Weekend Reading #244

This is the two-hundred-and-forty-fourth weekly edition of our newsletter, Weekend Reading, sent out on Saturday 18th November 2023

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What we’re thinking. 

What does recession mean for stocks? One would assume that recession means stocks go down, right? So then how is it possible that we are bullish on markets? For us, that’s easy. We always have a base case, but our base case is always subject to price action. Right now, everywhere we look, for the moment the US market is telling us it wants to go up. A lot. There is always a reason, usually figured out after. Maybe it’s a détente between Xi and Biden. Maybe it's the war in Ukraine coming to its denouement. Maybe it’s the Fed going on “pause”. Maybe it's because the markets are up this year and there is more money to go into markets next year. Maybe it’s yields stabilising. Maybe, maybe, maybe. It has been quite correctly pointed out repeatedly that Mag7 as a percentage of the S&P500 is back to its all-time highs. The context of this illustration has generally been bearish for Mag7 (i.e. it will mean revert). We are not big on mean reversion here, especially with breakout technologies afoot and continuously changing market structure, so the real question for us is what happens if it breaks out and concentration in these names gets even higher!

What we’re doing. 

I spent some time in Hong Kong last week and as always, the food didn’t disappoint. Whether it was some quick dim sum or something more elaborate like a clay pot rice, every meal I had there was delicious. Like the last couple of trips I’ve done, I stayed in Mid-Levels which meant convenient access to Central for most of my meetings and a good selection of bars and eateries that come alive of an evening. Some highlights included the newly launched outpost of ‘One Dim Sum’ in Mid-levels. The original one, situation on Prince Edward Road close to Mong Kok Station which has been repeatedly revered as one of HK’s top spots for Dim Sum. This new location was pretty good and certainly easier to get to in-between meetings for a quick custard bun or three (流沙包 ).

When going for a quick evening walk, I also stumbled across Sake Central, a small shop offering an unbelievably extensive range of sakes imported straight from Japan. Unfortunately, I was heading back to London with some time in between in Singapore which meant my alcohol allowance would be much more limited, but I took one bottle nevertheless and it tasted far superior to many of the sakes I’d typically had in London. It is possible to find good sake in London but given the distance from Japan, it’s not something you’d typically find all around. Next time I’m in HK, I’ll be sure to check out one of Sake Central’s tasting evenings where they offer a 10-course tasting menu paired alongside some fantastic sakes with their sake sommelier-equivalent giving recommendations and tips. HS

What we’re reading.

One of the key differentiators of politicians in the West and those in China, as has become abundantly clear over the past few years, is their quality. A working hypothesis I’ve had is that smart and ambitious people in the West don’t want to go into politics, they’d rather go into business and have an impact there. In China, given the nature of the system, however, my assumption was the reverse is true as being a CCP member and advancing there provides most room for growth and impact. But when I came across this SOAS research article entitled “Job Preferences and Outcomes for China’s College Graduates” even I was surprised at the conclusions. It turns out that from the sample surveyed, no less than 64% of students preferred state sector employment. That’s a big number. And it matters.

Staying on the theme of China, this week saw a potentially seismic political event in Taiwan. With all the feverish noise around China invading Taiwan, not much had been made of a potential Trojan Horse. It always made more sense for China to spend its resources jockeying for domestic influence in order to take Taiwan by non-military means. And this week’s news that both opposition (read: Pro-China) parties, the KMT and TPP, are uniting their ticket to compete with the incumbent, pro-independence, DPP was major news. Elections are in January, and this seriously throws the cat amongst the pigeons as some polls have the combined ticket ahead.

DeepMind seems to be providing us with new AI breakthrough use cases every month and this week’s announcement they have solved weather forecasting is great news. The GraphCast model provides a more accurate 10-day forecast than anything that has ever been tried before. It also includes an early-warning system for extreme weather – cyclones etc. Wonder what they will solve next.

This week saw a significant moment in the gene editing space when the UK approved the first ever gene editing treatment. The treatment, developed by Vertex Pharmaceuticals and Crispr Therapeutics, is aimed at curing Sickle cell anaemia and thalassemia beta. It supplements a bone marrow transplant as the only therapy available. It is notoriously difficult to find a match for a bone marrow transplant and this is hopefully just the first application of what this wonderful innovation will help with in years to come. Crispr Therapeutics’ stock had a nice bounce off its recent lows. The sector has been smashed worse than pretty much every sector I follow anywhere on earth. With technological miracles possible down the line could it be that it's as simple as no one really knows enough about them? Incredible. DC

Just after the markets closed for the week, news that Sam Altman has departed OpenAI from his role as CEO hit the tapes – specifically that he was ousted by the board, which “concluded that he was not consistently candid in his communications with the board, hindering its ability to exercise its responsibilities.”, and added that “The board no longer has confidence in his ability to continue leading OpenAI”. This comes weeks after OpenAI tabled plans for an IPO, and certainly throws the door open for speculation as to the reason for this ouster. Sam Altman was also the founder of a crypto project called Worldcoin, which involved people undertaking a rather creepy exercise of having their irises scanned by a large silver orb in exchange for some WLD tokens. To say that there is more than meets the eye wouldn’t really be going too far. EL

What we’re listening to.

I’ve written now and then about the Dominic Cummings newsletter I get occasionally when he sends one. So, when he tweeted that he was interviewed on a podcast I’d never heard of, I lined it up for listening. And he didn’t disappoint. The problem is that he is very frank about where we are in the west and particularly here in the UK. He has many times in his newsletter written about Bismarck, who seems to be his favourite politician of the past centuries. What I like about Cummings is that he is multidisciplinary and able to speak strategy, politics, policy and all in the appropriate historical context. This is a MUST LISTEN, especially if you are in the UK (and plan to stay here). Pretty depressing all round to be honest, he is absolutely scathing about both political parties and once you listen to this there is no going back. Essential listening (and reading for £100 a year). DC

What we’re watching.

Bari Weiss gave an impassioned speech this week speaking about how the rise of antisemitism is the canary in the coal mine for a world that is heading for very bad times. She puts the woke movement’s more open hatred of Jews into its context, explaining exactly why these people have embraced such vitriolic antisemitism. The speech is entitled “The Last Line of Defence” and once again, is essential watching.

On a lighter note (kind of), David Fincher’s film, The Killer, appeared on Netflix this week and I spent a thoroughly spellbound 2 hours watching it. In true Fincher style, the suspense builds without the pace ever really getting too frenetic. Michael Fassbender stars as an assassin who goes about his business until a job goes wrong and then all hell breaks loose. I don’t want to spoil it so won't say much more other than how meticulously this film was crafted together. DC