Weekend Reading #174

Photo by Radu Marcusu on Unsplash

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

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What we're thinking.

It has thus come to pass that the reality of recession risk has started to manifest in the conversations that we’re having all around. This growing worry is subsequently finding its way into markets as a growth scare, as underlying assumptions about the trajectory of demand are challenged, causing a downdraft in commodity prices across the board in recent days. Even oil, which was the last one standing, took a bit of a breather from what was shaping up to be an “up only” chart. 

As far as market narratives go, the one narrative that has underpinned much of how we think about markets is that which Epsilon Theory’s Ben Hunt (whose podcast we strongly recommend below!) calls the narrative of “Central Bank Omnipotence”. Put simply, it’s the idea that no matter what the world throws at us, central banks through their magic wand of creating more/less liquidity (we’re now loathe to use the term “print money”, since we’ve recently learnt that it is a common miscomprehension of how the banking system works) will be able to get us through to the other side. 

We’ve written about the challenges that the world was starting to face which monetary policy levers will never be able to address, especially when it came to addressing an undersupply of commodities, and those troubles have now come home to roost. The dilemma that one now faces is troubling: either one hopes for an abatement in commodity prices (only possible through profound demand destruction), or one hopes for sustained demand and equally sustained inflation.  

Either way, one should be careful what one asks for. 

As a footnote to our note above on VCs in crypto, this report that just hit our inboxes less than 24 hours ago from Pitchbook on the state of VC (in general) in 2Q 2022 tosses up some sobering numbers, including a whopping US$1.4tn of unrealised value sitting in VC funds. 68.1% of funds have reported markdowns in their portfolio valuations vs their 2021 peak. The question is how much of that US$1.4tn is at risk as VC portfolios get marked to new valuations? Perhaps ignorance truly is bliss (while it lasts). 

Notwithstanding the growing pessimism in markets, opportunities continue to present themselves in many forms. Could a “growth scare” lead to demand for companies offering “growth” prospects returning to popularity? Or could it lead to structural growth stories like that of Indonesia capturing the market’s collective imagination?  

After all, there’s always a bull market somewhere – even in the depths of what seems to be a global bear market, as long as one knows where to look. 

On a different topic, having spent the last few weeks in Southeast Asia, from Malaysia, the Philippines, Indonesia and Singapore, it is clear that the region has taken the development of its financial infrastructure down a very different route to what is happening in the west. There are some commonalities – contactless cards and NFC payments with phones/watches are common, but that’s where the commonalities end. From buying groceries to paying at food centres (traditionally the domain of cash transactions), there is now almost always and everywhere an option to pay via QR code from any of a wide range of electronic wallet apps, some standalone, others integrated into a contender for one-app-to-rule-them-all like Grab. The plethora of wallets that individuals can use also opens up a new opportunity for electronic FX/remittance firms to take on incumbents in the space, including the likes of Lippo group backed MoolahGo in Singapore which has steadily snuck up on the rest of the pack over the past years to become one of the leaders in the space. 

What we're watching.

At the risk of upsetting some sensitive readers, Ricky Gervais’s Supernaturestand-up comedy show on Netflix is just brilliant. Its proper old-school, unrestrained and age-restricted comedy. I was giggling to myself like a kid. He is of course VERY crude but highly intelligent. As ever with top comedians, he brings to the surface all the rawness of the most controversial issues. When thinking about the content policy at Netflix and how they have ultimately stood firm after the attempted cancelling of Dave Chappelle, one can only be thankful that content like this is available. Everything from disease to gender to religion and much more is fair game and I can’t recommend it enough provided you don’t mind when someone goes way over the line and off into the distance. And of course, with the worst possible language. DC  

Last week, I had the privilege of watching “Top Gun: Maverick”. A little late to the party, but boy I was not disappointed! It was phenomenal! It exceeded all my expectations and I would go as far as to say it’s the best sequel ever made. I may even start the debate that it was better than the original? Let us know if you agree or disagree. ‘Top Gun: Maverick’ has become only the third Hollywood movie of the pandemic era to cross the $900 million mark at the worldwide box office in the latest milestone for the Paramount and Skydance movie. This was Tom Cruises biggest earning movie of all time at the world-wide box office.  

I managed to squeeze in an episode or two of “We Own This City”. Tells the story of the rise and fall of the Baltimore Police Department's Gun Trace Task. This is right up my street and a series that I know I'll overindulge in for sure.  

