Weekend Reading #165

This is the hundred-and-sixty-fifth weekly edition of our newsletter, Weekend Reading, sent out on Saturday 23rd April 2022.

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What we're thinking.

As the market roller coaster continues, this week’s focus for us has been commodities. The exacerbated selloff followed a series of weaker than expected results from the majors and a further fall in global indices. Are the stocks foretelling where the prices are going? Or are the supply disruptions and production misses bullish for prices? Our base case is for a multiyear bull market in select commodities (not all of them) but having been around for many commodity cycles (and a previous supercycle) we are used to significant volatility along the way and certainly don’t expect a free ride. This week’s action was a nice reminder.

On the flipside, an old train of logic seems to be attempting a re-emergence: that which says that in an environment in which growth is hard to find, the best things to buy are growth stocks. While certainly not our base case, we remain very cognisant of the risk that many of these beaten down growth names – ironically in a growth scare where GDP forecasts etc are being downgraded – could catch a bid.

Old habits die hard, including that of buying triple-digit YoY growth in users and revenue, and changing ingrained behaviour (e.g. “buy the dip”, “buy top-line and user growth, profits don’t matter”, “old economy stuff is boring, who cares about cashflow, if you pay out cash it’s because you have no more growth” etc) takes time and effort, they are certainly not permanent as the market zeitgeist slowly but surely evolves with broader conditions.

Another thing we have been thinking about (as always) is Web 2 vs Web 3. The Web 3 community’s criticism of Meta’s 47.5% proposed revenue cut from those who wish to build in its Metaverse is an example of the ideological divide that seems to exist still even at this stage. There is an essential philosophical discussion that needs to be had about decentralisation and who we want to be the gatekeepers of the metaverse. Nowhere more exemplified than Punk 6529’s regular musings about the importance of decentralisation and illustrated by his recent announcement of a free metaverse which he has begun building. Here is the link to his original mega thread on the importance of a decentralised metaverse. We have great sympathy for the decentralisation argument but the good guys vs bad guys approach of the Web 3 community in general doesn’t really translate into business success (certainly at this early stage). In the case of Meta and the question of its 47.5% cut, Meta is betting that potential customers will consider the size of the audience and expecting it dwarfs a more decentralised metaverse. This is only the beginning of a big battle which will unfold over the years to come.

What we're doing.

I’m in sunny Amsterdam this weekend, coincidently arriving with the start of both the ETH Amsterdam and AmsterDOT cryptocurrency conferences. It’s a beautiful city with some fantastic nightlife and with this being the fourth time I’ve visited it’s also nice that I’ve done most of the typical tourist attractions before. However, it is also the first time I’ve been back since the pandemic and so it will be interesting to see how much has really changed. Aside from catching up with some friends and exploring more of the West side of the city, and if weather permits, I’ll be driving down the coast to Noordwijk, one of the country’s top beaches. HS

What we're reading.

Having slowly come back to life post-COVID, I have, at last, this week been able to read books again. Something to do with COVID-brain meant that looking at words on a page has been a challenge for some weeks but over the past few days the magical power has slowly returned! Reading was easier, but processing was still slightly more complicated and slower, so I chose an old friend of a book to make reading relaxing rather than unnecessarily challenging. Enduring Love by Ian McEwan is, in my humble and thoroughly unlearned opinion, one of the greatest books of all time, written by one of the greatest. It begins with a pleasant afternoon one windy spring day in the Chilterns when the peaceful, organised life of the lead character, Joe, is shattered by a ballooning accident. The action unfolds from there and much like Saturday, my other McEwan favourite and another novel where everything within the book hinges on one moment on one day, the meticulous nature with which McEwan describes the actions, the emotions, the drama, makes this an all-enveloping read, one that makes you recompute and cherish the fortune for a peaceful and calm life and reminds you how it can all be shattered in an instant. EJP

What we're watching.

