Weekend Reading #225

This is the two-hundred-and-twenty-fifth weekly edition of our newsletter, Weekend Reading, sent out on Saturday 8th July 2023.

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What we’re thinking

The story of the week was yields. US, UK and EU majors all saw yields blowing out anew. There always appears to be a reason afterwards but the candidates are: worries about inflation, a simple case of positioning and even the emperor has no clothes moment of sovereign debt worries as well as a host of others. Ordinarily we would dismiss worries about sovereign debt but there does seem to be some kind of correlated move across the major western 10 year dated bonds that looks pretty grim. We are still not quite sure what to make of it. Our minds are open but as we wrote recently, something seems off.

Ultimately, whatever the market gets up to, it’s generally true that it maximises for the amount of pain it causes. The risks that are well-anticipated and hedged for almost never to come to pass with any fanfare, while those that are let loose through complacency are the ones that deal the most damage. For the past 6 months, the market’s been waiting for a recession – the most anticipated recession of all-time, some call it. So far, it hasn’t come, and it’s evident from this snapshot of the chart of the VIX that beyond the initial worries about recession earlier in the year, demand for hedges has more or less fallen off, with VIX trading at around 15

People say they’re worried, but they certainly don’t behave worried – and why would they? The stock market’s been on a tear (upwards).

Once again, the usual dichotomy between the stock market sitting at within 10% of ATHs and the bond market (yields close to their 15-year highs) has presented itself. Who gets it right this time?

What we’re doing.

The Nordic countries and Finland in particular are part of a subset of countries I have very little knowledge of having never visited, it not being a market in which we look to trade, and also having had very limited interactions with its people (I can perhaps count on one hand the number of Finnish people I’d met prior to last week). However, when flying back from my recent Asia trip I had a layover in Helsinki which proved to be one of the best layovers I’ve had. Finland as a country has a fascinating history having switched hands several times as a part of both Sweden and Russia as well as effectively functioning as an independent buffer state between the two. Landing at 6am and after a quick shower in the lounge, I whisked through border control and was on the fast train into the city centre. Having landed from Singapore, it seemed strange to see such a lack of high-rise apartment buildings as the train rode through a birch forest and some local towns. I went for a quick walk around some of the must-see sights, before heading on a short ferry over to Suomelinna (“The Castle of Finland” in English), the city’s sea fortress which had been a crucial maritime base in the Russo-Swedish War. There were cannons and defences all still intact and a very picturesque settlement within the walls of the fortress now occupied by cafes, shops and a number of art installations. Perhaps the most random fact I took away from the experience is that Finland has the highest per capita coffee consumption of any country in the world, with each resident drinking over 12 kg per year. Helsinki is a very pleasant city that is incredibly clean and whose people are very friendly and hospitable. Although that being said, if not visiting to do more outdoor activities like sailing, hiking or camping, I don’t think there is too much that you must see. I think I’d be keen to go back and try the moose burger, or even the sauteed reindeer they are famous for, but likely only as part of another day-layover. Otherwise, to sail there could be a fantastic experience being comprised of over 178,000 islands, which puts Indonesia’s mere 17,000 islands into perspective. Now it’s back to London, and who knows where the next trip will be. HS

What we’re reading

I usually try reading both a fiction book and a non-fiction one simultaneously. And somehow, I’ve ended up in the incongruous position of reading both Daniel Silva’s latest Gabriel Allon (Mossad superspy) book, Portrait of an Unknown Woman and Ron Bergman’s very non-fiction, Rise and Kill First, at the same time. Silva’s books about Allon and his exploits are works of fiction, but Silva does such deep research into both the inner workings of the Mossad and the geographies in which his books are set, that at times it feels like non-fiction. Bergman’s book is highly controversial. So much so that the Israeli authorities tried to stop its release, worried that he would give away too many state secrets. Rise and Kill First is “The Secret History of Israel’s Targeted Assassinations” and at times is so crazy that it feels like fiction. Both are highly informative and entertaining and even though I take the unusual step of writing about them before I’m done, I can already recommend them both.

This week the mainstream press got hold of a story that I have been following for a while. Professor Avi Loeb, an astrophysicist at Harvard, who I have written about before (remember Oumuamua?), last week wrapped up an expedition to the middle of the Pacific Ocean 85 miles off the coast of Papua New Guinea to search for fragments of what he believed to be an interstellar object. The object in question is a meteor which in 2014 crashed into the Pacific. According to Loeb the speed with which it was travelling was faster than anything that could come from within our solar system.

