Articles I’m reading
Dario Perkins of TS Lombard updated on where we are in the economic and business cycle, along with all the peculiarities of this post-Covid cycle that we’re experiencing. In short, we all know it’s not a usual business cycle, which suggests that we cannot use traditional models or templates to analyse it.
It’s in a Q&A format, and ended the post with thoughts on the implications for financial markets over the longer term:
- We see a secular bear market in bonds. Given that a large part of this move is already behind us, it is better to think from here in terms of higher lows and higher highs in yields.
- The bond-equity correlation, while still negative on average, is likely to weaken owing to more frequent supply shocks, which will produce episodes (like 2021-23) where the correlation switches to positive. This should raise term premia and dilute 60:40 returns.
- Rising macro volatility and higher interest rates should cap overall stock-market valuations. But rather than a secular derating, there is room for a rotation, both within US sectors (from “growth” to “value”) and from the US to the rest of the world. The investment opportunities of the 2020s are about themes, not continuous “rerating”.
- To end on an optimistic note, it is possible that greater short-term macro vol could, in fact, enhance longer-term financial stability. Think Hyman Minsky in reverse (after all, the Great Moderation was a misnomer because it concealed deep underlying problems.)
Vikram Mansharamani provided high-level thoughts for the next five years that covered a range of topics across technology, geopolitics, healthcare and business. I quote below a few I noted to ponder and read about further:
- SpaceX (or its Starlink subsidiary) goes public. The offering leads to an investor stampede into space assets, fueling what eventually turns into the largest investment opportunity of the 21st century. A multi-trillion dollar commercial space economy emerges.
- Despite significant push-back from environmental groups, deep sea mining takes off as a mix of start-ups and national mining companies start to extract polymetallic nodules from the seabed. The first underwater human colonies are established in the Clarion Clipperton Zone as nations compete to secure new supplies of critical commodities.
- Quantum computing finally demonstrates commercial and military value, sparking global competition to unlock next generation innovation capacity. The promise of being able to address humanity’s toughest challenges is delicately balanced against the perils of the military power it might confer. The United States and China divert tens of billions of dollars from their defense budgets to support quantum research. Michio Kaku’s book Quantum Supremacy becomes required reading within the Pentagon.
- A focus on ovarian health leads to scientific breakthroughs that enable women to postpone menopause for decades. Two unexpected side effects emerge: women live much longer and birth rates fall rapidly.
- Agriculture becomes one of the world’s most important commodities as nations struggle to secure adequate resources to feed their citizens. Several countries begin building (adding to?) strategic fertilizer reserves.
- Artificial intelligence compounds celebrity inequality as the famous become instantly available in all formats everywhere always. Rather than undermine the power of the most popular people, artificial intelligence enhances it.
- Protection of critical civilian infrastructure (CCI) becomes a major political issue in the United States as increasingly frequent disruptions lead to popular attention on vulnerabilities to the electricity grid, water supply, and medical systems. After a solar storm disrupts major portions of North America’s grid, NASA begins lobbying intensely for a focus on improving planetary resilience.
As mentioned in January’s post, I’m focused on cryptocurrencies at the moment since pivoting back to trading them back in October last year. The recent price gains have garnered more attention to the space, but developments across the space remain as exciting as ever.
Arthur Hayes shared his views on the points programme and how it could strike a good balance between the pros and cons of the ICO and Yield Farming system. Otorongo Capital updated on the current bull cycle here as well.
And if you’re wondering why the world seems so depressing, check out this Quillette article – The Seven Laws of Pessimism. It reminded me of Hans Rosling’s book “Factfulness“, where we tend to focus on the negatives and neglect the facts – that we happen to be living in the best of times in our short history of humanity.
Podcasts to listen
Trader Chris Dover was on Band of Traders podcast last month “If Kobe Bryant Was a Trader“, and shared invaluable advice on discretionary and systematic trading. He highlighted the significance of underlying incentives in markets and the role of statistical tools in evaluating trading systems. Since knowing him, I’ve taken his advice seriously and implemented it into my routines back in 2021 and it has taken my game to a whole new level.
A book I’m reading
The Birth of Plenty – William J. Bernstein
I shared about William Bernstein’s “A Splendid Exchange” in my previous post and liked it so much that I decided to read an earlier published work of his: The Birth of Plenty. I’m about halfway through it and it is absolutely delightful.
This book has a singular key message that Bernstein is trying to get across. The prosperity of our modern world and the creation of wealth that came forth only took place because of four factors that came together in the 17th to 19th centuries in (partially) Holland, Britain and the United States:
- Property rights
- Scientific rationalism
- Capital markets
- Transport & communication efficiency
Without these factors, certain civilisations that gave mankind math, gunpowder, printing and the compass such as India and Tang/Ming China couldn’t produce an overall, self-reinforcing and sustainable improvement in wealth and productivity of the average person. The author also used this four-point framework to explain why the industrial revolution occurred only in a particular part of western civilisation. He broke down each factor and explained them in sequence over several chapters and how our modern age came into being.
This book is not only for investors and businessmen but policymakers. The language is slightly more academic than “A Splendid Exchange” but packs a ton of insights.
Coffee shop to check out
If you’re at Singapore’s Maxwell Food Centre, check out MAXI COFFEE BAR, a quaint coffee shop nearby at Ann Siang Hill. You can order to go or find a seat outside the shop and enjoy the beautiful view of traditional Chinese shophouses while you sip on your cuppa.
Other than the usual coffee and tea menu, they have seasonal single-origin filter coffees for purchase. I had the El Encanto from Colombia when I was there recently.
Kean Chan 