Weekend Reading #236

This is the two-hundred-and-thirty-sixth weekly edition of our newsletter, Weekend Reading, sent out on Saturday 23rd September 2023.

To receive a copy each week directly into your inbox, sign up here.

*****

What we’re thinking. 

After Jay Powell’s Fed presser this week the market finally chose violence. We don’t want to get too clever with predictions – recession, inflation, dollar, US fiscal burden, goodness knows what else. But from the price action it suggests that bad things may be happening. A few points worth mentioning are that despite US yields spiking, gold remains resilient. And yes, so does Bitcoin. A year ago, if you knew yields would be here and balance sheet reduction was continuing as it is, one would likely have predicted Gold and Bitcoin much lower. Things are afoot that we certainly don’t even understand. Are these two instruments telling a story? 

As we scan for longs to be honest, we can’t find many. A bright spot remains the Turkish market, which despite having a nice pullback was further boosted by another step in the right policy direction this week by Turkey’s Central Bank. Normally with US yields spiking, oil rising and the dollar surging one would expect Turkey to be a poster child for EM crisis. But with no foreigners left to retract their capital anymore, is this time different?  

What we’re doing. 

For a bit of change in scenery, we’re spending the weekend up north in the Scottish Highlands around Fort William, by the foot of Ben Nevis. Unfortunately, the weather forecast looks promising of no short supply of rain, but what else could one expect of Scotland? Fortunately, it is also said that the scenery in the area remains breathtaking, even under the greyness of rainclouds. To catch Ben Nevis in the sunshine is the bonus, and maybe we will get lucky over the couple of days in the area. It’ll be our first hike in the Scottish Highlands, which is surprising given after so many years in the UK and so many hikes around mountain ranges all around the world, from Mont Blanc to the Dolomites to Patagonia, we never thought to go for the ones in closest proximity. Fortunately, Ben Nevis and the lochs around it aren’t going anywhere anytime soon. EL 

This week, I participated in the FIX Trading Organisation’s Digital Asset committee meeting both on the global level as well as in the APAC regional session. It’s been interesting as this month’s meeting entailed a discussion on how digital token identifiers (akin to an LEI or an ISIN number) fit into the organisation’s plans moving forward and potentially in the next wave of FIX specifications. Different views popped up, but it's clear we've got to stay nimble with how fast tech's moving. Personally, I argued that requiring registration of new instruments is going to slow down the process of getting set up and will impede tradability amongst institutional users. Although there was pushback against this view from those more interested in the world of post-trade. In our own experience, we’ve found that the best opportunities are often new tokens that are launched on-chain, and it’s often an opportunity for exchanges to capture market share by listing these tokens once they reach a reasonable amount of liquidity on-chain. The challenge that we’ve had with many of our centralised counterparties before is that we cannot get access to new instruments quickly enough and I feel as though implementing a change like this would only make matters worse. More to follow as discussion continue. HS 

 What we’re reading 

Ahead of the FOMC meeting earlier this week, this article appeared in the Wall Street Journal written by Nick Timiraos, better known as the “Fed Whisperer” (or the much less complimentary moniker of “nikileaks”) titled “Why a soft landing may prove elusive”. The question to ask, as advocated by those wiser than us, and especially when it comes to this particular journalist is, “Why am I reading this now?”. The article was accompanied by this tweet carrying an ominous quote of “Planes land, economies don’t”, accompanied by this chart: 

 Does it mean the Fed is worried? Then again, it pencilled in higher rate expectations for 2024 vs consensus (fewer cuts). Or is this just a case of the WSJ being enlisted to say the unsayable as an insurance policy against a tail risk? Unfortunately, the data seems to suggest that the soft landing is more like the pot of gold at the end of a rainbow than a common occurrence. EL 

I really believe fiction is important. It allows your brain to wonder and escape and I’m pretty sure that at some level, it creates connections between things in your mind that otherwise wouldn’t be connected. So, when I stumbled across this quote it resonated. Especially given what I just had just read.  

“I suspect that reading fiction is one of the few remaining paths to transcendence, that elusive state in which the distance between the self and the universe shrinks,”  

Ceridwen Dovey 

In light of all the recent public posturing around UFOs or UAPs, as they are now called, I decided to upskill to try separate the real from the imagined. In my warped way of seeing the world, everything in life and in markets is linked – even the things you think are not. And after researching this for a while now let me tell you this is one deep black hole. Once you start clicking on few of these UFO Twitter bios the Twitter algo gets hold of you and holy shit things get weird fast. So, with that in mind I decided to get stuck into a book which is part of a project by former Blink 182 frontman, Tom Delonge. It turns out that his real passion since he was a kid was UFOs. Even while performing at the top level as a musician, he was researching UFOs. So, when he quit the band to focus full time on UFO research, the world was a bit surprised. But he was dead serious. His objective was to build an organisation that researches these things scientifically. What happened was surprising even to him. He quite quickly became the go-to man for government officials to leak information to. His dossier of information grew so much that he started piecing things together. Now take with a handful of salt of course but if I’ve learnt anything over the past years, it's that sometimes you just have to roll with the punches. Sekret Machines is a series of fictional books based (how loosely I don’t know) on this information stash he has accumulated over the years. What’s interesting (or unsettling) is that with each release a book is released simultaneously with all the source material for the fictional one. Delonge has partnered with a guy named AJ Hartley, a seasoned author to put these stories together. The first one, Sekret Machines: Chasing Shadows took me 2 days. It is just a wild story. It appears pretty far-fetched stuff but then again who knows. All I know is when you go down this black hole, your mind can go mad. I’ll report back on the next one. DC 

What we’re watching 

A new documentary series called “Secrets of the Universe” started this week here in the UK. It features UK astronaut, Tim Peake and I watched the first episode about the planets which was awesome! I learnt that Mercury apparently may have water underneath is icy polar caps. Even though its closest to the sun, the angle of its axis means its ice caps don’t get sun exposure. How did it get there? Apparently from meteors slamming into Mercury. There is so much more cool stuff here too just in this episode alone. DC 

 What we’re listening to 

After recently being recommended the Founders podcast by a friend, I was waiting for one to appeal to me. After seeing Oppenheimer last week, I was primed for one on Christopher Nolan. I had no idea his background. But once I listened to this one, it all makes sense. He is now rated as one of the greatest modern directors if not the greatest. He can make any film and attract any cast given what he has achieved. But it was not always so. Like most success, he ground it out until he hit the jackpot. As you can imagine he is a very unusual man. He is analogue. He doesn’t email. He doesn’t have a mobile phone. And most importantly he doesn’t digitalise his filming. He hardly uses CGI, preferring as much as possible to use more “real” methods. The format of this podcast was interesting too. The host, David Senra, reads a biography each week and shares his learnings. Excellent. 

I also made a return to Lex Fridman this week when I listened (across a few sessions) to his entire interview with James Sexton. Now if you are looking for market related insights here it is not the place as Sexton is actually one of America’s top divorce attorneys. The topic caught my attention as what topic can be more important than one’s marriage! One of the greatest ideas I’ve taken from the VC boom was that if the pre-mortem. I don’t even remember who I heard it from, but I’d imagine it’s not a unique idea. A pre mortem is when before starting something - a business, a project etc, a team imagines the future failure of the said initiative and writing a report of how it went wrong. By doing this the theory is you avoid the pitfalls which you already identified. The episode is just gold. This guy has seen it all. Every type of relationship imaginable and every ending imaginable. And of course, the same or similar human behaviour can be applied to markets too (kind of). DC