Weekend Reading #180

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This is the hundred-and-eightieth weekly edition of our newsletter, Weekend Reading, sent out on Saturday 6th Auguest 2022.

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What we're thinking.

The rally in growth tech really got going this week and we began to entertain a frightening thought – one which we have long considered as a possible end game but hadn’t really seen any evidence of. When the rally in tech began it was consistent with heavily oversold conditions, a falling yield in the US 10-year treasury and catalysed by a rather mediocre performance by Jay Powell at the Fed’s July meeting press conference when he let the cat out the bag in terms of where he thought neutral rates are. But this week bond yields had their biggest rally in a very long time and guess what. Growth tech went crazy. This was despite the army of Fed speakers beseeching the market to reconsider its “Powell pivot” conclusion and warning of far more to come in the fight to control inflation.

Is it possible the market is calling BS and finally saying out loud what everyone has been thinking for a long time – that the Fed lacks credibility? If this is indeed the case, then we have a real problem ahead whichever way one looks at it. The Fed will have to do even more than it was planning privately to make sure that markets take it seriously and if they don’t then the market may correctly conclude the battle against inflation is lost which leads to even worse consequences. Friday’s payroll number and a FALLING unemployment rate won’t exactly get the Fed slowing down. Hold on to your hats as after the party comes the hangover? So far markets don’t seem to care much.

What we're doing.

The highlight of the week was at the Royal Albert Hall, with Prom 24 of the BBC proms. Before one even gets to the question of whether the music was good (it was), here’s a good fair bit of alpha, as traders would call it: with the most expensive seats at the proms being priced at just under £45 each (for which you get a front row seat in the boxes, each containing 8 seats) and given the quality of the music that’s on, this must be the most value for money offering around. Tickets range from £7.12 (available for sale on the day itself) to just under £45 but whatever the price chosen, it’ll be hard to find a better quality/price ratio around.

As for Prom 24, while the official title reads “Ryan Bancroft conducts Mahler’s Fourth Symphony”, the main draw of the evening was most certainly NOT the Mahler. At risk of offending Mahler fans around the world, the real reason for attending Prom 24 was that Mendelssohn’s Violin Concerto in E minor was on show. Sure, it’s not a 1hr exhibition piece like the Mahler symphony (or any symphony for that matter), but it is an evocative and vivid work of music. This recording featuring Joshua Bell with the Academy of Saint Martin in the fields demonstrates the point.

But an astute observation once made by one wiser than us was that music was as much made to be seen as to be heard – perhaps more so seen than heard in this day and age. Watching this violin concerto performed live underscored that observation. The solo violinist was German-born (but of Korean descent) violinist Clara-Jumi Kang. Based on the chatter outside the concert hall after the concert, she probably started the evening rather incognito, and ended the evening with a now cohort of followers. EL

What we're reading.

With a feast of results and breakthroughs this week in the biotech space, this article capping 10 years of CRISPR was a good read. We’ve been learning and taking our first tentative investment steps in the biotech space in recent weeks and it’s a completely new world to upskill ourselves. It’s taken over 2 years of learning before we were quite ready to dip our toes but as the article illustrates, the possibilities are endless and provide great hope for new treatments and cures to many of today’s biggest health problems.

Elsewhere this article made for interesting reading as it brought back to mind an old favourite, CD Projekt, in Poland. CD Projekt is famous for an era-defining game called The Witcher 3, which broke records all over the place and gave joy to millions of gamers. Their follow up, Cyberpunk 2077, was meant to be the game of the century but it flopped on its release as the game just wasn’t ready. A major misjudgement by the management team caused the release despite this as they felt pressured by the market to release an already much-delayed game. Nearly 2 years later, the game has been largely fixed through a series of patches released over time and according to this article, is now the game it was always meant to be. It comes in a week where Netflix also announced an animated series based on the IP called Cyberpunk Edgerunners. CD Projekt’s share price has cratered ever since. It is a story of what might have been. With a world class game now finally built, at those who waited for it will have a joyful experience.

Finally a great piece about the US’s options to avoid a two-front war versus both Russia and China simultaneously. The author, Aaron Wess Mitchell, was Trump’s appointment for Assistant Secretary of State for European and Eurasian Affairs. In the piece he writes that the priority at all costs must be to avoid a double fronted war with two major military powers. Its not to say that China and Russia will even coordinate their action together, but rather that geographically despite the US military’s size and sophistication, it would prove a massive task militarily, politically and economically and would probably break America as we know it. DC

What we're listening to.

A chat between Lex Fridman and Coinbase founder and CEO, Brian Armstrong, was perfectly timed in the run up to this week’s enormous rally in Coinbase’s stock. Contrary to some wild recent speculation it doesn’t seem to be going insolvent after Blackstone announced a deal to bring Coinbase’s platform to its institutional investors. As always, Fridman’s style is thoughtful and he and Armstrong chat in great depth about his early years and how he founded Coinbase. They go on to discuss all the things you may expect and quite a bit more. Armstrong has been doing the podcast circuit over the past few weeks but a chat with Lex Fridman is not quite the same as most others on the circuit. DC

While clearing out old downloaded podcasts, this one was an episode that was missed in the flurry of podcasts that were recordings from the All-In Summit (which with hindsight would’ve been an amazing event to attend), featuring Oculus founder Palmer Luckey talking about his current business, Anduril. LOTR fans would immediately recognise the name as that of the sword presented to Aragorn by Elrond. In this case, Anduril is Palmer’s current start-up building autonomous defence systems based on AI deployments aiming to detect and counter intrusions, drone attacks and other hostilities. Looking at their website calls to mind a similar other company’s website (similar too with another LOTR reference) – Palantir. Another commonality between the two companies is that both are back by none other than Peter Thiel.

High tech defence companies were traditionally the stuff of science fiction. Palantir, for one, is a business that confounds many analysts: almost everything that can be disclosed is disclosed in broad strokes, and anything that could give an analyst a real idea of what’s happening inside the business is “classified”. Modelling revenues and earnings? It’s worth a try but getting disclosure of a pipeline of Department of Defence contracts (classified!) is going to be tough. The black-box nature of such businesses makes them an enigma to most – and with their products largely aimed at the US government, these companies aren’t like consumer or B2B SaaS businesses.

One thing goes in their favour, however: the drums of war and the narrative of a world that is growing increasingly fragile, with real kinetic military conflict starting to bubble up and break out, is perhaps more than enough to drive capital in this direction. As Palmer discusses on that podcast, if all it takes to wipe out a tank that costs $10m to build is a drone that costs $100k, then the calculus of conventional warfare is going to have to change rather dramatically. EL