Weekend Reading #205

Photo by Trnava University on Unsplash

This is the two-hundred-and-fifthweekly edition of our newsletter, Weekend Reading, sent out on Saturday 18th February 2023.

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What we’re thinking

Another week, another change in the market narrative, although perhaps not as dramatic a change as some would expect. As early as the end of last week, there seemed to a bit of a rumble in the woods as worries that the rally we’ve seen since the beginning of the year have been overdone started to come to the fore, as the “Goldilocks” and “soft landing” narrative very quickly became one of “higher for longer” (in terms of rates) and even “no landing”, as a series of strong macroeconomic data points hit consistently showing that not only was there no recession in sight (for now), the prospects of disinflation and the hope for a quick pivot by the Fed (or at least a pause) were gradually diminishing.

One would’ve thought that the slightly above-consensus CPI read that came earlier this week would tip the market into a resumption of last year’s epic selloff. And to a certain extent, sentiment has been dampened, albeit in much less dramatic fashion than what the bears imagined. The rates markets have moved rather quickly to price in higher terminal rates, as this chart from Bloomberg demonstrates:

What has been surprising is the speed at which the narrative has flipped, to the point where even The Economist has jumped onto the “Higher for longer” storyline with this week’s cover:

Perhaps it’s too early to conclude from the lack of a catastrophic sell-off in the equities markets that the “worst has been priced in”, and while it probably isn’t (yet), it is equally likely that an expectation of a repeat of 2022 is as unlikely (or is it?) as the prospects of a brand-new bull market. As always, we look to price action to tell us what might be around the corner.

On the other end of the farm, after a short wobble, crypto has gone on to post some impressive green candles on its charts. As we noted before, a confluence of positioning and some rather interesting narratives which we highlighted in our commentary on Slingshot last month has led to what is arguably the most hated rally of the decade, in a space where everything that has gone wrong has gone wrong, not to mention the latest SEC action on BUSD and Paxos. Yet, the ingredients for drawing attention back to crypto are in place: it is one thing when a token of an alt L1 catches a bid on some meme frenzy, like in Solana and BONK; it’s another when the OG of crypto, Bitcoin itself, catches a bid on a narrative that fundamentally changes its nature.

The developments around Ordinals – the ability to “inscribe” content like text, jpegs, music and even short videos onto individual “sats”, the smallest denomination of Bitcoin – are interesting because it dispels the entire argument that Bitcoin is useless beyond being a store of value. In fact, it challenges the fungibility of Bitcoin – if each sat can be inscribed upon, then 1 sat ≠ 1 sat, and 1 BTC ≠ 1 BTC. Non-fungible Bitcoin – now that’s something to think about.

Either way, as the excitement around Bitcoin’s new-found raison d’être brews, whether or not the broader market agrees with the Ordinals narrative is almost less relevant than the fact that Bitcoin “numba go up”. Numba go up draws attention, and attention to rising prices draws inflows. Bitcoin is the tide for crypto, and we all know what rising tides can do.

What we’re reading.

Recently I’ve been reading and can now recommend Robert Harris' historical thriller "An Officer and a Spy". The novel is based on the true story of the Dreyfus Affair, a scandalous event that shook France to its core during the late 19th and early 20th centuries. Through the eyes of Georges Picquart, an army officer who leads the investigation into accusations that Captain Alfred Dreyfus has been passing military secrets to the Germans, the novel provides a vivid picture of turn-of-the-century Paris and a gripping narrative that will keep you on the edge of your seat. It is a must-read for anyone interested in history, politics, or captivating storytelling. HS

I didn’t do much reading this week but one thing I did pick up was David Epstein’s newsletter. Epstein, whom I have written about before, is the author of The Sports Gene, an amazing book about genes and talent (and much more). But in this newsletter, he mentioned chap by the name of Herbert Simon, whom I had never heard of before. Simon was a polymath - a political scientist who also had heavy involvement in economics, computer science and cognitive psychology. A Nobel prize winner and a Turing prize winner no less. Epstein ended his newsletter this week with a fantastic quote from Simon, whom I intend to learn a lot more about.

