Weekend Reading #217

This is the two-hundred-and-seventeenth weekly edition of our newsletter, Weekend Reading, sent out on Saturday 13th May 2023.

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

*****

What we’re thinking

This weekend is all about Turkey. The much-anticipated election is here. The end of Erdogan? Pollsters and political experts alike are all convinced that the opposition alliance will win comfortably. This would present an enormous opportunity for a market that has been shunned by foreign investors for years and is now no more than a small decimal of the emerging markets index and even less in investors’ mind space. On the surface it seems this will be the case. Political commentator, Attila Yesilada, can’t see it any other way. His 2am Youtube channel updates are usually something to behold. His latest was all about the polls and the various scenarios including the potential “stealing” of the election. He dismisses these concerns and lays out his reasoning. My view is that Erdogan will do whatever he can to win. Whether he succeeds or not, it won’t be for lack of trying. There is scope for disruption. Here is a man who genuinely believes he is the best man for his own job and remember that in October 2023 it is the 100th anniversary of the Turkish Republic founded by Mustafa Kemal Ataturk. Erdogan has had this date in mind for many years to celebrate his own impact on the nation alongside the venerated father of the nation, Ataturk. The ultimate irony will be if that date comes to pass with somebody else at the helm leading the celebrations. I don’t know what will happen this weekend and only hope it goes smoothly. On behalf of all of us, we wish all our Turkish friends the very best. A beautiful country with incredible potential. Hopefully it can be unleashed soon.

Speaking of beautiful countries with incredible potential, this week in South Africa saw more chaos as result of the continuously spiralling power situation and then to cap it all off, the US Ambassador accused South Africa of giving weapons to Russia. Even more bizarrely the spin from the presidency is that he didn’t even know about it! I actually linked to an article at the time in question when the US ambassador alleges weapons were loaded onto a Russian vessel in Simonstown. I didn’t think it would be this bad! It is just too shocking for words how bad decisions and bad management compound on each other. The Rand has collapsed to an all-time low on the back of this and for me, ominously, it reminds me of the path Turkey fell into when its currency fell 10-fold over the past decade. Of course, I don’t expect the Rand to fall 10 times. South Africa, for all its political problems still has a sound, orthodox fiscal and monetary policy but it's not difficult to see a path for that to unwind under the pressures that the next years may bring. I am not a South Africa bear like many who left the country, but it's getting harder and harder to be optimistic. DC

What we’re doing

Eugene and I have been in Hong Kong this week where we’ve been busy meeting with clients, brokers as well as attending the Annual FIX conference for the APAC region. As part of the conference, we were invited to join several closed-door sessions alongside some of the biggest names in fund management globally. Despite our size, we found ourselves in good company amongst this exclusive group of some of the largest investment managers in the world, many of them manging more than $500bn AUM, which made for an interesting discussion and of course more new readers to our growing newsletter. HS

It’s always interesting to try and look at how cities change over time, and especially for Hong Kong given the last time I was here was almost 7 years ago, with no shortage of action during that time – not to mention a pandemic and some pretty serious lockdowns and restrictions. The conclusion? Things do seem a little bit more subdued compared to the busyness that characterised pre-pandemic HK. Did the people and the city mellow over time? To be sure, it’s much easier to get around without speaking Cantonese than before: fewer evil stares and more appreciative looks for just trying, even with bad pronunciation. There’s more mandarin being spoken all around, although to get the real local deal, Cantonese is still essential. The trauma of getting told off when visiting the Australian Dairy Company near Jordan is still very real, so will pass on that even if the steamed milk is supposedly the best in HK. Elsewhere, the food is still good, and certainly more diverse now in cuisine. On the whole, friends I’ve met here say things are getting better after the strict lockdowns. At least the direction of travel is promising. EL

What we’re reading

On the topic of the Turkish elections, this article from Hugh Pope is well worth a read. He is the author of one of the best books I’ve read on Turkey many years ago called Turkey Unveiled: A History of Modern Turkey. The article’s tone is just like the book with stories from rural Turkey mixed amongst the hopes and dreams of the urban elite. Rather than try predicting the outcome from the election he delves into people’s lives, albeit briefly to bring some commentary from a small agricultural town and highlight the issues that its inhabitants concern themselves with.

