Weekend Reading #181
Photo from Unsplash
This is the hundred-and-eighty-first weekly edition of our newsletter, Weekend Reading, sent out on Saturday 13th August 2022.
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What we're thinking.
Another week, another piece of macro data – this time, it’s US inflation coming in slightly below consensus expectations. Inflation less hot = less pressure to hike rates = numba go up – at least that’s what the narrative in the market is shaping up to be. On the flipside, inflation in the high 8% region is by no means tame. Sure, relative to bearish expectations, it’s slightly better, and being cognisant of the imbalances in market positioning and the resulting relief rallies is important. But we increasingly find ourselves in “bad news is good news” territory, and markets are certainly jubilant on that basis.
When it comes to news, we have no shortage of bad news. Europe and the UK are most surely not in a happy place when it comes to their economies. The climate isn’t doing anyone favours either: as a scorching heatwave sweeps across Europe, Germany is experiencing serious drought, with the Rhine River drying up under the heat. The impact on the populations and businesses that rely on the flow of water in the river - from logistics to chemicals to the very people and livestock who live on its waters - is material. And this isn’t even the seasonally dry period yet.
Increasingly, the idea that the real world is catching up with this seemingly imaginary, unreal reality of abundant capital and technology solving and taking away all our problems is becoming more and more tangible. For years, people took all of these things for granted: supply chains for goods, food and services, utilities, water, gas – to the point where many were flippant in denouncing fossil fuels and the use of natural resources in favour of an unrealistic utopian vision of abundance, and where politicians eager to pander to these views steered policy decisions that ultimately ignored or even exacerbated circumstances that increased fragility in our world.
To some extent, scarcity of resources is boon for businesses who provide these resources. But beyond a certain point, when those resources are the means of survival for many, the balancing term in the equation is either that wages go up to match those costs (= more inflation) or wages don’t go up and spending starts to evaporate as well.
But perhaps the most perverse reaction of all is when the markets rejoice at the prospect of a global recession, on the premise that recession = more easy money, and that easy money is a good thing.
At the end of the day, market prices represent the collective outcome of the decision-making process of the multitude of participants, distilled into prices and volumes over time. As always, our job isn’t to try and impose an opinion on the market, much less attempt to move the market to that view; rather, we need to go to where the market wants to go, and the only way to do that is to stay out of the endless mini scuffles that happen on a daily basis and zoom all the way back out to the big picture.
What we're doing.
Our software startup, Nachas Networks’ new outpost in Canary Wharf (where Harry is now based) is one that elicits mixed feelings. On one hand, the cluster of skyscrapers in this enclave in East London, located near the charmingly-named “Isle of Dogs”, is all too easily associated with the long investment banking hours of years past. Add to that a disappointing dearth of nice food, although there is no shortage of symptoms of “numba go up” when it comes to prices. On the other, the familiarity of being in “home territory”, with friends and old colleagues now spread across different institutions around the wharf, takes some of that edge away. Getting plugged back into these long-time relationships is helpful too, especially when brokers are one of the key partners in our growth plan.
For the moment, we’d have to reluctantly admit that being in the wharf is conferring a net benefit – especially so this week: air-conditioned buildings definitely help. Would we be located here permanently? The jury’s still out on that.
What we're listening to.
As we wrote about last week, an exciting part of the ongoing story of Ethereum’s future growth is in the Layer 2/Rollup space – within that subset of technologies, the cutting edge involves solving the challenges around the use of zero-knowledge (ZK) proofs. To some extent, we glossed over a lot of the details in order to keep our piece simple – but for anyone who’s keen to find out more, this podcast on Bankless featuring the founders of two ZK rollup projects, ZKSync and Scroll, is an encyclopaedic download. Digging deep into the mechanics of the fundamental functions of code compilers and the different approaches around optimising the underlying machine code to perform complex zero-knowledge proving functions, it is clear that the attention of the brightest minds in the space have turned towards solving the biggest hurdle for adoption of decentralised computing: scalability. Getting past this hurdle opens up boundless potential for new applications on a much bigger scale, onboarding the next batch of users into the system. EL
What we're watching.
As the name of our company, Three Body Capital, partially inspired by Liu Cixin’s Three Body Problem suggests; we are avid fans of sci-fi and when I sat down to watch 2017’s Geostorm I was impressed. Starring Gerard Butler, the actor behind the famous ‘London has Fallen’ series, the film takes a dystopian approach to the current climate crisis set in the not-so-distant future. In a world where extreme natural disasters wreak havoc, a young engineer managed to come up with a way to control the weather and limit the damage the earth can cause. However, years later as he is enjoying a quiet retirement, he is immediately recalled to come and fix a system potentially hindered by geopolitical-induced sabotage. HS
I’ve been waiting a long time for Michael Pollen’s Netflix documentary based on his book, How to Change Your Mind. As I’ve written about many times here it tells of his experiences and research in the field of psychedelics. The documentary is a four part series, each one featuring a different compound in the psychedelics space. It’s beautifully compiled and the perfect entry point for someone who doesn’t want to read his seminal book.
Also this week, against my better judgement I finished watching a horror series recommended by a friend called The Haunting of Hill House on Netflix. Not having watched a horror show in a long time, I thought it would be fun but to be honest I was rather unsettled. I used to love that edge of seat feeling of the shocking moments in horror shows but I think I’m done with it. Nevertheless, this one was pretty well put together. Needless to say, I watched it till the end anyway. If you like horror stuff, it’s worth a watch. For me maybe it’s the last one. DC