Weekend Reading #228

This is the two-hundred-and-twenty-eighth weekly edition of our newsletter, Weekend Reading, sent out on Saturday 27th July 2023.

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What we’re thinking

When does the party in the markets end? Over the past weeks, the Dow just managed to match its previous record of 13 straight up days in a row, with the only other time happening in 1987. It didn’t break it, however, thanks to an article hitting the tapes on Thursday evening that the BoJ was considering a tad less control of its yield curve which seemed to deliver some cold water to the rising exuberance of the party.

To be fair, it’s far from the abandonment of Yield curve control for which many are on the lookout. Yet, creating allowance for the JP 10y yield to float above 0.5% to a hard stop of 1% is nonetheless a big thing, as the reaction in the long end of the US treasury yield curve yesterday suggested. Whether this is interpreted as hawkish enough to spoil the party remains to be seen, but certainly for the final source of easing in the world, and one of the largest buyers of US Treasuries (and hence one of the largest drivers of global liquidity), to signal a potential change in stance, it would be unwise to brush it off as trivial.

We’re no experts in fixed income and are certainly in no position to analyse the intricacies of what this change in stance means beyond the obvious macro implications, but as our favourite Cloudbear @PauloMacro on Twitter highlights: US 10yr treasuries swapped and hedged into JPY yields 5bps vs potentially 1% for 10yr JGBs owned directly.

This summary of the policy change also proved very useful in putting things into context.

We also had a week of results from some huge hitters in the software space this week: MSFT, GOOGL and META. As far as the market is concerned, those numbers went down pretty well on balance (slight wobble with Microsoft), assuring everyone that at least for now, the AI game is still the flavour of the day.

In other news, Twitter has been rebranded to X – and this thread gives a good refresher (and explainer) for Elon’s obsession with the very idea of X.com. Short story: it dates back a LONG time. And as much as his dogged determination can be either admired or scorned, one thing remains – Twitter's still going to be referred to as Twitter, the posts are still tweets not Xeets, and they’re going to have to brand REALLY hard for any of that to change.

Or wait for an entire generation to die off and forget that blue bird.

Meanwhile, another bird is laying claim to the alpha spot:

What we’re doing.

I’ve been away the past week or so with the family in Tenerife for a break from yet another wretched UK summer. Tenerife gets a bad rep here in the UK as a somewhat mass-market UK tourist destination. Tenerife tends to be a place people here travel to in the UK winter as the weather is consistently warm and it's only a 4 hour flight. In summer, many travel to more illustrious destinations – Greece, Italy, Spain and this summer’s new hotspot, Croatia, but to be honest Tenerife was great. We went to the quieter side of the island and stayed right next to a banana plantation. Black sand beaches were a bit of an odd experience but still a beautiful promenade and lots of swimming and eating. Give the kids a pool and ice cream and it's their new favourite holiday destination. It’s a bit weird when technically you are in Spain but in reality, the closest geographical city is that of Laayoune in Western Sahara. Western Sahara is a disputed territory on the African West coast bordering Morocco, which claims it as part of its territory and runs it under special administration while overseen by UN peacekeeping forces. Its football team even plays in the Moroccan league.

We spent part of one evening observing the skies (sadly it was partly cloudy). Apparently, Tenerife, along with Chile and Hawaii, is one of the three best places to do so. The Teide Observatory is the location of the world’s largest solar observatory and much more. In the spirit of my reading material over the past week it was proper fun to get my kids wondering about the marvels of the universe too, albeit more in theory as the skies were not too clear! DC

What we’re reading

Two big things caught our attention this week, and it’s hard to decide which is more out of this world.

The first was this hearing with to the US House Oversight Panel. The subject: aliens. The key witness here was a whistleblower named David Grusch, a former US Air Force and intelligence officer, who went public with information suggesting that the US has been running a secretive UFO programme. This reads like something straight out of the X-Files with Mulder and Scully: aliens, government cover-up and even individuals harmed in the process. The fact that this has made it all the way to the top, with a public testimony under oath, suggests that at the very least, that Major Grusch believes from the bottom of his heart that he is telling the truth.