Arthur Hayes is always entertaining and he’s pretty smart too. In his recent blogpost entitled “The Denominator” he expresses his view that there are multiple paths to the same end-result – more money printing. His base assumption is that the Fed will not let the banking system die and when faced with a choice, they will relent and let inflation run while saving the system. It’s one side of the argument for sure, but the question remains. When they ultimately do relent (no idea when that is so don’t ask me) does everyone realise that everyone realises that there is a fire? We have seen some signs of that this week with jobs claims spiking and creating an initial selloff in so called “recessionary” themes. Time will tell but it does seem like a case of when rather than if. DC

What we’re watching

This week saw the occurrence of the annual Sohn Conference, where the biggest and the best talk about investment themes and markets. I watched a trio of interviews, each of which was top class. First up was Stan Druckenmiller, who seems to be doing his annual media stint after a couple of speeches recently. This one was more focused on current themes and outlook and centred around his view that the US is in deep trouble as result of its debt burden and its deficits, culminating in a weak dollar view looking ahead. There is so much more in here especially in the nitty gritty of how unless there are dramatic spending cuts with respect to entitlements, the so-called shit is going to hit the fan in the coming decade(s).

Next up is Patrick Collison, founder and CEO of Stripe, who interviewed Sam Altman of OpenAI. This was a really cool chat mostly about AI but also about tech in general. The one observation that got me thinking was Collison’s question to Altman asking about the lack of 20-something tech founders forging a new path. In generations gone by there was Gates in his 20s, then Zuckerberg in his 20s but for some reason today in his view there is a dearth of 20-something founders leading in the tech space. Altman didn’t seem to know the answer. It was however noticeable that this doesn't bode well for America. An ominous warning? Who knows. Plenty of other good stuff in there too.

Finally Patrick O’Shaughnessy interviewed Karen Karniol-Tambour, who at 37 years old is the new co-CIO at Bridgewater. She has an interesting background too – an Israeli who studied in America under the great Daniel Kahneman as her senior thesis advisor. She has risen rapidly through the ranks at Bridgewater and she has some interesting views. One of her views which echoes with ours, is that the US attracted a disproportionate amount of capital from the world since 2009 and now there is every reason to think that reverses to a large degree with traditional emerging markets as one of the possible beneficiaries. DC

What we’re listening to

Whilst in Hong Kong, I was kindly invited to attend the concert of Jay Chou, a Taiwanese singer who is often regarded as one of the most popular artists of all time within Asia. Surprisingly, I had never come across him, but nevertheless the concert was quite enjoyable and taking place on the Waterside Plaza around Central, it was great to finally have a chance to see the iconic skyline of Hong Kong at night. HS

I stumbled onto Jay Chou a few years ago courtesy of my Chinese teacher and listened to some of his tracks. Here is my favourite track (it’s a bit odd but it's cool!) - 以父之名 or In The Name of Father. When I first listened, I just liked the melody and the beat but had no idea what the lyrics were. I think its best listened to with that in mind!

Every now and then I watch Ran Neuner’s crypto show, Crypto Banter, which is good fun and an excellent way to keep on top whatever “narrative” is running through the crypto world. The show is usually sensationalistic to the nth degree but somehow and I have no idea how, he managed to attract Hugh Hendry onto the show on Friday. It was a superb show! Neuner asks the questions that any crypto “bro” would want answered and in fairness to Hendry who is not well known for his patience, he answers with aplomb explaining the basics of “de-dollarisation” and how it’s just another meme as well as some actual mechanics of QE and QT and how the Fed has got itself into this pickle. I highly recommend this. Hendry was an accomplished hedge fund manager who went rogue and now has a podcast called the Acid Capitalist which I’ve linked to before. This was proper fun and with some amazing insights explained slowly and deliberately. No doubt who was in charge here.

One more from me - an interview with Macklemore, whose real name is Benjamin Haggerty, with Steven Barlett. Bartlett can talk a bit too much as a pod host, but he gets incredible guests. This pod covered Macklemore’s struggles with addiction and his path to redemption as well obviously as lots on his music and the rest of his personal story. A new album out recently also from him this year called BEN is also great listening. It’s a bit different to his previous ones. It has a bit of everything in it and there is little common theme to the tracks. There is pop and there is heavy rap with all sorts in between. Maybe I’m just aware because I listened to the podcast, but the album is representative of him. He is a patchwork of his own troubles and a bit all over the place. It sounds like he relapsed in the middle of making it. But that’s cool, because it feels real. That’s probably why he called it Ben. Here’s my favourite track called LOST/SUN COMES UP – cool tune with great lyrics (a lost art?) DC