Weekend Reading #214

This is the two-hundred-and-fourteenth weekly edition of our newsletter, Weekend Reading, sent out on Saturday 22nd April 2023.

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What we’re thinking

As the debate rages on between the competing theories of “growth is strong so rates are higher for longer” vs “a recession is coming”, we find ourselves in an options expiration week that once again is just enormous. April isn’t your typical big quarterly expiry month (still $2.9tn of notional expiring for a “not big” month), but the usual mechanics apply, and the price action that we’re seeing, at least in the past few days, certainly looks like it’s been magnetised. It’s not always the case that the internal workings of the market mechanically have outsized influence on price movements, but the combination of lack of visible conviction, a good run, a recent reversal of CTA flows and positioning (a rather dramatic and quick reversal at that) conspire to set things up in a rather precarious manner.

At the back of our heads remains the Stan Druckenmiller quote:

The major thing we look at is liquidity, meaning as a combination of an economic overview. Contrary to what a lot of the financial press has stated, looking at the great bull markets of this century, the best environment for stocks is a very dull, slow economy that the Federal Reserve is trying to get going. Once an economy reaches a certain level of acceleration, the Fed is no longer with you. The Fed, instead of trying to get the economy moving, reverts to acting like the central bankers they are and starts worrying about inflation and things getting too hot. So, it tries to cool things off, shrinking liquidity. The corporations start having to build inventory, which again takes money out of the financial assets. Finally, if things get really heated, companies start engaging in capital spending. All three of these things, tend to shrink the overall money available for investing in stocks and stock prices go down.

Ultimately, it’s a reminder that it’s liquidity that counts, especially for instruments that are closest to the “surface” of where liquidity has its largest influence. Can there be idiosyncratic detractors from the larger trends? Definitely, but it’ll take some digging to find them, most likely. There’s always a bull (and bear) market somewhere – sometimes it’s just not so obvious.

What we’re reading

Do some people know they are going to die? According to Christopher Kerr, a physician who has researched end-of-life experiences, the answer may be yes. This article by Paul Lauritzen whose wife passed away from ovarian cancer, delves into Kerr’s experiences and his findings. Kerr’s curiosity was piqued when he found that end-of-life dreams, in which a person reports dreams of interacting with departed loved ones shortly before death, are more common than we think.

“In his studies, Kerr found that close to 90 percent of patients report having at least one dream or vision that could be classified as an end-of-life experience. These dreams are distinguished from regular dreams by being especially vivid. When asked to rate the degree of realism of such dreams, most rate them ten out of ten—the highest degree of realism. Patients often report that they are “more real than real.” They occur both during periods of sleep and periods of wakefulness, and they are easily distinguished from hallucinations or bouts of delirium.”

There are no definitive answers with these things and it's easy to be sceptical, but for me it just makes we wonder even more about what we think reality is and what it really is.

What we’re doing

What we’re watching

Nvidia’s share price performance has been spectacular as we have written about before and from a fundamental value perspective is perplexing to that school of investors. So much so that someone created a deep fake of CEO, Jenson Huang talking about the stock price and the shortsellers. Wait for the end and the proper coup de grace. Little bit of fun in a supposedly serious debate!

Perhaps one of the weirdest films I’ve ever seen was one I watched this week called “Everything everywhere all at once”. It came out earlier this year and notably won plenty of awards including dominating this year’s Oscar Awards for its predominantly Asian cast and interesting storytelling and animation. As an avid sci-fi fan, I usually enjoy films themed around the multi-verse and this certainly was a unique take on the theory. Starring Michelle Yeoh (the now go-to actress for big picture releases featuring an Asian mother character, think Crazy Rich Asians or Shang-Chi Legend of the ten rings) as a middle aged Asian American dry-cleaner owner who is struggling to get by before she and various versions of her family are transported across a swathe of different versions of their own existence (at times to great comedic effect). It’s very whacky, but certainly something worth watching. HS

What we’re listening to

Amidst all the commentary popping up about AI, I came across a new podcast episode from someone that had been radio silent for a long time: the After On podcast by Rob Reid. It had slipped my mind that the podcast itself was named after Reid’s novel published in 2017, in which he discusses AI, not so much in the form of “they’re going to kill us all” but in much more nuance on aspects including privacy and ethics. This podcast episode isn’t one of his super-detailed long podcasts (quality over quantity, for sure), and is essentially him narrating and discussing an article that he put out in Ars Technica entitled “Don’t worry about AI breaking out of its box – worry about us breaking in.”, with a reference to his novel at the end. Amidst all the fear about AI triggering a species wipeout, perhaps it is true that the more pertinent worry should be that of malicious human actors, powered by a competence with AI relative to everyone else, wielding a weapon that in an online world will eventually be able to pass off as human, evoking human emotions and pushing our buttons better than any real human can. When even a non-Turing test passing AI (like Replika, which he mentions in his article) can evoke the emotions it already has, imagine what the power of tireless, unending recursive learning (the same way AutoGPT spawns more GPT instances to recursively complete tasks) can do. It’s definitely still the humans we need to worry about for now.