“Its interstellar origin was formally confirmed at the 99.999% confidence in an official letter from the US Space Command under DoD to NASA on March 1, 2022. Two years earlier, my discovery paper of IM1 with my undergraduate student Amir Siraj showed that IM1 was moving outside the solar system faster than 95% of all stars in the vicinity of the Sun. The possibility that IM1’s excess speed benefited from propulsion and the fact that it was tougher than all known space rocks, raise the possibility that it may have been technological in origin — similar to NASA’s New Horizons craft colliding with an exoplanet in a billion years and burning up in its atmosphere as an interstellar meteor.”

So off went Prof Loeb with his team to search these coordinates looking for the proverbial needle in a haystack. The trip lasted around 2 weeks and was resoundingly successful. The team recovered more than 50 “spherules”, which according to initial analysis have a composition of materials not found in our solar system. Prof Loeb and the team now will take the spherules to be analysed under the most sophisticated equipment on earth back in the lab and reach some more definitive conclusions. But at first pass it seems as though they hit the jackpot. Loeb suspects that given the specific formulation of metals in the spherules which are similar to chips produced on earth, it’s even possible that it could be some kind of electronic device from an alien civilisation. Imagine that. As always, we just don’t know what we don’t know. You can read all Prof Loeb’s updates on his Galileo Project blog here. DC

Just as we wrote about NFTs last week, this week saw the rather sensational implosion of one project that I really liked, which is a pity. We wrote about Azuki early last year as a case study in mimetic desire, - its rise was miraculous, probably the only NFT project that seemed to be on its way to be something real, a fashion brand born from the metaverse. Unfortunately, the team behind Azuki tried to expand the community (not a bad idea in itself) by launching a new collection called Elementals. The problem: they look almost identical to the original Azukis, leaving the OGs rather annoyed. But what accelerated the implosion was how the team decided to call on the magic word of “democracy” (I.e. get the holders to vote on what happens next) - as it turns out, democracy only works if the governance system underlying it is well-constructed. Azuki’s was not. This tweet thread from an account called @wassielawyer spells out exactly how governance (or rather the lack of thought going into it) toppled one of the most promising projects in the NFT space.

On a different note, it turns out that 32 years ago this week, Terminator 2: Judgement Day was released, and this thread from a twitter account called All The Right Movies (@ATRightMovies) was a joy to read, going through not only the history but lots of detail around the special effects and props that were used in the film, arguably more realistic looking than some of the computer-generated effects we see today. Unfortunately, for some unimaginable reason, some of the tweets in the thread have been removed. Only alternative: watch it again. EL

What we’re watching

The 3rd season of Ted Lasso on Apple came to a close for me this past week. I loved it. It’s full of emotion and it's definitely not my usual profile of show but there something about it that gets me. Maybe it’s a throwback to the shows of the 90’s. The characters are brilliant especially Roy Kent played by Brett Goldstein. Goldstein was initially hired as a writer on the show but ended up auditioning for Roy Kent’s character and was chosen straight away. He ended up winning the Emmy for Outstanding Supporting Actor in a Comedy Series two years in a row. What a wonderful show. DC

What we’re listening to

I discovered a new podcast this week, which doesn’t happen often. I stumbled upon an episode featuring Daniel Kahneman and it opened up a whole new world from The Jolly Swagman Podcast. It’s hosted by an Aussie named Joe Walker who seems to be incredibly thoughtful. His questions are better than most I’ve heard and his list of guests is incomparable. After Kahneman (as always, a proper gem), I moved on to a recent one with Tyler Cowan in which they talked a lot about talent but also so many other things and then one with Palmer Luckey, the founder and CEO of Anduril. I’ve been waiting for a good one with Palmer Lucky for some time as he is a VERY interesting character. Homeschooled and the founder of Oculus (yes, the Meta one), he was dismissed from his own company by Facebook while in his prime for making a $10,000 donation to an anti-Hilary Clinton political movement. Instead of feeling sorry for himself, using my favourite quote probably ever of “chips on shoulders put chips in pockets” (Josh Wolfe of Lux Capital), he put his chip to good use by founding Anduril. Anduril is a defence technology company at the cutting edge of AI and robotics etc, currently valued around $10 billion. This guy has lots to prove and he is proving it every day. The whole conversation was just truly riveting. One day Anduril will go public, I’m sure. And then Palmer Luckey will be even more famous and everyone will care about what he thinks. His relatively recent and very public feud with Jason Calacanis from the All-in pod also showed that this fellow takes no prisoners. Good luck to him. DC