Given the recent developments in artificial intelligence, this 1965 quote from Simon really made me stop and think. He wrote this when he was asked about the impact of automation of society (all the way back then).

“Man is a problem-solving, skill-using, social animal. Once he has satisfied his hunger, two main kinds of experiences are significant to him. One of his deepest needs is to apply his skills, whatever they be, to challenging tasks — to feel the exhilaration of the well-struck ball or the well-solved problem. The other need is to find meaningful and warm relations with a few other human beings — to love and be loved, to share experience, to respect and be respected, to work in common tasks.”

Some things don’t change. DC

What we’re doing.

We took our kids to Paris this past week or so during the half-term break here in the UK and we had a great time. Having been a few times before without kids, we decided that it’s a great city-break to try and give the kids a bit of exposure to some of history’s great stories and sites. As regular readers will know I like to think of the world (and markets) in terms of stories. Everything is a story in one form or another and there are no greater historical stories told than those that come to us through the greatest artists. Leonardo Da Vinci painted only 15 paintings in his lifetime (that we know of). The most famous of course is The Mona Lisa, which needs no introduction. So off we went bright and early to get in to see the famous painting before the crowds swooped. It was majestic, of course, and the story of its theft kept the kids entertained.

But what interested me was the within 30 minutes of the opening of the museum, the Mona Lisa room was packed to the brim. Yet around the corner, literally 30 meters away stand 3 other Da Vinci paintings in all their splendour. We had them all to ourselves. Hardly anyone even stopped to look at them. The stories of these paintings are less well known. Furthermore, it turns out that for most of Da Vinci’s paintings it is uncertain as to how much he actually contributed to them, if at all. But just the sniff of his involvement is enough to weave a tale around each of them. Makes you think, doesn’t it? I still have Walter Isaacson’s biography of Da Vinci, which I progress through at a crawl every now and then, maybe I’ll get stuck back in. DC

What we’re watching.

The previous few weeks, I’ve been re-watching the Netflix original series "Lilyhammer" which first aired in early 2012. Starring Steven Van Zandt as Frank "The Fixer" Tagliano, the show follows a New York mobster who relocates to Lillehammer, Norway under the witness protection program. At first, Frank struggles to adjust to his new surroundings, but he quickly finds a way to make a name for himself in the small town by opening a nightclub and engaging in local politics. The show offers a unique blend of comedy, drama, and culture clash as Frank navigates the quirks of Norwegian society and grapples with his past as a criminal. HS

Tencent’s rendition of the Three Body Problem is now available on Youtube – 30 episodes covering what should be the first book (I’m just under halfway through – episode 1 is here). Initial verdict is that this has been made excellently: 30 episodes for a single book gives enough space for the storyline to be properly explored and developed, rather than compressed into what would be a much smaller episode count Netflix series, which is also a work in progress. Sure, there are points that may attract criticism – the use of CGI in certain scenes instead of filming “real” shots might come off as slightly artificial looking and somewhat like a video game, but to that one could retort, “wasn’t that the case in Avatar?”.

As it happens, a large part of the first book revolves around a VR game itself. One caveat though: all this assumes the experience is the same when watched with Youtube’s auto English subtitling. I turned them off because they were out of sync with the actual Chinese dialogue, which became slightly annoying, plus by default there are already Chinese subtitles on the original video.

The casting is also worth a mention – none of the cast are well-known (even a Google search – perhaps soon a Bing search?) took a bit of digging to get to the Wikipedia page for the Chinese series, rather than the one currently being made by Netflix. But their portrayals of the characters are impeccable. The ball’s now in Netflix’s court to demonstrate if they can do a better job. It’s a high bar to clear, though. EL