Weekend Reading #212
This is the two-hundred-and-twelth weekly edition of our newsletter, Weekend Reading, sent out on Saturday 8th April 2023.
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What we’re thinking
As far as markets go, having a major data release (Non-farm payrolls) drop on a day when markets are closed in the US and most of Europe (Good Friday) and seeing those numbers come bang in line with consensus is probably the best Friday anyone could ask for, especially given the way the year has played out so far. Certainly, the opportunity to have a couple of days of relative calm is extremely welcome.
That said, it is clear that where the market narrative is concerned, we are being cornered into a rather precarious position. Whereas over the past year it was a case of swinging from “bad is good” because recession = rate cuts to “bad is bad” because “hard landing” from all the rate hikes, the state of the market narrative right now – at least to us – seems to be one of toeing a VERY fine line. Rates markets are pricing 84bps of cuts on average before the FOMC meeting on 31 Jan 2024 (h/t John Flood at GS), taking the “recession is coming” view, but the equities market is as afraid of a recession and subsequent “hard landing” as it is of no recession and higher terminal rates.
Put differently, the only place that is a good place is the stand-still position of “right here” - “heads I win, tails you lose” leaves only one option, which is not to flip the coin.
Some segments of the market are pricing up the recession trade as we speak – miners like Freeport and Alcoa are selling off as growth fears dominate, while Gold is pushing highs again, typically good news for no one but gold bugs who permanently hold the view that the world is going to end.
To that end, today’s jobs number is the “don’t flip the coin” outcome needed to extend the current game: not too hot to spur inflation fears, not too cold to spur recession fears, bang in line with consensus so it’s “priced in” aka nothing to do.
Next stop: US CPI on Tuesday, FOMC minutes on Wednesday.
In the meantime, Happy Easter, Chag Sameach for Passover and for everyone else, Happy long weekend until the next surprise from our beloved market.
What we’re reading
This blogpost from Tomas Pueyo’s substack, Unchartered Territories, is awesome. Given the AI frenzy we are in the midst of, the title of the post “Infinite Intelligence Solves Most Problems”, hits the spot. And it’s a great piece. It’s a preview of a paid subscription piece (I’m not a paying member) but it gives you a good feel for the point, which is that every single advancement in human history can be boiled down to energy, raw materials and intelligence. And intelligence allows us to access cheaper and more abundant energy and raw materials as we evolve. His teaser is that exponential self-improving AI, once we reach it will lead to abundance the likes of which we can’t even imagine. The only question then I guess, as discussed in recent week in this newsletter is “can we achieve this is a way that doesn’t place our being into jeopardy?” But this piece is an exercise in blue sky thinking and its proper tantalising.
Who said that plants don’t have feelings? Well, that’s not quite true (as far as we know) but this study, which used machine learning concluded that plants make sounds. They recorded the sounds and studied them while comparing to the plants themselves. They studied tomato and tobacco plants and found that both emit sounds which correspond to their underlying states of stress. This applies for example when they are injured or dehydrated. This brings in question whether the plants are “screaming” or if they are in pain. Could plants be conscious? A whole new set of variables to consider if you are a vegetarian! DC
As much as we’d like to think that the “establishment” is in cahoots with the regulators, Citadel Securities this week just released a letter in response to the SEC’s proposals to restructure the US equities market in response to negative press around payment for order flow, market makers and the alleged exploitation of retail traders which expresses quite the opposite. In its response to the SEC, Citadel starts the letter with a sentence that calls the SEC’s proposals “a dangerous, baseless experiment”. They go on to call the SEC’s actions “reckless experimentation” which would be detrimental to all and brands the overall plan “the definition of arbitrary and capricious action” and “a series of ill-conceived, half-baked proposals”. The full letter is here for anyone who feels like engaging in some pretty brutal regulator bashing.
On a different note, now that we’ve more or less received regulatory clarity that Bitcoin is a commodity, just like gold or silver, and also on the basis that trading in collectible jewellery (e.g. Faberge eggs, hand-crafted artefacts made of gold or silver etc) isn’t securities trading, it’s interesting to revisit the idea of Ordinals and what they actually are. They emerged a couple of months ago as an interesting development on the Bitcoin blockchain, and with 4mb of blockspace you could essentially “etch” data permanently onto individual sats (100m satoshis per bitcoin), rendering them – to some extent – non-fungible. This thread is quite a useful explainer, covering pretty much the essentials of the Bitcoin ecosystem, including a contrast between NFTs on the likes of Stacks that are built on Bitcoin, which we wrote about a while ago here. EL
What we’re doing
Since moving to a new flat a few months back, it’s been terrible weather in London with the winter in full swing. Although now as we start to experience our first couple of warm days, I decided to buy a barbecue in order to make the most of the long bank holiday weekend. It took some effort to carry it on the tube all the way from Camden to my flat in Maida Vale, and to work out how to assemble it. But this Friday with some time-off I got around to doing it and over the weekend I’ll be barbecuing plenty. My friends in other warmer parts of the world have laughed that it’s still considerably colder than where they are in winter, but as a Brit, it’s straight into shorts and t-shirt and sticking steaks on the grill. HS
What we’re watching
It’s perhaps a bit old now having released in late January, but this week I watched the Nelk episode on YouTube where the Full Send team visited Russia to visit former UFC lightweight champion Khabib and train with him at his mountain compound as well as the legendary Hasbulla later on in the video. It’s incredible to see the seriousness such fighters have when it comes to training and the sheer size of the team behind him. It was also interesting to see the reaction that the American & Canadian team behind Nelk Boys/Full Send had in entering Russia at this time, given the war raging on and very few international visitors, not to mention Americans visiting at the time. As a group, they have been very successful when it comes to business with the growth of their channel and the various content they put out, as well as the success they’ve had in launching their alcoholic seltzer brand, Happy Dad which is growing to rival White Claw in the US. HS
What we’re listening to
I listened to probably the best interview I’ve heard in years this week. It was on the Honestly podcast and was with Rick Rubin, the legendary music producer. In it he detailed his process for how he works with artists and a bit of his history. He has a unique and interesting voice, and his advice is simple and clear. It drove straight to the heart of any creative process, whether it’s making music or being a fund manager (also a highly creative process in my view). Be you, do what you do best, trust yourself and don’t pander to what you think your audience may want. We have embraced those principles from day one here at Three Body Capital and so far, so good! With respect to fund management, as with music, everyone has a different personality, and you have to do things in such a way that is consistent with your personality. Your process and your preferences will come from that. Learn to listen to yourself and pay heed to the signals you get. Its far more useful and rewarding than any external validation. Anyway, enough philosophizing, just give it a listen and apply it. DC