Weekend Reading #326

This is the three-hundredth-and-twenty-sixth weekly edition of our newsletter, Weekend Reading, sent out on Saturday 2nd August 2025.

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What we're thinking.

A little bit of selling and the calls for a selloff are ringing loud! As part of having a very steep bull run, from time to time there is selling. Nothing can keep going up in a straight line forever and selloffs along the way are normal. There has been some selling this week and the rally in the dollar has spooked anyone not invested in the US (compared to how everyone invested in the US was spooked a few months back). In the end, there is always a big sell at the end of a major bull move. But let’s make something clear. Markets are strong. Our base case is we are not ready for the big sell just yet. After all we just saw a big sell 4 months ago. We are looking forward to the next couple of months actually. A selloff could fuel the fire for the next period. Yet as ever the price action is dynamic and if we need to, we will say goodbye to our stocks just like we always do when it’s time.

What we're meme-ing.

What we're reading.
I enjoy listening to the market views of Darius Dale, a regular guest on podcast and purveyor of his research at 42 Macro. He calls it as he sees it and is right most of the time. After this week’s interest rate decision he penned an open letter to Fed chair, Jay Powell. In it he sets out his view that actually President Trump is correct in his criticism of the Fed’s actions in recent months. His style is rather more shall we say “respectful” than we are used to by now with President Trump, but his message is clear. He believes Powell has failed in his role and should be held accountable. This letter goes into the detail.
 
This is a biblical read. A long form piece by a chap called Robert Duigan of a publication called the Cape Independent. It goes deep into the history of South African political parties and interrelationships with a focus on the Democratic Alliance and Hellen Zille. It goes all the way to Jan Smuts and even features reference to a philosophical book written by him called Holism and Evolution, in which he lays the foundation for the idea of a world government. Little known fact is that it was Smuts who wrote the constitution for the League of Nations! It turns out that the core of DA policy is similar to many other left “liberal” movements globally today and somehow out of left field explains much of what we see in the US and Europe at present around migration, border control and even the transgender movement! I could not believe what I was reading. Mr Duigan’s prognosis is not however positive for South Africa to have a happy ending. I highly recommend reading this. DC
 
I thought I’d stumbled upon a new kind of option getting popularised when I read about “lookback options” but was very quickly proven wrong when after some quick research, I found that they were invented by Goldman Sachs in the late 1970s, just a couple of years after the induction of the Black-Scholes model into financial orthodoxy. This is a good guide to them if anyone’s interested, but as always, the devil is in the detail – in this case, the detail of how to effectively hedge exposures to being short these options. I can’t say I’m even close to being able to explain how, and they don’t seem to be extremely widely used outside of institutional purposes, so hopefully it won’t be something that has huge notionals to hedge because we know by now how poor hedging en masse can lead to some pretty dramatic outcomes. EL

What we're watching.

There’s been more than enough evidence that the stereotype of calling someone “bird-brained” to imply they’re stupid isn’t accurate given most birds’ demonstrated intelligence, but this video takes that claim to the next level. Titled “I saved a PNG Image to a Bird”, electronic music producer Benn Jordan’s initial experiment to see how well a particularly (apparently exceptionally intelligent) starling could memorise and replicate a tune turned into something quite a bit more fascinating. The “song” that he wanted the starling to replicate wasn’t a tune – it was a waveform that he made up based on a PNG image of a bird, modelled into a waveform (watch the video to get the idea). It turned out that not only could the starling accurately mimic the sound with relatively high accuracy, the replication was so accurate that the waveform of the bird’s mimicked sound also contained the waveform image to uncanny fidelity. So, yes, bird brains turn out to be very good brains!  EL