Birkoa Newsletter 33 (Update re: ongoing Banking Crisis)
Dear Birkoa LPs:
You will be receiving the April statements today; I have approved them to the fund administrators.
I have not written in the past month, even though I have been quite conscientious of it. The reason being some pretty interesting dislocations going on within the regional banking sector, the second bout of which resumed just the week before the last week of April, which ultimately led to the collapse of First Republic Bank. While that brought us down to settle April where we had begun the month of March, after being flatline all 3 weeks prior, it is an opportunity. Since this situation is currently ongoing, I didn't want to talk about it too much before its conclusion, but what I can tell you is that in light of the above dislocations, I think I noticed a very potentially lucrative opening. I've been at it around the clock rearranging the portfolio to maximize the gains.
Today, for example, has been a day where that realignment seems to be working quite well. If you look at the regionals today, they're up anywhere between 10% to 90%, and we're benefitting tremendously as a result of that. Unless the U.S. lets its regional banks go under as a unit, I believe there's a good chance we make some stunning returns with this realignment. It's currently in play, and all we need is this moment to pass without further bank failures. There's all the reason to believe the government is waking up to ensuring that right now, as these breaking news stories from early this morning suggest -
https://www.reuters.com/markets/us/us-bankers-urge-sec-probe-short-sales-reduce-abusive-trading-2023-05-05/
https://www.reuters.com/business/finance/fdic-plans-hit-big-banks-with-fees-refill-deposit-insurance-fund-bloomberg-news-2023-05-04/
Corrective actions like the above by the government will remove all doubt, and then these regional banks could finally be free to rally full steam ahead. Since the alternative is a major self-induced catastrophe for the economy, I don't believe the government will allow any more banks beyond First Republic to go under. They seem to be finally taking serious actions and that's partly why these banks are rallying hard today.
I wanted to provide a quick update today. Will write again very soon.
Sincerely,
Pranjit Kalita
CIO