Birkoa Newsletter 29 (update after Feb 2nd week 2023)
Dear Birkoa LPs:
I wanted to recap this past week for 2 very important elements of our portfolio, which I think were important enough to warrant a separate communication. Don't fret - it's all good news!
Here are the updates per sector of our asset mix -
Cloud Computing and SaaS -
Starting in October last year, I have been steadily building up our position within the cloud computing and SaaS space, as explained in my last newsletter. These companies offer somewhat of a support during an economic recession that other big tech companies more sensitive to interest rates and consumer demand cannot. As explained in my last newsletter, during last Friday's dip, I had scooped in these names some. This past week one of our portfolio holdings, Baidu, received a bump because of its announcement of a Chat GPT-like product to integrate with its search engine. On the other hand, Wall Street Journal reported that the famous activist investor Dan Loeb, had taken a position in Salesforce atop his already existing position in Snowflake, two of our holdings in the area. That news provided a boost to Salesforce. Generally, whenever he gets involved, it's usually a ticket to 100-200% returns in the next couple of years.
In other words, while I couldn't have predicted any of these exogenous-like developments when I got into the sector, it is good news that we're receiving these pieces of lucky breaks, which will continue to bode well for our holdings in this sector for the duration of time I hold them.Crude Oil -
I had of late been talking less about crude oil because I think it has been in a flux lately. But maintained my intention of holding it, speculating that another $100 peak or more is around the corner, based on my cyclical understanding of how stagflation unfolds. Back in the 1970s, there were multiple distinct peaks in crude oil despite being in a low growth environment. I have said before that the market is discounting a demand-slide owing to an impending recession way too much that's brought the price of oil (artificially) lower, while completely not accounting for Chinese reopening-led demand surge. According to the legendary oil trader Pierre Andurand, as reported in this Friday's Financial Times, price of crude oil would reach $140/barrel sometime this year. He says this as he's coming out of the natural gas trade.
Demand-side of the story is independent of the supply side dynamics, which I've always noted are skewed to the upside in terms of price movement. Often times I have talked about what I called "The Madman Theory" when it comes to Putin, who might turn off the taps to his nation's oil production just to retaliate against Western countries and/or to respond to the ill-conceived Russian oil price cap action passed by the G7. That theory hadn't really seen the light of day until this Friday, when in response to dwindling oil revenues and the need to appear strong during his losing battle in Ukraine, Putin announced a reduction of 0.5 million barrels a day. This has increased the price of crude oil thereby finishing the week markedly higher by 7.5-8%. I think this is just the beginning and Putin will continue to use this leverage to screw with the world's energy markets in the upcoming months as he continues to face battlefield losses. Therefore, even the supply side risks which favor us but weren't happening, are beginning to see the light of day now. This in conjunction with demand-side upswing coming from China will continue to drive the price of oil higher. We might even see $200 oil if we're lucky.
Sincerely,
Pranjit K. Kalita
Chief Investment Officer, Birkoa Capital Management, LLC