Weekend Reading #222
This is the two-hundred-and-twenty-second weekly edition of our newsletter, Weekend Reading, sent out on Saturday 17th June 2023.
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What we’re thinking
It feels like the past few weeks have been on repeat. And that’s because they have. Another week another new market rally, another new Nvidia all time high and this week breath improved too. Brazil is rallying, China is rallying, pretty much everything is rallying. Even the pound. Are we in a bull market or bear market? Who cares. As market participants throw caution to the wind, there are a number of things stacking up now that make us a little more sanguine. Liquidity drain is resuming, after being interrupted by the regional banking drama. The Fed is not done hiking just yet given inflation is not coming all the way down and the economy as judged by the data is still much stronger than anyone would have dreamed. As we have written before, when it comes to interest rates it is no longer about how high they can go but rather how long they can stay around these levels. The Fed is clear they will aim to hold them high for some time. Does the market believe them? The inevitable recession ironically may come just as euphoric markets decide that the economy has avoided one. Friday (yesterday) was also a large options expiry which could reset the gamma decks too. With markets so strong, the risk reward balance has shifted. Right now, momentum is driving markets and we wouldn’t advise betting against them. Are all time highs next? Sure feels like it. But it's worth having a plan for what happens if these factors we mention above begin to influence hearts and minds in the market.
What we’re doing
This week we’ve once again had our team scattered all over the place; I’ve been in Hong Kong once again and Singapore, Eugene is in Indonesia, and David is back in London.
Having arrived in HK just a couple of days ago, this short visit has been packed full of meetings and catch-ups with friends old and new and hasn’t left much space in between for exploring the city. Although that being said, on Wednesday morning when I had a gap in my schedule and managed to visit a local gallery. The Blue Lotus is nestled in a quiet street in Sheung Wan on Hong Kong Island and is great as it specialises in local street photography. The gallery represents just a small number of photographers who are a mix of more famous ones like Fan Ho to some more up and coming ones. I picked up this limited print from Michael Kistler (randomly managing to score edition number 8 of 10 - with such a number heavily associated with wealth and prosperity in Chinese). Originally from Minneapolis in the US, Kistler has been living in HK since 2014 and prior to that was in Tokyo for nearly a decade. But in recent years he’s become regarded as one of the biggest talents in the HK street photography scene through his clever use of reflections and camera exposures to create something a little different from the rest. Interestingly, he’s going to be in Singapore next week when I’m back, so I’ll be meeting him in person to collect my piece.
I was kindly invited for dinner and some drinks at The Foreign Correspondents’ Club in Hong Kong which was absolutely fantastic and well worth a visit if you can find someone to get you in. In fact, it’s been regarded as the most famous press club in the world, frequented by some of the world’s best journalists as a crucial base for covering the Vietnam war in 1960’s and Asia correspondents during China’s Mao Zedong era. As you walk in, it feels as though you’ve been transported to an era decades before and it only takes a couple of seconds to see some news editor quietly tucked away in the corner with a stack of scribbled notes as they prepare for the next morning’s print. The walls of the club are full of old newspaper clippings and photography that you could really spend some time walking around examining. The food was also an interesting change from my usual diet in Asia, with us tucking into some classic English Indian food: Chicken Tikka Masala and a Garlic Naan. Washed down with a few pints of local craft beer and some wine, it was a thoroughly enjoyable night! HS
What we’re reading
In a pretty sensational turn of events, Blackrock announced this week they would be applying for the launch of a Bitcoin ETF. Some are debating the technicalities around whether it’s a trust or an actual ETF but this is clearly not the point. We have argued for some time that the US authorities will burn crypto down and build it up again in a way that can be monitored by “the eye of Sauron” as Ben Hunt puts it. It is quite clear to us now that this is happening. Many attempts to launch a Bitcoin ETF by more crypto native providers have been shut down and I fully expect Blackrock’s application to be accepted. The most interesting part of the application is the custodian of the Bitcoin is intended to be none other than Coinbase, currently the subject of attention by the SEC. What’s clear to date is that the SEC doesn’t consider Bitcoin to be a “security” and as such there is no reason why Coinbase cannot be a provider. Should this be approved, it would be bullish for Bitcoin I suppose but most importantly it would possibly be bearish for current centralised exchanges, for whom Bitcoin is a massive proportion of the volumes.
