Weekend Reading #297

This is the two-hundred-and-ninety-seventh weekly edition of our newsletter, Weekend Reading, sent out on Saturday 11th January 2025

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What we're thinking.

We are back! Happy new year to all readers. When we were young, 2025 seemed to us like a year when we would have flying cars and telepathy, but we don’t have any flying cars just yet. But do we have telepathy? For those that haven’t yet listened to the Telepathy Tapes podcast, do yourself a favour and do it. In late December it reached number 1 in the US, ahead of everyone including Joe Rogan.  

Anyway, since our newsletter break mid-December, markets went out with a whimper and began with the wrong kind of bang for most participants. What happened to the Santa rally and the January effect of new flows? Well so far anyway, markets look jittery indeed alongside a rampaging dollar and sky-rocketing US bond yields. So, what does this all mean? In markets one is not usually rewarded for dogmatically predicting the future but rather for making money. And for us this means paying close attention to the price action and the clues we are being given. Our hypothesis coming into the new year was that markets are primed for a selloff, but we weren’t sure whether the January effect would provide a final flurry to be capitalised upon on the long side first. To be honest we still aren’t sure but it’s looking decidedly bleaker given the price action. As a fund we have dipped our toes into some shorts but it’s early in the year and moves can still reverse rapidly. As the price action evolves, so will we as we always do. Once again those hoping for certainty and a crystal ball prediction will be disappointed but that’s how markets work. Uncertainty is the entire point! 

One pocket of green is the Turkish market, especially banks which have made a strong start to the new year on the back of further prudent policy moves. Inflation is still sky high but less sky high than it was and in markets rate-of-change is everything. The low correlation of this market to global stuff may be the exact recipe in a period of global uncertainty. 

Elsewhere our thoughts are with many friends in Los Angeles on the back of the terrible damage from the wildfires. Another example of how poor planning, policy and governance can lead to catastrophe. Shocking but not unsurprising sadly.  

What we're reading.

A while back I shared an interview Rory Sutherland who emphasized the benefit of slowing things down and not trying to overoptimize everything. In other words, the benefit of non-linear thinking. This interview with Eric Markowitz in his Nightcrawler newsletter gave us some more examples of this. Really excellent quick read. DC 

The Economist is often derided for some of its increasingly unbalanced views, but there are exceptional times when they do produce a fun read – in this case, a Christmas special spotted over the break on some fishy business, specifically Toyosu fish market in Tokyo. From a fascinating summary of how fish are caught, killed and prepared to maximise the quality of the meat and the taste to a description of fish traders with baseball caps and subtle gestures, it’s a fun read, with the latter description no different from the pit trading days of stock exchanges. As it is with fish as it is with stocks (or anything else) - it is the people who make the market, and only by knowing how they think and operate can one also be an operator. Where this market is concerned, we’re happy to be just consumers.  

Fish aside, it turns out the best performing commodity in 2024 is none other than cocoa – cue puns about “hot chocolate”. Cocoa futures were up almost 200% last year, making record highs of just over $12.5k/metric ton of cocoa in December. The cause: farmers in the top producing regions especially in West Africa being hit by a mix of bad weather, failed government policies and a virus called cacao swollen-shoot virus, which causes necrosis of the roots of cocoa trees. This article in the WSJ tells a pretty grim story and adds to a litany of misfortunes that the world seems to be having to deal with. EL 

What we're watching.

Black Doves on Netflix was really good. Keira Knightley is an undercover agent and there are loads of cross-intrigue with Americans, Chinese and indeed many parts of the British undercover establishment. Proper fun and highly recommend. DC 

Over Christmas we had quite a lot of fun finishing the remainder of a Korean cooking show, Culinary Class Wars, on Netflix. The set up was obviously provocative to start, calling it “class wars”, but one way or another, it worked in catching our attention. Without delivering any spoilers for anyone who’s planning to watch it, or is partially through it, it suffices to say that the win rate of team “black spoons”, basically less-renowned chefs facing up against their well-known celebrity colleagues (the “white spoons”) is surprisingly high, especially when tasted blind. How it all ended up so nicely paired off between black vs white towards the end is of course the subject of ongoing controversy, including allegations that it was all staged. Then again, the penultimate challenge of “continuous cooking hell” involving cooking with one single core ingredient while 1 of 8 remaining chefs gets eliminated per round was probably enough evidence that as far as the chefs were concerned, they were pushed all the way to the edge. Of course, there could have been some sort of orchestration just to keep the balance, but ultimately it seems like ALL of the participants benefited from the experience, with many of their restaurants (including those of those who didn’t ultimately win) being now fully booked for months out. Great for business, that’s for sure! EL 

What we're listening to.

Jared Kushner’s appearance on the Invest Like the Best podcast with Patrick O’ Shaughnessy is one of the great interviews I have ever heard with some real golden nuggets on how politics works. This man is just not only a great thinker but someone who puts his money where his mouth is and deeply influences global politics. For all the silly complaints of nepotism there is no doubt in my mind that here is one of today’s great young (my age) thinkers and I hope he is around for decades to come. His involvement in the Abrahamic Accords has led to peace between Israel and many Arab countries in the Middle East and he seems convinced that the big one, The Saudi/Israeli détente is just a matter of time. There is a thesis emerging in my mind that the Middle East is on the cusp of resembling a newly united Europe of decades gone by, where a peace dividend between the major players gave rise to conditions for economic boom for decades thereafter. Could it actually be? With all the worries about war and escalation of conflict, my question is why not peace?  

This episode of the Excess Returns podcast is a good summary of how pod shops operate and what the impact is on the hedge fund industry and the wider market. 2024 was the smallest year for hedge fund launches in many years and for good reason. But pod shops manage money in a very specific way, and they have accumulated massive capital. Are they potentially systemic? Worth a listen. DC