity. As always, it is tempting to first sell the liquid part of one’s book first to satisfy liquidity demands while trying to avoid the more illiquid portions, but when everyone does the same thing, then when everyone gets to the same point of illiquidity, what happens? This legendary scene from Margin Call once again comes to mind.

This is a stark reminder of how important liquidity is, especially when liquidity itself is becoming scarcer by the day.

We closed off a good month for both our funds and as with every month end get a day or two’s respite and off we go again. Year end is close and what a year it's been. However bad 2022 has been, there is a non-trivial chance next year will not be any easier. The value of a real break in preparing for the challenge to come is not to be underestimated. If the circumstances allow it, we will take advantage of any opportunity to refresh mentally for what’s coming.

What we’re doing.

This week marked a new milestone for Nachas Networks, our Software business as it celebrated going live on its connection with our Swiss banking partner, marking the beginning of our young platform’s journey into crypto coverage beyond our equities base product. We’ve remained relatively quiet with updates on this business unit, although in the weeks and months to come, we will be sure to celebrate more successes as they come, as well as try to fill you in on interesting titbits of where things may have gone better. Nachas is a mobile-first EMS (Execution Management System) which we’ve designed for hedge funds and private banking clients to access capital markets.

Also in regards to Nachas, this week marked another victory for the team as we were able to recoup some of our R&D expenditure thanks to the UK Government’s intensive research scheme. This was a major point of validation for our business and is proof that all the hard work we have put in over the past two and a half years has not been in vain, being that HMRC now considers our firm’s activity to be innovative and seeking to develop advances in the field of trading technology. HS

What we are reading.

Jonny Ive is the second most famous person in the history of Apple (yes more than Tim Cook). He is the design champion who worked closely with Steve Jobs and has been responsible for designing every product that has ever been launched. This fantastic article is a deep dive into his story, his philosophy and what he aims to still achieve, having left Apple in 2019. I’m not really a techy type of guy but I can say the best product I’ve bought in the last ten years hands down is Apple Airpods (the noise cancelling ones). It's like having a second skin and they are beautiful design creations. The amazing thing as this article expounds upon is the culture of design that has been created in Apple by Ive. One does wonder if it will last now that he is gone. DC

When it comes to reading, much of (if not all of) the credit should go to the authors of whatever material is produced, as well as to their editors. Well this week there’s a new author in town, and it’s far from human. ChatGPT was released by OpenAI for public access and the internet has gone absolutely bonkers over what is being churned out by the AI. ChatGPT is a simple user interface that allows a user to drop in a prompt about almost anything, and the AI responds with some pretty impressive answers. It’s free to sign up, and it certainly makes for some very entertaining reading, and also existentially bad news for mediocre journalists, copywriters or content producers. While you’re on the OpenAI site, it’s also worth checking out their image generator DALL-E – and yes, it’s also existentially bad news for mediocre artists.

This article in Quanta Magazine (probably not written by an AI – for now) had a headline that definitely grabs attention: “Physicists create a wormhole using a quantum computer”. While the title makes it abundantly clear that the wormhole exists inside a computing environment, the point of fascination is this: while the existence of physically-correct simulated worlds isn’t a new thing (NVidia have been producing processors that can accurately simulate protein folding and medical molecule interactions etc which are physically and chemically accurate and precise), the fact that a wormhole has been created in a simulation that is likewise physically accurate, through which particles are teleported successfully and provably (albeit in a simulation) suggests that maybe one day this teleportation can be replicated in the real world. At the very least, it is evidence that some of the rather esoteric theories of quantum physics are actually true. EL

What we’re listening to.

It's not often that a head of state appears on a podcast but Bari Weiss had a full hour with Israeli Prime Minister Benjamin Netanyahu. Bibi is back for his third stint in charge and he has a lot to do. This was one of the highest quality journalistic conversations I’ve listened to in a long time. Bari Weiss is excellent – direct, pointed and most importantly unlike many others, not in awe of her guest. Not everyone is a fan of Bibi but this chat certainly gives some insight into what drives him. He talks in great depth about his brother, who was the only soldier killed in the famous Entebbe Raid to rescue Israeli hostages in Uganda in 1976. Bibi has a deep understanding of history and his own place in it. He talks about everything - US politics, Iran, the Abraham Accords and his own destiny. Well worth a listen.

A rollicking listen also came in the form of this week’s Invest Like the Best with guests Ron Howard and Brian Grazer, two legends of the film and TV space. This was a chat about partnership (they have been working together for 40 years) and all the great stories, successes and failures along the way. As we’ve learned from our own business, nothing goes up in a straight line but with dedication, common sense and a love of the game good things can come. A bonus for me was Grazer’s incredible story about curiosity. Over the course of his career, he pursued what he calls curiosity conversations in which he reaches out to someone from a field completely unrelated to what he is doing and has a chat. It turns out that he wrote a best-selling book about this called “A Curious Mind – The Secret to a Bigger Life”. I look forward to reading it not because it’s a manual of how to be curious (those are BS) but rather an agglomeration of some of the conversations he had over many years with some of the most fascinating people on earth. It is seemingly a story of stories. I will report back on it (though my backlog of unread books is alarmingly large). DC