Weekend Reading #175

This is the hundred-and-seventy-fifth weekly edition of our newsletter, Weekend Reading, sent out on Saturday 2nd July 2022.

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What we're thinking.

In a bear market, especially one driven by the receding tides of liquidity, an old friend comes back into play: dispersion. No longer do stocks move in concert across the board, even if they’re in the same “sector” - rather, they are starting to exhibit distinctive behaviour across smaller subsets. The question then becomes whether the weapons of choice over the past decade – especially thematic and index ETFs – remain the best way to capture returns from the market. Dispersion means headline indices can be flat, while their components go through tumultuous rotation both up and down.

We are starting to see the beginnings of this in the price action of the instruments we watch closely. In the “growth tech” space all stocks have not been alike. There are lots of profitless tech names but only a few will eventually become profitable. We are beginning to see some small signs of dispersion. You would never believe it but Chinese internet names have been the best performers of the lot past month or so. Often, these are signs of a more profound change in the underlying market regime – and rightly so given the macro backdrop for markets has become decidedly less accommodative than before. We don’t know what this new regime might shape up to be, but what we do know is that we’d need to see the Fed and other central banks around the world go back into money printer mode before we have any chance at all of a seeing a repeat of the past 2 years of exuberance. Until then, dispersion rules the day, constantly changing even in terms of how and where that dispersion manifests.

There’s one caveat we’d add here: a correlation 1 event could still be on the cards where all dispersion goes out the window. Despite the hammering that markets have taken so far these past 6 months, it has been fairly orderly. We still lack the big flush – the capitulation trade that typically marks the bottom. The fact that everyone’s sitting around asking if we have bottomed and if it’s time to buy suggests that the bottom isn’t yet here. Yet, the ingredients are ripe for such a move to come: market participants are getting complacent, abandoning their downside hedges and worrying about missing out on a sharp move to the upside that would surely herald in a new age of “up only” prosperity. They have abandoned their downside insurance, leading to SPX option skew being at lows.

Unfortunately, that opens up the door for some pretty violent moves. After all, it’s the events that you hedge against that don’t happen; and those that you don’t hedge against that do. Be careful out there. As we’ve repeated over the past year or so. It's not a time to be a hero.

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 doing.

This week it was my grandmother’s 80th Birthday and so we headed out to the beautiful Kent countryside; nestled amongst the quiet village of Shoreham is the Mount Vineyard and its accompanying Pizzeria. Often described as a relatively hidden vineyard and producing just 5,000 bottles a year, this is a great spot for a nice meal to celebrate birthdays or catchup with friends over a bottle of wine or two. They have a good selection of their own wine, with a red, rose as well as a couple of sparkling wines that have won a number of awards. All in all, I can’t wait to go again and try more of their range! HS

What we're reading.
I first read a Ben Mezrich book over a decade ago when I read Bringing Down the House - the true story of a bunch of MIT students who took Vegas to the cleaners. They were one of the original groups of cars counters. It was brilliantly written and it was subsequently made into a film. This week I breezed through his 2015 book, Once Upon a Time in Russia. It tells the story of Boris Berezovsky, a mercurial power broker and one of the original oligarchs who made billions through his dealings in post-communist Russia in the 90s. He is credited with helping to bring Putin to power but then decided ignore the president’s warnings and take him on. He famously was exiled to the U.K. where he spent his life in the courts fighting the Kremlin. He is also the man who backed a young Roman Abramovich long before he became the wealthiest man in Russia. Remember the polonium victim, Alexander Litvinenko? He also features I’m the story which despite being a very surface level overview of some of the things that went on is a riveting account of Berezovskys trials and tribulations. Being someone who has been involved with all things Russia for a long time I had avoided reading it until all the recent media coverage on Russia and its oligarchs had died down a bit so I could enjoy it without the noise. And I’m pleased I did. A nice easy read and learnt a thing or two extra along the way. DC

What we're listening to.

Fast becoming one of my favourites I listened this week to The Metacast by Naavik, which featured a discussion on Meta’s metaverse plans. It covered both the bull case and the bear with some strong opinions from guests Joost van Dreunen and Aaron Bush as well as host Maria Gillies. Only time will tell whether Mark Zuckerberg’s massive bet pays off but this was a deep dive into some of the things that as non-specialists we don’t really think about. There was also a brief chat on Diablo Immortal, the new mobile addition to the Diablo franchise - one that purists are not best pleased about.

What is tokengated e-commerce? It’s a fascinating idea I’ve picked up a few times and I decided to listen to Alex Danco on Web 3 Breakdowns, who is charged with implementing this idea inside Shopify. Imagine a world where you log on to the Shopify website and connect your crypto wallet. The site recognises your NFTs inside the wallet and based on what it sees it decides what level of access to give you to the various features and tiers Shopify has to offer you as a buyer. It could be that you purchased a level 2 Shopify NFT which gets you into an event or a level 5 one which gets you a completely customised website - only for the most exclusive and discerning shoppers. Or the website could notice you have a Supreme NFT, which based on a deal Shopify did with Supreme, opens up a while other world of co-branded offerings. The possibilities are endless and this episode gives a cool overview of what some of them may be. NFTs are dead? Come on think properly - it’s the beginning and everyone is still figuring out how to use this tech properly! DC

What we’re watching.

Friday was the start of the Tour De France. This year the “grand depart” is Copenhagen! For the next 3 weeks, the toughest endurance race on the circuit will play out. These are proper athletes! A band of challengers will try to end Tadej Pogacar's reign in the world's most famous bike race. I personally am a huge fan of Primoz Roglic (the 2020 runner up). Who could forget him leading the tour, only to lose on the penultimate riding day? Jonas Vingegaard, last year's runner up is also up there again to Challenge! Let's not forget the UKs very own Geraint Thomas (recent winner of the Tour de Suisse). Has he got the legs to stay with the youngsters? With its traditional finish on the Champs-Elysees in Paris, all enthusiasts will be wondering who will be victorious in this year's edition of the Tour de France 2022 which ends on July 24. DK

I’ve been watching a lot of Wimbledon the past week. There is nothing like it, especially those late sessions that extend into the late summer sunlight. It is the epitome of Britishness. As a kid growing up I dreamed of going to watch the matches, never once thinking I’d be fortunate to go many times over the years to come. Now starting again as a smaller fund, the brokers are less in a rush to entertain me but sitting with my daughters and watching on TV is pretty rewarding in itself. Novak Djokovic, being unvaxxed, is banned from entering Australia (as result of his deportation) and the USA, meaning Wimbledon is his only shot at a grand slam this year while falling 2 wins behind Rafa Nadal in the overall slam count. But the highlight of the week was John Isner beating Andy Murray in a battle of oldies. At 37 years of age, Isner produced one of the best displays of serving I’ve ever seen against one of the best returners in the history of the game. I can’t wait for week two to begin. DC

Edward PlayfairJuly 6, 2022