Weekend Reading #226

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

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What we’re thinking

Another huge week on the markets and it does feel like we are getting to blow off top territory. The vertical move in Nvidia and the like seems to be in full swing. Where does it top? No idea. Our feeling is that this is the last leg and is being driven by FOMO, whether it be institutions who sat and watched for a while or retail who tends to join once the party is in full swing. We remain long until such time as we see definitive signs of a top in the price action. As we know well by now, our predictions are not really correlated to performance. But our broad framework is that the summer will be a good one in the absence of any major changes.

This thread from @Paulomacro offers a bit of perspective on how blow-off tops can play out, drawing from the internet bubble at the turn of the century. It’s worth a read to put things in context, especially his example of Juniper Networks (JNPR) and his comment that “Yes, AI will make us more efficient. So did the internet. No, none of these hockeysticks will be more than a shadow of their former selves in 20 years. And you will be able to trot out a history lesson then too.” Take a look at the chart of JNPR back then vs now. Question is: where on that cycle chart are we?

What we’re reading

This clipping from The Ticker magazine in 1907 is written by Dickson Watts in 1880. It reminds us that however smart we think we are, not much changes in terms of human behaviour. This was a pleasure to read and further indication that the market is the net sum of the collective imagination of its participants. Turns out he was the President of the New York Cotton Exchange at the time and he also wrote a book called “Speculation as a Fine Art and Thoughts on Life”. Looks like fun.

This awesome thread from George Mack, shows what he thinks are critically important trends that have been ignored by the media. All these charts are interesting but a few really stick out for me. Chart 2 on the rise of negative media dovetails excellently with what Ben Hunt and his colleagues are building at Epsilon Theory. Their project, called The Fiat News Dashboard, uses natural language processing to build indices of opinion vs fact news. It is even itemised per publication. Each one is compared to its own past as well as the broader group. It is a fantastic idea from a fantastic group of people. Chart 4 shows the scale of the pharmaceutical industry’s marketing and its impact on the major US news networks. Chart 14 is about the declining levels of friendship according to survey respondents. It’s grim. Lots more in here too.

Bruno Macaes, wrote an excellent piece in Time Magazine of all places about Palantir Technologies and how they are reshaping the battlefield in Ukraine. He was invited to Palantir’s offices in London to see the technology in action. His comment? “I have not been able to stop thinking about the experience ever since”. Palantir has often been accused of being a bit of a black box by investors. But this is for good reason. The algorithms they have built are already changing the way war is happening. The article goes into some detail about war scenarios and gives an illustration of how important the tech is. Macaes imagines a not-too-distant future where algorithms battle each other and a battle or war may even end before it begins as the superior algorithm demonstrates its superiority first, removing the need for an actual battle. The stock price has also been pretty perky. We have been long for some time this year as we thought the market would eventually decide to treat it as an AI play. After the 2Q results, this has materialised. It is most certainly a company which influences national security, so I wouldn’t expect the black box to become too much clearer anytime soon.

I really enjoyed this blogpost from a fellow named Nat Eliason titled “Proof You Can Do Hard Things”. It’s the antidote to many of the questions we face not only for ourselves but also as parents. Why do kids have to learn a lot of the seemingly pointless things they do at school? Some of them are actually pointless, the result of a system that no longer is optimal. That is granted. This year we grappled with the insane amount of homework my 9-year-old daughter received every day. Our view is it is completely unnecessary to expect such a small child to do so much daily and take away time from play and creativity. Most of it is repetitive and really unstimulating. This blogpost is a possible counterpoint to our view. Eliason’s view is that the more hard things people (and kids) do, the more they believe they can do more hard things. It doesn’t necessarily matter what that thing is in so much as it builds confidence and belief about doing more hard things in future. I guess it’s the same reason why companies like graduates with tertiary qualifications. It’s not the actual things they learn but rather that they have shown they have the gumption needed to progress. This is a great read. And a good answer to give to your kid next time they ask you the very good questions about something that may seem a bit pointless.

