Weekend Reading #213

This is the two-hundred-and-thirteenth weekly edition of our newsletter, Weekend Reading, sent out on Saturday 15th April 2023.

To receive a copy each week directly into your inbox, sign up here.

*****

What we’re thinking

At the beginning of the year, we put together a note outlining a view that wasn’t particularly popular: that the strength in the US dollar in 2022 could turn out to mark the end of a decade of American stock market greatness. Things never happen immediately just because we write about them (if only we had such powers!) but 3 months after that note it appears that we may be witnessing the thrashing of the US Dollar. After a short (and sharp) rally into March, the USD has retraced substantially all of that move, back to around 101 on the DXY as we write. We were not calling for an end to US reserve currency status at all (and still are not) but simply rather a dollar bear market.

Our bet is per our blog post, but we know the there is also a counter argument that we have seen the peak of the influx of liquidity post Silicon Valley Bank and the system-related problems and now the Fed’s balance sheet will begin to contract once more.  Our bet continues until such time as the price action changes our minds. But nevertheless, the counterpoint always stops one from getting too carried away!

On a separate note, just as one would think that FTX is a thing of the past, to serve as a museum exhibit, it was reported that the management of the firm in administration was considering restarting the exchange. To be sure, the reincarnated FTX is likely to be very different from its previous incarnation – but from a US regulator standpoint, that would hardly be a bad thing – it would be one more instrument in their quest to reshape crypto into a form that complies with the status quo of supervision and regulation. But more importantly, it allows US money back into the crypto ecosystem – this time clean, proper, fully KYC-ed money that isn’t hiding in dark corners, and that’s nothing but positive for crypto in general. We would be one of the first to return.

Elsewhere in crypto, Ethereum’s big upgrade (Shanghai + Capella = Shapella), which enabled withdrawals of staked Ether, has come into effect, interestingly with none of the wild exodus of capital from the opening of withdrawals that was feared. With the overhang out of the way, Ether has managed to break out through $2k and seems to enjoying tailwinds from a weaker USD at the same time. On one hand, big withdrawals (especially from Kraken, whose Eth staking product was targeted and shut down by the SEC) have been queued up. On the other, the pace of withdrawals has been slowing, while new deposits have been accelerating.

What we’re reading

Climate change etc is very well known as a theme and major driver of policy at this point and most of the time the focus is on the West, especially the US – where Tesla has become synonymous with electric vehicles. But the real game is happening in China, which is by a long way the leader in global EV production. China, as we know, is especially good at creating incentives to create accelerated development in specific, targeted sectors. Electric Vehicle production by this measure is already a massive success. This piece, in the Daily Telegraph, of all places, sums it up very succinctly while also drawing attention to the secondary implications for oil if (when) China achieves its green objectives. Well worth a squizz this one.

I’m sure many are tired of reading about AI and the effects it will have on all of us but this take, called “AI’s Inhuman Advantage” by Paul Scharre on its military implications is excellent. War on the Rocks always produces good stuff, and this is no exception. It goes deeper into the obvious pros but also some cons. On the pro side, one example is how an AI fighter pilot beat a human one 15-0 in the AlphaDogfight competition.

“When an AI fighter pilot beat an experienced human pilot 15-0 in the Defense Advanced Research Projects Agency’s AlphaDogfight competition, it didn’t just fly better than the human. It fought differently. Heron Systems’ AI agent used forward-quarter gunshots, when the two aircraft were racing toward each other head-to-head, a shot that’s banned in pilot training because of the risk of a collision.”

There is also the example of strategy, and how the AI will do something that seems to make absolutely no sense to humans until much later on. This is similar to what I wrote about before when it came to Magnus Carlsen and his comments on AI in chess. This results from pattern recognition from the machine learning process that no human can recognise. Can you imagine the effects on things like drug discovery and even quantum physics?

On the cons side, it's very important what the AI is optimised for.

“One consistent weakness is that AI agents playing StarCraft II and Dota 2 appear to lean heavily on their advantages in small-unit tactics, perhaps to the detriment of long-term planning. AI systems in a diverse array of situations frequently fall victim to settling for suboptimal strategies if those strategies are easier to discover. Winning in simpler ways is easier, and the AI agents are playing to win.”

All round a great piece to read.