This leads us to the bigger question of whether there is other intelligent life out there, and it would be reasonable to assume that if there were an interplanetary species around, they would be quite able to keep themselves from being easily noticed by a single-planet species such as ourselves. That said, the crew at Forbes magazine put out an article titled “Nobody cares about David Grusch’s UFO revelations”, not so much to say that they’re not important, but simply to highlight that the rather muted reaction from the public to them underscores the severity of cost of living and other day-to-day concerns.

At the government level, the US senate has passed legislation giving the Federal Government eminent domain over all UAP (Unidentified Anomalous Phenomena – which includes UFOs) data. It still needs to go to Congress and then the President, though the question is how much of this data will eventually make its way to the public.

The second was the publication of this research paper by three korean researchers suggesting that they had found a process to manufacture a superconductor that exhibited superconductive properties at room temperature and pressure. This thread gives an explanation of why this discovery – if true and replicable – could herald in profound technological change, especially when the materials used are primarily copper, lead and phosphorus, all of which aren’t hard to find.

However, in the two days since the paper caught the attention of the twittersphere, the mood went from exuberant on one hand, with even some attempts at replication of the results in their own workshops (one twitch live stream of the process here), to apathy and cynicism on the other, pointing to the supposed lack of detail and sophistication in the published paper. It’s certainly a bout of scientific research drama, as this thread points out - a dose of twitter investigation pulled up the entire history of this piece of research, from the authors’ days in university, to their determination to fulfil their late professor’s dream, to the ongoing fight for credit over a potentially world-changing discovery. This is proper K-drama material, alongside the question of whether this is a superconductor at ambient temperature and pressure or not.

Given the efforts around the world to replicate the results, we’ll probably find out soon enough if they’re on the right track. EL

Continuing this week’s theme of the cosmos and space, I flew through one of the best non-fiction books I’ve read in ages. I’ve been very curious recently about the business of space. Obviously Spacex has created a new industry and inspired many to think really big. I’ve been more and more curious and so I started reading Ashlee Vance’s recent book, When the Heavens Went on Sale. It reads like a thriller. It was actually unputdownable. Vance spent many years embedded with four companies – Planet Labs, Rocket Lab, Astra and Firefly. And holy crap, what a tale. The people could be made up. From NASA to New Zealand and Silicon Valley to Ukraine, the cast of characters is just almost too good to be true. And the stories. The stories are all true. Many of the companies Vance covered through their early years have subsequently gone public through SPACs. One in particular really catches my eye, Rocket Lab. There will SURELY be a movie made one day about Peter Beck, its founder. His story is nowhere near over as he is only now hitting his peak. This is a guy you really do want to back to succeed. Bottom line is that space is becoming more and more accessible. Rockets of all shapes and sizes are being launched with increased regularity due to this explosion of innovation and their payloads are getting smaller. The frequency and cost of sending something to space is creating an entirely new class of companies specialising in satellites, offering earth monitoring services for everything from crops and weather patterns to fleet management and troop movements. It is just so fascinating if you have a curious bone in your body how can you not want to learn more about space? And of course, there will be a way to invest and capitalise on this. DC

What we’re watching

Everyone’s talking about the new Oppenheimer movie lately and with it coming out just last Friday, I thought what better time to go to the cinema than on opening night. I went to the O2 arena to see it, a venue famous for such events with its humungous ‘Super Screen’ that spans two stories of seating and to my surprise, it was absolutely packed with not a single seat left free. In the wake of covid, cinemas have taken a huge hit in revenues as we’ve seen a marked cultural shift away from going out to watch films. This has been the case especially for my friends and I to the point where I can’t even recall the last time I went to the cinema before this. The film itself was spectacular and Cillian Murphy has shown himself to be a much more dynamic actor beyond the Peaky Blinders for which he is so famously known. Whilst I haven’t seen the box office numbers so far, that coupled with the crowds of movie-goers dressed in pink off to watch Barbie will be a massive boost to companies like Cineworld whom have struggled to survive these past few years. In fact, the queue at the snack stand was so long that I couldn’t even get a portion of popcorn or a drink in the circa 30 mins of trailers prior to the start of the film. HS