Weekend Reading #229

This is the two-hundred-and-twenty-ninth weekly edition of our newsletter, Weekend Reading, sent out on Saturday 5th August 2023.

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What we’re thinking

The tug of war in multiple directions in markets continues unabated. Earlier in the week, a Fitch downgrade of US sovereign debt dealt out a good dose of volatility – is it enough to knock markets off-course from its seemingly relentless march upwards? We don’t know, but while the equities markets remain pretty much just off all-time highs, the bond market is marking down US government debt, with US10y and 30y yields pushing highs not seen since 2007-2011. Interestingly, the spreads between US government (“risk-free”) debt and US corporate debt have been narrowing, and to our simple, untrained eyes in the fixed income world, that sends an obvious message: “we trust US corporates’ ability to pay back debt more than the US government.” At least, for now.

With that in the backdrop, the inflation story seems to be taking on different paths depending on where we look. A few pauses here and there, including the BoE hiking less than expected, and Brazil (the leader in the rate hike cycle) starting to cut rates and signalling future cuts along the way, suggest that the views on higher for longer amongst central bankers are holding relatively less conviction than before. Yet before the deflationist camp steps up to claim victory, we also have oil and natural gas prices looking like they want to attempt a move up. Add to that the common knowledge effect of a rate cut coming from the Fed suggesting that things are actually not as rosy as they make it sound and this looks like a rather complex game of multi-dimensional chicken.

In the crypto space, things have gone into full-blown PvP mode – if you’re unfamiliar with the term, it’s a gaming term that refers to the gaming mode where it’s “Player vs Player”, as opposed to PvE “Player vs Environment”. As one can imagine, PvE is easy – all players cooperate to fight the game environment, with lots of bounties from killing monsters, and everyone becomes rich with gear and gold in the process. PvP on the other hand involves players hunting down other players to kill and loot, and in crypto, with the onramps shut down, and potential inflows even from ETFs limited to the specific underlying itself (wouldn’t expect Blackrock to take its bid up BTC or ETH and go for on-chain degeneracy), the actual net inflow of new capital into the alts space is probably zero, even negative. And that means crypto needs to hunt in a different way.

The highlight of the week was probably the big hack of CRV pools. CRV is one of the foundational pieces of DeFi infrastructure, where the bulk of swaps between stablecoins and even the megacap cryptos like WBTC and ETH happen. Its liquidity pools spit out CRV tokens which form the basis of much of “yield farming” in DeFi, still a big source of income for many. Most importantly, the hack wasn’t a fault of CRV’s smart contract coding. Rather, it was a vulnerability exposed in the EVM compiler they used, Vyper, which meant the code (that was most likely written correctly) was compiled into bytecode that had an intrinsic flaw at compiler level. The CRV hack happened the same day multiple other projects were hacked, and one can only wonder if, as this tweet from the team at DefiLlama suggested, the “auditors” had been more disciplined in reporting the vulnerability to Vyper (instead of tweeting about specific versions, which gave the hackers a bright neon sign to the backdoor), this could have been avoided.

And this leads to the public service announcement: ALWAYS run your windows/MacOS/iOS/Android updates the moment they are published. Because accompanying those update releases is USUALLY a description of security gaps identified, and not patching is simply inviting trouble.

What we’re doing.

In general, I drink quite a lot of coffee (3-4 cups a day), although perhaps only an average amount when comparing with our peers across finance and legal services. Given I tend to work from home from time to time, the thought occurred to me to get my hands on a home espresso machine, and I’d set about looking for the right one. This week, I finally pulled the trigger and picked up a Gaggia Classic. I managed to find a fantastic deal on a 2014 model from an engineer who had modified the machine extensively. This meant there was every upgrade imaginable from better control of the temperature of the water (both for the coffee itself and for the steam needed to froth milk if required), to dynamic power adjustments for managing the flow of water. Resultantly, this put the machine I had on par with those costing thousands of pounds, and once I’ve adequately mastered the skill of making espresso effectively, the coffee this machine can make will be able to beat that of many small cafes. So far, it’s been a little messy and I haven’t yet gotten it just right, but perhaps in the weeks to come I’ll be drinking perfectly pulled espressos from the comfort of home. HS

What we’re reading

The race to replicate superconductor LK-99 rages on, and what is most interesting are the frontrunners: the Koreans who first published the paper about it, the Chinese team at HUST who have successfully replicated to some degree similar effects (explainer thread from Alex Kaplan here) alongside another publication with suggestions for process improvements (I.e. doping with gold instead of copper), the Russians (supposedly) according to an anonymous account called @iris_IGB and of course the Americans, represented by Varda engineer Andrew McCalip, who appears to have replicated a similar material, subject to testing.

While all this is happening, the obvious question to everyone should really be: if this is THAT easy to replicate, easy being relative assuming access to some form of equipment, why isn’t EVERY lab in the world racing to replicate? Conspicuous by absence is... everyone else. No surprise that leaders stay leaders, perhaps.

On the flipside of this is the story of the best teller of the story so far. This anonymous account called @8teAPI has sprung up to the top of the list of reference points for information on LK-99. Interesting post #1 to flag is this summary of how closely LK-99 resembles the ancient ideas of Alchemy, combining copper and lead to make gold. But interesting post #2 is how 8teAPI explains how he/she went from anonymous account to almost 21k followers and a position of nearly canonical truth on the subject, overtaking initial leaders of the narrative like Alex Kaplan, simply by understanding how twitter algorithms work. The best part of it? After disclosing all of this, the replies are replies of gratitude and encouragement to post more. EL

If anyone’s been wondering what's happening in the SAHEL, this is a fantastic piece from someone I’ve been following for a while on Twitter. Velina Tchakarova has provided insight after insight and this is no exception. In this long Twitter post, she gives her take on Russia’s interests and activities in the region and what we can expect them to do going forward.

Elsewhere the Chinese authorities have proposed a new regulation limiting the use of smartphones by children. The proposal wants to ban children under the age of 18 from using their phones from 10pm to 6am. Also, they plan on limiting 16-18 year old kids to 2 hours a day on a smartphone, children aged 8-16 only get 1 hour and those under 8? 8 minutes! Great plan. I doubt that would work in the West. It goes to the very essence of cultural differences and who gets to decide what. But in the end, one can’t really argue with the principle. Right? DC

What we’re watching

I’ve been watching The Expanse recently, continuing my quest for a sci-fi story that can come close to Liu Cixin’s Three Body Problem. I’ve got through the first few episodes, and it is promising! This has the ingredients for a proper space opera saga and I’m enjoying every minute. Something I’ve been doing recently is finding shows based on established pre-existing literature. What tends to happen in TV is seasons get written one by one as success dictates whether a show is renewed or not. The Expanse is based on James Corey’s series of 9 novels, so all the material is there. I wasn’t going to read all of them, so the show was appealing to me. Corey, interestingly and unusually, is the joint pen name of two authors, Daniel Abraham and Ty Franck. The series won a Hugo Award for best series in 2020. Long way to go but good fun so far. DC

What we’re listening to

A nice short one with Stan Tucci was this week’s Desert Island Discs. He has great stories about film and food, and I thoroughly enjoyed him and his music selections. The way he speaks about Italian food really makes you want to rush off to Italy immediately. His series, Searching for Italy, in which he eats his way through Italy is highly recommended too. It was so popular that the restaurants featured in the series became famous too. When we went to Florence last year, we were warned to get into one restaurant featured we needed to book months in advance! We did, and it was excellent. He is a great character, in film and it seems in real life too. DC