Weekend Reading #263

This is the two-hundred-and-sixty-third weekly edition of our newsletter, Weekend Reading, sent out on Saturday 13th April 2024

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What we're thinking.

After another seemingly gravity-defying run in the markets since the beginning of the year, the chop has returned, arguably triggered by a trifecta of rate-cut-expectation rollbacks, increased geopolitical risk and a less than illustrious start to reporting season. Though as always, it was as much all of the above as an inevitable function of positioning, with small dips being bought thanks to FOMO, but bigger dips not necessarily supported but instead capitulated into. CTAs are back to stretched positioning and it wouldn’t take much to tilt the balance. Volatility was very much bid this week, with the week closing with probably the largest single-day selloff in the S&P 500 for the year so far, knocking (some of) the wind out of previously (very) ebullient markets. 

Stepping back from the intra-week choppiness, the rotation into commodities and gold has certainly caught the market’s attention, funded by outflows from AI, resulting from a growing narrative that the AI upside is fully priced in. The ebbing and flowing of thematic performance through a cycle is inevitable, but the real question is whether heading into election season, the political desire for votes – particularly in a financialised economy like the US, with many 401k and pension plans dependent on market performance – can singlehandedly keep the entire market up. It wouldn’t be the first time politics prevails over the market in the mid-term.  

For the moment, in any case, the primary uptrend remains intact, though we’d be increasingly on the lookout for any change in market direction, ready to act accordingly. 

What we're doing. 

With the summer just around the corner, this Friday marked one of the first evenings where one could soak up the sun and enjoy a crisp pint outside without a jacket. I went to the Wolfpack pub in Queen’s Park (my former local pub) where it was absolutely packed with young people as they finished a hard weeks’ work. The pub is situated in a now bustling mews street in an industrial looking building with pipes shuffling from floor to ceiling transporting the beer which they produce themselves. They have a huge perhaps 5-meter-high shutter which opens onto the streets, allowing the pub to expand out into the cobbles. With their signature converted Land Rover Defender for pulling pints also parked outside, it was really a sight to behold. Alongside their own beers, they had a good selection on tap including some of the Gipsy Hill beers, Jubel and can pour a Guinness to a very good standard. All in, it’s a great pub and perhaps one of my favourites as the summer comes. HS 

What we're reading.

It seems like the SEC is back chomping at the bit about its crypto misgivings again, this time threatening a lawsuit against Uniswap Labs, the team behind the DeFi protocol Uniswap. Its allegations are more of the usual: that it is offering securities and operating as an exchange without regulation etc. The technical argument against this is obviously that Uniswap (the exchange) is literally just a user interface, and that beyond its native token UNI, Uniswap doesn’t “offer” anyone anything – it is the liquidity pool providers who offer their tokens to users who come to swap them. It doesn’t operate a central limit order book like a typical exchange does, nor does it “approve” or “reject” listings – liquidity can be placed by any provider and tapped by any user without permissions. Of course, the SEC probably doesn’t care, so everyone will just have to go through the entire hassle again. The biggest loser is unfortunately the US – the Uniswap team operates in NYC, and one would expect that if enforcement action were brought against one of the pioneering teams in DeFi primarily because they were operating in the US, then that’s one fewer reason for the best and brightest to start their businesses on US soil. It’s just not worth it. 

On a similar theme, this note by Kevin Xu entitled Is Tesla China’s “Catfish”?was an interesting read. It references a podcast from the NY Times titled “How Tesla planted the Seeds for its own potential downfall” in which the term “catfish” was used, suggesting that China catfished Tesla into setting up its Shanghai Gigafactory only to spawn a domestic leader in BYD. It’s a bit of a tragic read because as Kevin Xu points out, taking a view such as this effectively attributes any loss of US competitive advantage to China to IP theft, rather than the other possibility of relative incompetence (from the US side), thereby precluding any thought of attempting self-improvement.  

No surprise therefore that we’re seeing headlines like this: China tells telecom firms to phase out foreign chips in blow to Intel, AMD – WSJ. Indeed, two can play at the banning game – as the US did to Huawei before, now the Chinese are doing to Intel and AMD. And they don’t even bother to brand it a “trade war”. EL 

What we're watching.

After taking my time, I finished the first season of Netflix’s Three Body Problem. As an obviously avid fan of the book, I felt the series skipped over all the important stuff in the first book and I wasn’t a fan of the westernization of the cast. I know the series needs to appeal to the masses, but this is a seriously dumbed down version of a sci fi masterpiece. On its own it comes across as just another sci fi series and I expected more from the Game of Thrones producers. It could have been so much better. Enjoyable probably as a mass focused sci fi thriller for those wishing to binge and move on but a disappointment for those who have read the books. 

On the contrary The Gentlemen, which I also finished this week, was an actual masterpiece from Guy Richie. After watching the movie it is based upon, I wasn’t expecting this to be so good. Loved it. Pitch perfect. 

This short clip of a fellow named Tom Morgan has gone viral this week after his Sohn talk was such a success. He spoke about something close to my heart. Curiosity and where it has gone in the analysis paralysis that is the western way of doing things. As a very much right brained individual I can readily identify with what he says. It’s only a short one and I highly recommend it. I even subjected my kids to it. DC