I'm always a little suspicious of the 'currently trending' top 10 on Netflix. Not that I see myself as some kind of contrarian but I do think that what the rest of the world wants to watch isn't necessarily what's good for me. However, Anatomy of a Scandal is a show I began this week having seen it on the top 10 list and, I must admit, I'm thoroughly enjoying it. The 6-part Netflix special tells the story of Parliamentary minister James Whitehouse, a happily married man with everything a man would want, including Sienna Miller as a wife and a loving family home. However, a scandalous set of secrets is about to come to light which will bring down both his home and a substantial portion of the British establishment. Enquiries and scandals in British politics is a hot topic right now given what is going on in Number 10 and the halls of Westminster Palace, so this show has an extra crackle of entertainment and fizz and is well worth a watch. It is also created and produced by David E Kelley who wrote Big Little Lies and 9 Perfect Strangers, which is a reassuring presence and a real sign of quality. EJP

Last week I went to my first film at the cinema since covid. I'm a big Harry Potter fan and I decided to go see the latest instalment of the Fantastic Beasts franchise, which is a spinoff of the original series and takes place many years before Harry Potter began. Suffice to say it was terrible. Absolute waste of time. Slow, boring and just all round disappointing. I often think to myself what Disney would have done with Harry Potter. Surely it would have been a LOT better than this. What a waste of one of the best pieces of content IP in the world. This article in the Atlantic seems to agree with me.

On a happier note, last weekend I sat with my kids to watch the latest David Attenborough show on BBC. Its called Dinosaurs: The Final Day and it is brilliant. It follows the fortunes of a palaeontologist, Robert DePalma, who has spent years digging in the hills of North Dakota at a very famous site called Tanis. Tanis is a site where there seems to be a high density of fossils around. While digging, DePalma and his team find some incredible things. I don’t want to spoil it because the discoveries as the documentary progresses are part of the fun. But this was just spellbinding and my kids now know exactly what happened to the dinosaurs, and more importantly they know how we know! DC

What we're listening to.

Readers of our recent notes would certainly not have missed our references to the work published by Credit Suisse’s Zoltan Poszar, especially a series of notes calling for the rise of a new monetary system he calls Bretton Woods 3, while simultaneously calling for the end of the US Dollar’s hegemonic supremacy. So it was certainly refreshing to come across a counter-argument to Zoltan’s work by none other than Jeff Snider on Eurodollar University entitled “Why Zoltan Poszar’s Bretton Woods 3 is SO WRONG”, in which he argues specifically against the points around the end of the US Dollar’s importance. Provocative title aside, there are some very practical arguments put forth by Jeff about the importance of the Dollar especially in the offshore Eurodollar system which is arguably overlooked by Zoltan’s perspective from his background as a Fed staffer.

While on Eurodollar University, this episode with Mike Green, who many would know for his work on passive flows and ETFs is another fascinating listen. It is again provocatively titled “Nobody wants Jeff Snider to win!”. As the worlds of fixed income and equities collide this episode reveals how when it comes to market mechanics they’re not really that different (in their irrationality) after all.

Finally, for those who missed it (including us), a new NFT project that just hit the market a couple of days ago called Moonbirds has, in the words of the crypto crowd, “mooned”. The brainchild of Kevin Rose, founder of the PROOF collective, Moonbirds came as a free drop to holders of the PROOF pass. At its very base, the PROOF collective aims to help its members discover NFT projects which carry merits beyond just “buy and flip” value – to the extent of actually hiring research analysts to produce fundamental research on NFTs for their tightly knit community. This fascinating interview between Kevin and the Bankless team goes through a bit of background on PROOF and Moonbirds, while also presents a whole new set of applications for NFTs in the creator space which are unequivocally utility-positive for holders. EL

Michael Lewis is, for sure, one of my favourite nonfiction authors. He who doubts or refutes his quality is no friend of mine. But the transition from page to audio is not a smooth or easy one, and there is a tonne of authors who have tried and failed to make it in the podcast space, thinking that they "need" to do a podcast, because everyone is doing a podcast, throwing in their lot, and coming up short with either a weak concept or poor execution. I am pleased to say that Michael Lewis, yet again, is producing exceptional work and his podcast series, Against The Rules, is now into its third season and continues to go from strength to strength. The premise for the pod is like Lewis' books – surprising non-fiction. After exploring a range of stories in seasons 1 and 2 the third season of Against the Rules tackles what has happened to our trust in experts and expertise. An expert has (probably) saved your life more than once. So why is it so hard to judge who the real experts are? And why, once we have found them, do we struggle to listen to what experts have to say? In this season, Lewis introduces oceanographers and baseball writers, nurses, and former gang members — people who do not have a lot in common but the mixed blessing of their expertise. It is a fascinating and timely lesson, especially so if you have been to see a doctor recently! EJP

This week’s All-in podcast is worth a listen. As always, the “besties” chat about everything under the sun but in particular its worth listening to the discussion led by Friedberg at the beginning about looming food shortages. He paints a dismal picture. The discussion also brings up the idea of China using its massive stockpile of food as leverage to do favourable deals with countries who may end up in deep trouble as result of a lack of food. DC

Edward PlayfairApril 25, 2022