Weekend Reading #258

This is the two-hundred-and-fifty-eighth weekly edition of our newsletter, Weekend Reading, sent out on Saturday 9th March 2024

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

*****

What we're thinking.

Coinbase’s market cap overtook Paypal early on Friday. While Coinbase’s move is surely one of exuberance in the very short term and Paypal is not exactly the bastion at the frontier of fintech as it used to be, this does have some significance. The volatility in the crypto domain has also been rising with each push towards all time highs in Bitcoin. Leverage trading is in full swing and intraday moves are getting bigger. This usually suggests some kind of major resetting event is nigh but with the ETF flows the structure of the market has changed so it's tough to tell what it all means at present. The price action in Nvidia et al is also getting really steep. Just when many think it's easy, is when it bites you. Our base case is we are close to some kind of top in time but who knows in terms of the size of the move until then. If it were to work out perfectly we would wait for NVDA to become the most valuable company in the world as we have hypothesized for a while now, but in markets it doesn’t pay to be dogmatic. So we hold that thought loosely!
 
Interesting this week has been the move in the US Dollar and in 10 year yields. Both seem to be falling which has coincided with a big rally in gold to all time highs (and which hasn't been sold immediately this time) and broadly in commodity stocks especially copper.  Gold is worth mentioning again. Since I started in the markets 17 years ago, gold stocks have been rubbish. And South African gold stocks have been the bottom of the barrel. But and it's a big one, check this out for a chart. Our thinking is that if gold sustains this move, we could be headed to territory in gold stocks we haven't seen for.. 40 years. I can’t believe I’m saying this but check out this weekly chart of Goldfields going back to the early 1980s. No one believes it and no one owns these things. It is but one possible path. But its a non-trivial one. Remember the story always comes after the price.

What we're doing.

This week was the annual FIX conference for the EMEA region where we got the chance to go and speak to some of our friends and colleagues across the electronic trading spectrum. The key topic of the day was the US' upcoming move to T+1 settlement and how prepared everyone was to handle it. For some firms, this is going to be a breeze. For others though, there was a looming sense of panic as they hurry to add traders and support staff to their US teams. The overwhelming sentiment seemed to be that the UK, EU and Switzerland will follow in the next 3 years with the UK ready to lead the way. Although as some of the UK regulatory groups mentioned, it would be wise for the three regulatory regimes to move in unison so as to keep things simple. HS
 

What we're reading.

I breezed through the second Robert Galbraith book (JK Rowling) - The Silk Worm. PI, Cormoran Strike gets better as a character and it was an upgrade on an already good first book.  This one was a bit more gory and twisted which was also cool!  For the second time, I struggled to work out who the killer was right until the end.  It's quite fun reading a book set in London and again I got through it in pretty quick time. Onto the next one then.
 
Something I’ve written about before is the casualty number in Israel’s war with Hamas. I came across another piece written by Abraham Wyner in Tablet which looks at some anomalies in the numbers which pretty much every media outlet in the world uses uncritically. Even a cursory look at the data leads one to see how obviously these numbers are distorted for mass public propaganda effect.  While many may say what difference does it make as people are dying in big numbers anyway, I believe its critically important to get this right as it goes to core of everything about this conflict. If Israel is genuinely making its best effort and succeeding at keeping civilian casualties as low as possible then the numbers glibly quoted by the media at large must be incorrect. This article does a deep dive and comes to a similar conclusion to the Aizenberg twitter account, which has been excellent in the pursuit of intellectual honesty. The fact I need to make sure I say that war is terrible and any innocent death is a tragedy just shows where we are in the world. That should be obvious. But these facts matter.  It is worth a deep dive into this. DC


What we're listening to.

A new podcast I tried is called Live Players and features a chap named Samo Burja who I've followed on Twitter for a while. He is a Slovenian political analyst and I’ve noticed his takes are often a bit more nuanced and different to many pundits. This episode covered Xi Jinping’s legacy and succession as a hypothetical. There is lots of good bits in here but the key takeaway for me is that Burja sees China’s capitalist experiment as being over but not done yet. He sees it as a deliberate ploy to raise wealth and income levels across the country but that once that has been achieved (we are almost there), he sees the communist country returning. Ie: He sees the CCP and Xi as believing that communism can work once the country is richer, rather than the historical communist strategy of enforcing communism on a population that is low income. I found this thought fascinating. And if true, you do not want to be anywhere near Chinese assets for the long term. DC