Weekend Reading #173

Photo by RoadTripWithRaj on Unsplash

This is the hundred-and-seventy-third weekly edition of our newsletter, Weekend Reading, sent out on Saturday 18th June 2022.

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What we're thinking.

This week’s further carnage in the crypto world seems to have resulted in the biggest casualty of them all so far. Until recently, Three Arrows Capital, run by Su Zhu and Kyle Davies, was everything that was good about crypto. A proper story of how two upstart high school buddies started with nothing and made billions through sheer smarts and hustle. Three Arrows was the biggest story in crypto for all the right reasons. But first their aggressive championing of the now collapsed Terra system and now their apparent blow up this week, has led to what is in our view a terribly sad end. These guys were idolised by everyone – a memetic model to aspire to replicate. The damage they, along with the undoing of Luna and Celsius, have done to the ecosystem will reach way beyond the systemic and financial implications, not least because of the breadth of people outside the traditional crypto pools that were affected. There are lots of rumours circulating, none of which we know anything about and we will reserve judgement until the facts are laid bare, but all we feel here is crushing sadness and disappointment.  

Back to markets and despite the broad-based weakness, are we finally beginning to see something interesting in Chinese internet stocks after the well-deserved lashing they received over the past 18 months or so. We have no idea as to how long this can last given that these are now value stocks and not growth stocks but as someone clever (can't remember who) has said before, one can make more money when things go from bad to less bad than when things go from good to very good. Maybe it's as simple as that? Some hope for the stale bulls maybe. 

What we're doing.

Back at our desks this week we are doing everything we can not to do anything stupid. The temptation in a market like this is to trade a lot. We are making sure we don’t over trade and that we keep our risk low. Even in bear markets there are opportunities to make money but patience is key. There is no point chasing moves lower when trying to short or trying to catch falling knives on the long side. Sometimes the best thing to do is just wait for the “fat pitch” as Stan Druckenmiller calls it. Apart from that we are enjoying an Indian summer in the UK while doing all our usual reading and listening. DC

What we're watching.

The investor for me who has had the biggest influence of my style of investing and way I look at markets is Stan Druckenmiller, mainly because of his markets guided approach in which he uses price action to tell him more about the world than he can ever glean from intellectual experts and economic data. This interview at the 2022 Sohn Conference with none other than John Collison of Stripe is a masterclass. Unfortunately, he is not bullish. My favourite of this interview was the “invest then investigate” part where Druckenmiller talks about how time is precious in this world and how if his initial triggers are met, he puts the position on straight away and then instructs his team to research. Just like we do here, if it isn't working you just sell it. But if it does then you are off to the races. The insights in here are absolute gold. DC 

Amazon Prime’s hit series The Boys has just started its third season with regular episodes dropping every Friday. I had held off for several weeks in watching the show in the hopes of watching the whole thing in one go although I succumbed to the temptation and decided to watch it anyway. Whilst Season 1 was epic, I thought that season 2 became a little drier, although am thoroughly pleased with what I’ve seen so far of Season 3. For those that haven’t come across it before, it’s a show that explores the lives of superheroes and how they abuse their powers. This is in stark contrast to what one would expect to see in most superhero-type productions and makes for fantastic watching throughout. HS 

What we're reading.

Just before boarding the flight to go home, I read this superb article by Richard Poplak in the Daily Maverick. It’s titled “The Shakespearean Tragedy of Cyril Ramaphosa.” As a South African whose early twenties were filled with hope for when Cyril Ramaphosa became President, I waited another decade and a half before he finally ascended to this throne. But what a spectacular disappointment he has been. This article sums it all up perfectly and is so well written. What saddens me even more is what’s to come after him. One way or another and as optimistic as I’ve always been about the potential of my home country, it looks rather grim.  

I also finished the RF Kuang trilogy. The third book was called The Burning God and it was every bit as good as the first two. Brilliantly wound up and with a proper ending, this is probably the best fantasy trilogy I’ve read since Lord of the Rings. Just a reminder as long as you don’t mind LOTS of violence, it's worth every minute. Apparently the genre this falls into is called grimdark fantasy. Makes sense. Good and proper escapism at its finest. 

I was excited to read this story too. The Game of Thrones prequel series, House of Dragon, starts soon on HBO but now apparently there is a sequel series too in production following what happens to John Snow. This is incredible. HBO is following the Disney playbook and expanding the Game of Thrones universe again and again. On the one hand I can’t wait for all these shows, yet on the other too much of one thing tends to irritate me. The Star Wars and Marvel universe are great for profits but in terms of sameness it does tend to be a bit much. I just hope the quality and ingenuity of HBO continues to hold. Either way for this show I can’t wait. 

The story of a Google engineer who believed he was talking to a sentient being when chatting to the company’s AI has been doing the rounds this week. The dialogue itself is really worth digging into whether you think he is right or is a nutcase. As AI gets better and better, we just have to keep an eye out for when the machines work out how to make sure we don’t unplug them. Every time I see something like this, I’m reminded of Tim Urban’s epic Waitbutwhy piece on AI which still today covers everything. His story of an AI tool that writes handwritten notes called Turry (in part 2 of the above linked piece) is still one of my all-time favourites. DC 

Gene editing and the promises of permanent cures to diseases caused by genetic defects offer hope to patients suffering from debilitating disease, whose only reprieve in most cases are drugs that treat the symptoms but not the cause, and typically serve to slow the progress of these largely degenerative diseases. Our interest in the potential for these therapies, mostly based on CRISPR technology, is long held, and while we cannot help but admire the genius of the likes of Jennifer Doudna and Emmanual Charpentier, who jointly received the Nobel Prize for discovering CRISPR, investing in the companies which they’ve founded is a much more complicated matter. This article lays out the challenges facing companies like Intellia Pharmaceuticals – from cash burn and a lack of revenues (tricky in a market where abundant liquidity is no longer the order of the day) to an ongoing patent battle around the licensing of CRISPR technology which threaten the viability of expected licensing revenues in the future, it turns out that being in it for the tech isn’t enough to guarantee success. The outcome of these legal and commercial challenges will be watched with great interest – but at the very least, for the patients that look to these experimental therapies for a cure to their chronic ailments, broad investor interest in funding these developments remains intact. EL 

What we're listening to.

Michio Kaku is someone I’ve mentioned before after reading his book on string theory. He appeared on Joe Rogan this past week talking about all the things he liked to talk about – physics, AI, aliens, the future, string theory and everything in between. It’s 3 hours of really fascinating content. Despite his advancing age, he sounds like boy filled with delight at what he finds around him. Great energy and insights.  

One of my favourite podcasts in recent months is the Metacast by Naavik which has been going into quite deep detail around gaming and how blockchain may or may not enhance the space. This week’s episode was quite specific in that it featured two tokenomics experts Nat Eliason and Defi Vader chatting about the differences between 1 and 2 token gaming models. Axie Infinity pioneered the 2 token model to some great initial success but thereafter the limitations thereof have come to the fore. This conversation goes into some detail and provides an appreciation for just how difficult it is to design these gaming economies in advance. Worth a listen if you are a tokenomics geek. DC