Last but by no means least, “Severance”. Mark leads a team of office workers whose memories have been surgically divided between their work and personal lives. When a mysterious colleague appears outside of work, it begins a journey to discover the truth about their jobs. Force and the corruption surrounding it. Star studded line up- give it a watch! DK 

What we're eating.

Having not been out to China or anywhere in Asia for that matter over the past 2 years, I had a sudden craving for Hot Pot and decided to visit Haidilao in London to satisfy that. Unbelievably, the food tastes exactly the same as the stores in China and as you descend into the busy basement beneath London’s Picadilly Circus, you could forget in just a matter of minutes where you truly are. Almost all of the clientele as well as staff are Chinese with the distinct cheering in a mix of Mandarin and Cantonese that can be heard from across the restaurant. The ever-so-spicy Mala base is something terrific for those who love spice and with one bite, it took me back to my time in Sichuan Province, although it’s not for the faint hearted. I’d recommend going for the split base with the mala soup as well as either the chicken broth or the green cabbage soup for a mix of flavours throughout the meal. Whilst it's not cheap, it currently benefits from American Express’ ‘Shop Small’ promotion, so I was able to score a small discount. If you’ve never been, it's certainly worth a go for the experience; the staff are incredibly helpful and always ask if it's your first time so as to guide you through the process. HS

What we're reading.

It seems that over the past week everyone in the world decided that only now is it time to ask about where all the crypto use cases are. Much has also been made of the failure of some notable Web 3 protagonists like Mark Andreessen himself and Packy McCormick to eloquently elucidate a good Web 3 use case on recent podcast appearances. We can only say that it just illustrates to us how much easier it is to write well that to speak under pressure on a podcast! Packy M then proceeded to write really good blogpost this week about, yip you guessed it – crypto use cases - in which he listed the ones he really did think had product market fit. It's well worth a read. Reading it though, one thing did strike me once again and as we may have said it before: most of the use cases outlined by the crypto community are still very crypto centric i.e. they are aimed at people who are already in crypto or crypto native. The TAM for this is still small. Of course, as time goes on more people will enter crypto and the TAM will rise but, in our view, the major blockbuster crypto use cases are not evident yet because either they are too early stage to see or because they don’t exist yet.  

The real opportunity is in creating products that are useful to people who are not in crypto as this is where the user base is in terms of numbers. And by creating useful products one attracts people not because the product is crypto but because it solves a real-world problem! The number of crypto projects that are currently doing this are at this stage incredibly few and far between. But if you can find them then the sky is the limit. DC 

What we're listening to.

Ben Hunt’s appearance as a guest on another podcast, The Brandon Adams Podcast, this week was a treat. Being a subscriber to his Epsilon Theory publication has been one of the best bang for buck investments ever. In this podcast appearance he talks macro, markets, crypto as well as the shifting paradigm we find ourselves in globally. He also talks about building a content business. His thinking is so clear and well communicated and everyone will benefit from giving this entire episode a full listen.  

Regular readers will know how I often link to material about the development and evolution of the psychedelic drugs space. Many may wonder why I keep going on about this. Originally it was driven by pure curiosity but as I have gone down this rabbit hole over the past few years, I’ve learned about the potential commercial applications. When I started digging there were zero listed companies in this space and now there are a number of them. Compass Pathways is the clear leader in the space and this week I listened to a Twitter Spaces session with co-founder (along with his wife), George Goldsmith. In it he talks about the company’s prospects, the broader industry and his personal story which led to the founding of the business. What I love about the psychedelic space, apart from the intellectual curiosity and learnings is the massive total addressable market it could potentially hit if the successful companies reach FDA approval for some of their solutions. After this crash across the biotech board, it's well worth digging deeper into. DC 

This week I came across something a little different in a podcast. I found a mix of reality tv mixed with a podcast. “This is Dating” - if you are utterly addicted to Netflix shows but also feel that your brain cells are dying as you consume their manufactured drama, there is an equally compelling but far more nourishing show for you: This Is Dating allows listeners to eavesdrop on blind dates. Producers ensure that these meetups go beyond small talk by prodding the duo with questions like, “Who in your life is a role model for a healthy relationship?” Between dates, a psychologist meets with the singles to break down how the dates went and discuss what they’re looking for in a partner. DK