I have no idea who Nate Geraci is as he just popped up on my Twitter feed as is often the case but this little collage and his comment are spot on. In markets we can intellectualise as much as we like but in the end the market has its own consciousness. A good lesson never to listen to anyone else (including us!) when it comes to grand predictions. That’s why it's so important to know when to cut your losses. It's not glamourous and it's not easy but it works. Predictions don’t make money, process does.
Meanwhile Intel just announced it is making the largest greenfield investment in Polish history. The facility in Wroclaw will be ready in 2027.
“While workers at Intel's factories in Germany and in Ireland will produce "wafers," which serve as the base of a microchip, the new Polish plant will cut those wafers into individual chips and assemble and test them before they're shipped off to customers.
Big news for Poland and further evidence of the engineering and manufacturing talent available in the country. It’s also evidence of the strength of the relationship between the US and the Polish in light of the war in the Ukraine. I wouldn’t be surprised if Poland blooms into a larger chipmaking centre. DC
What we’re watching
I linked to an article a few weeks back about Robert Kennedy Junior and his presidential candidacy in the Democratic Party primaries. He has subsequently gained in momentum. His view from the start was that this election will be decided by podcasts, given the extended reach that many “influencers” enjoy relative to traditional television. He also believes long form conversations showcase his ability to drill down into detail on many issues as opposed to the “soundbites” that the traditional media formats require from politicians. Quite honestly, he has been everywhere. Maybe again it's just my tailored feed but this guy is out there on a different podcast every single day. I caught him chatting to Glen Greenwald in this interview full of info. It’s worth a watch/listen. Incidentally given RFK’s comments on the importance of podcasts I’d been waiting for him to appear on Joe Rogan. As I finished writing this one, the Joe Rogan episode popped up. It’s always a longer one and I’ll get to it over the next few days but we know Rogan’s reach and it could be a big one. I have no certain view yet at this stage. Many people I respect still don’t take his candidacy seriously and consider him to be a sideshow but for me his momentum is fascinating in an environment where the US is crying out for something a bit different. His anti-vax approach which long predates the covid vaccines also puts him in an interesting place in voters’ minds. One just never knows.
I’ve recently been trying to watch a movie rather than getting attached to watching a series as it doesn’t require so much investment of time and attention. 2 hours or so usually and it’s done start to finish. So, I have a long list of films to watch which I hardly ever get round to but as the summer light dwindled one evening this week I switched on The Gentleman - a Guy Ritchie film and one of the few I haven’t watched for some reason. It’s more of the same from Ritchie which is exactly what I wanted. Not quite as edgy as Snatch or Lock Stock but still full of the usual wit and fun. Matthew McConaughey is the star but it’s the others that make is cool. Charlie Hunnam is brilliant plus cameos from Colin Farrell and especially Hugh Grant of all people make this movie. There’s also a role for Jeremy Strong of Succession fame, where he plays an American drug “investor”. Apparently, Ritchie is making a spinoff series soon with Netflix which should also be fun. DC
What we’re listening to
Meb Faber had an accomplished guest this week in the form of Dan Niles, PM of the Sartori Fund. He is a long short guy, mainly tech focused but by the sounds of it quite similar to us in terms of fund objectives. Note: I have no idea of performance but the fund has been around nearly 20 years. His views are interesting, talking of how he sees recession ahead of us and what it means for the likes of Google in particular. The last time we had a full recession, Google wasn’t a mature business like it is now. He believes Google will take a big hit as advertising budgets collapse. He also talks of commercial property, rates etc and how he is bearish for the remainder of the year on the market, comparing it to the dot.com bubble in 2000. Worth a listen. DC