Many years ago, I read a book by a behavioural psychologist named Dan Ariely. His book was entitled “The Honest Truth About Dishonesty”. The gist of it was that we are all dishonest when left to our own devices as we just can’t help ourselves. In the book, Ariely refers to a number of studies to get to his conclusions. My takeaway was that we all need checks and balances on ourselves to make sure we do what we intend to and not what we default to. So, this week imagine my surprise to see an article titled “Fraudulent data raise questions about superstar honesty researcher”.

“But some researchers are calling Ariely’s large body of work into question after a 17 August blog post revealed that fabricated data underlie part of a high-profile 2012 paper about dishonesty that he co-wrote. None of the five study authors disputes that fabrication occurred, but Ariely’s colleagues have washed their hands of responsibility for it. Ariely acknowledges that only he had handled the earliest known version of the data file, which contained the fabrications.”

Ariely says the data was collected by an insurance company, but he doesn’t have the records anymore (in fairness its 11 years later). The irony of this story, even if it turns out he is innocent was just too good to resist. DC

As far as changes in narratives go, the about-turn in the narratives spun around Bitcoin is perhaps the most blatant. Remember all the stories about how Bitcoin was either: 1. a tool for money launderers, arms dealers, drug traffickers and all other forms of egregious criminality; or 2. a bane to the environment because of the energy drain of Bitcoin miners, an absolute waste of electricity and a huge contributor to global warming, using more electricity than some small countries? Well not anymore. In what is now being termed the “Blackrock effect”, the revision and rewriting of “facts” around Bitcoin has begun. This thread lays out some of the examples: Bitcoin now benefits power grids and mitigates carbon emissions, a testament to green energy and sustainability, a net reduction of emissions and – according to Forbes – no longer the remit of terrorists and North Korean hackers.

Amazing how a few SEC filings by the big boys in the room can rewrite reality.

On the topic of filings, this court document released this week with a summary judgement on the ongoing case between the SEC and Ripple definitely got the juices flowing in crypto world. The biggest question on everyone’s minds in crypto has always been: “is [this token that I’m looking at] a security?”. Interestingly, based on this court judgement, it appears that the courts are ruling that while something can be sold as a security in some cases (in this case, XRP sold to institutional buyers), it doesn’t in itself necessarily exist as a security (XRP token) nor does it automatically imply it is sold as a security in all other cases (I.e. the ones sold programmatically to retail investors are NOT a security). There’s certainly a lot of nuance involved and we’re not legal professionals, but the market has definitely taken this very positively and printed a good handful of green candles.

On a different note, I spotted this headline around 2 large, rare, bad smelling flowers blooming in California. The first thought I had was that it was interesting that the Rafflesia (aka “stinking corpse lily”) would grow in California given it’s native to southeast Asia, but as it turns out, the Rafflesia isn’t the only bad smelling big plant in the world. The flower in question was actually a Titan Arum, which looks nothing like the Rafflesia but based on the description smells probably as bad. To be fair, it’s does seem like quite a nice-looking flower with impressive size, though we probably won’t be going out of our way to check it out. For anyone in London, there’s at least one Rafflesia in Kew Gardens if you fancy a whiff of “stinking corpse”. EL

What we’re listening to

Lex Fridman interviewed Benjamin Netanyahu, in an unusually short conversation (only 1 hour 10 mins). I’ve gone a bit off Lex recently as I felt he is a bit soft when it comes to his questions but to be fair in this one he pulls no punches. Everything was on the table – the protests in Israel, concerns about dictatorship (I don’t share those), Netanyahu’s corruption cases as well as really important questions on democracy, existential risk and even an opinion (he was expertly put in his place) on why Netanyahu doesn’t use his influence to bring Zelensky and Putin to a negotiating table. This is an excellent interview. Netanyahu is most certainly an excellent orator and conversationalist. And for a chap in his 6th term as Prime Minister (non-contiguous), as he points out, even if the media don’t like him, the people of his country voted him into power yet again. DC