Finally, another account I follow on Twitter is Brent Donnelly, who amongst other things has a paper portfolio which he keeps tracking what he calls Magazine Cover Capital. He enters a position which is opposite to whatever the cover of The Economist or Time Magazine has to say. And its performance is pretty spectacular. Let us all say a moment’s silence for this week’s Economist cover titled “Riding high: The lessons of America’s astonishing economy”. DC

What we’re doing

An easter weekend trip to Istanbul with family came as a welcome change of scenery and tempo, and Istanbul never fails to remind one of how far back its history and culture goes. With much more time than a typical business trip to do more touristic things (including a Bosphorus boat tour, haggling for a hand-woven rug at the Bazaar, hunting for vintage vinyl records at Kadikoy and spending an entire day in the Topkapi palace museum), I’m reminded that if there was once place in the world that blends the west and east (at least, the “near east”) in terms of food, architecture and history, this is it. Yet the outward appearance that Istanbul portrays – of busy streets with people enjoying their Koftes fresh off the grill, going on their daily business and studies, nor with any shortage of luxury hotels overlooking the Bosphorus – belies a pretty harsh economic reality of runaway inflation and the policy missteps that have led to the status quo. A steady inflow of Russian and Middle Eastern wealth into certain areas like Bebek and Etiler has led to the cost of eating out in restaurants there making some of the top restaurants in London look cheap. But even outside of those more affluent areas (e.g. on the Asian side of Istanbul), prices are less expensive but by no means low. Inflation and the associated hardship that comes alongside is real. All that said, elections are coming in a month, and there is hope on the ground that things may change – albeit at the price of some near-term pain. As they say, they’ll first need to shut the gates of Hell before thinking of opening the gates of Heaven. EL

As I mentioned in last week’s newsletter and many of our readers living in London will have noticed, the past easter weekend was our first spot of warm weather this year in England – touted by the Met Office as the hottest April on record. With that in mind, I had my first round of golf for the year heading to Upminster in Essex to visit Cranham Golf Club. The 18-hole is incredibly flat and a relatively simple course with few trees and obstacles beyond the water features as you progress towards the later holes. Perhaps the most difficult and fun of which was the 18th itself in which the green sits on an island. In fact, the course was so flat and open I could have believed I was somewhere in Holland! It was a great course to get back into the golfing spirit, as was quite confidence inspiring when countless balls aren’t lost, and you can get round at good pace all whilst maintaining a good score. HS

What we’re watching

Over the last couple weeks my wife and I breezed through all three seasons of a show that never ever caught my attention until a friend mentioned it. Happy Valley is a proper British show. It’s set in Yorkshire and is not exactly the typical setting for a fast paced, police series. The main character is a grandmother police sergeant who has none of the characteristics of typical lead actresses. After the first few episodes it reminded me a bit of Breaking Bad in that not much seemed to be happening and then bang out of nowhere it got a bit crazy. In the end, you just want to give them all a big hug. Fantastic show.

I’ve struggled to find a show that is genuinely funny for a long time so this week I decided to do something I never ever do. Watch something again. I fired up a few old episodes of Curb Your Enthusiasm with Larry David. The two episodes, “The Christ Nail” and “The Anonymous Donor” are the best episodes I’ve ever seen. And after a few years hiatus it was even funnier than the first time. Like tears of laughter funny. If you have a dry sense of humour, give it a go. And if you know any shows that make you cry tears of laughter, please send them my way. DC

What we’re listening to

While I picked up a good collection of classical vinyls from the markets of Kadikoy, including a couple of Deutsche Grammophon recordings of Beethoven symphonies and string quartets, conspicuous by absence was a local contemporary of the great composers of the late Classical period – the Ottoman sultans themselves. As I learnt on my touristic adventures, the Ottoman sultans, including Selim III and his successors later down the line, the sultans Abdulmecid and Abdulaziz, were great composers and performers as well on their part. In fact, the great composer and performer Franz Liszt performed twice for the Sultan Abdulmecid in the Ciragan palace in 1847. It’s a reminder of how intertwined the Ottoman empire was with the cultures of the rest of Europe at the time – and naturally, I went looking on Spotify for some recordings. The Liszt piece, Grande Paraphrase de la marche de Donizetti, is another Franz Liszt special based on an existing theme of Giuseppe Donizetti Pasha, who was conductor of the Ottoman Royal Military Ensemble. And yes, if the name Donizetti sounds familiar, Giuseppe Donizetti is the brother of the composer Gaetano Donizetti, whose works like L’Elisir d’Amore, Anna Bolena, Lucrezia Borgia and Don Pasquale remain operatic masterpieces to this day.

As for the compositions of the sultans, those are a little more difficult to find, but not impossible: this album entitled Compositori alla corte ottomana (no apparent reason why the album is titled in Italian but why not?) is a good place to start. EL