Weekend Reading #234

This is the two-hundred-and-thirty-fourth weekly edition of our newsletter, Weekend Reading, sent out on Saturday 9th September 2023.

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What we’re thinking

The dollar is pumping this week and yields are higher. Make of that over a weekly basis whatever the tea leaves suggest. But usually when the dollar rises, commodity stocks tend to perform poorly and this has once again been the case for most commodity names with one glaring exception - oil names continue to march on. To us as equities guys, oil represents a quandary as apart from the majors, there are not too many reliable names to latch on to. From the many junior oil or oil services names we’ve been pitched over the past many years, there are not too many success stories. If anyone has any bright ideas, we are open to suggestion.

Next week we move into monthly opex week – September quarterly opex is typically a huge one, and the bigger the opex the bigger the short-term distortions to flow in the preceding days. As always it is what comes after opex that is interesting. Index level vol continues to be surprisingly calm (or complacent, depending on your view), with VIX trading around 14.5 despite risk-off moves in SPX, with Thursday being one of those spot down/vol down days. So, while markets hover around their highs, off the bottom from late last year, one should probably also ponder the old adage about hedging when you can, not when you must.

Elsewhere, Nachas Networks, our trading software business is living up to its name. It is continuing its fund raise, with initial success much to our delight. After years of careful development and tinkering, hard work and commitment, we are beginning to see results from happy clients and excited investors. Much NACHAS. Please hit us up if you are interested in learning more.

What we’re doing.

I’ve been experimenting with the latest crypto project which even in the pits of the bear market is generating lots of buzz and activity. Friend.tech as I wrote about a few weeks ago is a social app where you can “trade” influencer/people’s “keys” as they appreciate and depreciate. The key gives access to a private group where you can chat directly to content providers. Apart from being a fascinating study in social dynamics and those trying to monetise themselves in unique ways, being involved is probably the most fun I’ve had in crypto in quite some time. I’m confident something interesting will result from this, though I’m not sure what the final format will be or even whether it will be this project itself. So far though it has remarkably low churn and activity, despite being well off the highs, is settling at respectable levels. Something to keep an eye on. Even cricketer, AB De Villiers, is on it now, punting his own crypto views. DC

If you’re looking for a reasonably priced wine bar with good food and the obligatory good wine, Clarette on Blandford Street is worth a visit. Housed in a very English Black-and-white style building in the middle of Marylebone, the restaurant/wine bar is founded by Alexandra Petit-Mentzelopoulos of the family behind Chateau Margaux, offering diners an excellent offering of wines including Ch. Margaux wines by the glass. Food was excellent, and a good selection of cheeses to wrap up the meal was on offer. Tip: book a table upstairs rather than downstairs, for while the appeal of getting a table outside is great as a concept, chances are one gets offered a table on the ground floor, but indoors, which gets crowded as the evening progresses. Thankfully, the space upstairs where we were was relatively quieter and much more spacious. If there was to be one misgiving, it’s their reluctance to offer corkage on our own bottles – especially after we asked TWICE, and after we had already ordered a bottle off them. EL

What we’re reading

Regular readers would know how much I love a good spy thriller. I recently stumbled onto a new author named David McCloskey. He is a former CIA analyst who has tried his hand at this very competitive genre. His first book is called Damascus Station and takes place inside Assad’s Syria during the Arab Spring. It features a CIA operative (naturally) who needs to recruit a high value asset inside Assad’s regime. It’s a compulsive read and didn’t take me too long to breeze through. I’ve read dozens of authors in this space and can say the plot, pace and flow of this one is up there with the best. Next up is the second book, Moscow X, which involves Putin’s Russia. Need I say more. DC

This article in the Interconnected blog by Kevin Xu was an interesting one highlighting the growing dilemma in the US, where a Democrat-led government is simultaneously trying to push through an industrial policy to re-shore manufacturing jobs while being the most exposed to union demands that may well be detrimental to that said policy, quoting the examples of how union action has stymied what would have been a hugely helpful policy of development in these two strategic industries. More importantly is how this is merely a symptom of a growing force of populism, shifting the balance of power from capital towards labour, expressed through an electoral vote and (perhaps more profoundly) the lobby groups behind these interests. By all measures, this trend isn’t abating, and these symptoms are more likely than not to become MORE pronounced, not less, especially if the going gets rough. Ultimately this translates into wage bills becoming stickier and larger, a corollary to a structural trend of lower margins, and arguably a function of more than a decade of wage suppression with respect to general prices. EL

What we’re watching

The Social Dilemma is on Netflix and after a few friends recommended it, we sat down to watch. It’s a provocative documentary on how social media companies influence our behaviour and offer little hits of dopamine in a very deliberate and scientific way. It’s nothing we don’t know already but when put together this way it's very effective. My wife and I are quite militant with screens for our kids anyway and this certainly didn’t harm our existing view. With young kids I guess it's easier to manage but as they approach the early teen years, I wonder how we will cope with the demands made on them socially with respect to screens. On the one hand we are pleased we’ve limited it so well but on the other we also worry that we are harming them by not allowing them more access to devices. We don’t want luddite kids either. Tricky all round! Advice is most welcome from those who have been there and done that too. Highly recommend this documentary albeit you know what it’s going to tell you. DC

What we’re listening to

It’s an episode that’s couple of years old now but I recently listened to Christina Qi, the founder of Domeyard LP, talk about her experiences launching a quant fund with her two co-founders back in 2012 on the ‘Chat with Traders’ podcast (linked here) The fund was a quant fund that throughout its lifespan, utilised a high frequency trading strategy to deliver fantastic returns to its investors, whilst notably being one of the few small sized quant strategies to operate in a hedge fund structure rather than as prop trading. The fund has since been shelved with Christina moving on to launch a market data offering, although the area this podcast focusses on was particularly interesting to me; in fact, it discusses in quite some depth the startup of the fund through the lens of the required infrastructure needed to launch a quant fund, be that OMS, execution gateways and feed handlers (and of course the vast array of data that needs to come through those feeds). With our own infrastructure shaping up nicely, it seems interesting to think where we could be in a couple of years' time if we were to go down this route. HS