Birkoa Newsletter (end of November '22)
Dear Birkoa LPs:
By now, you must've received the monthly reports pertaining to where the portfolio stands end of November '22. We are continuing to make good progress towards recouping all the losses, and we are net positive on non-crypto aspect of our portfolio again for the first time in 6 months.
The most essential factors signifying our quick path towards recovery and (hopefully) eventual positive performance are the following -
Chinese COVID reopenings
U.S. inflation cooling leading to a weaker Dollar
As I've said before, these 2 were acting as "artificial dampeners" in our portfolio which were bringing down most assets and making otherwise uncorrelated assets correlated to the U.S. markets. While the inflation picture in the U.S. will remain elevated for quite sometime and in fact stagflation forms the base case of my strategy for the next few years as I've indicated since the very beginning, inflation will cool down from the highs of this summer. As it cools, the Federal Reserve can think about a terminal rate, which is essentially what the markets want. Due to the Dollar decreasing now that more Fedspeak suggests an end to the tightening cycle (which was the lever that was bringing everything artificially low), now assets are able to move more freely.
Chinese government seems to be moving towards more reopening, or at least, decreasing the severity of the tightenings, finally realizing the silliness of the whole Covid Zero policy. Therefore, Chinese assets are able to lift themselves out of the slump (again artificial!) they were in, and are recovering well. As I'm writing right now on Sunday evening, Chinese govt. has signaled further easing in Shanghai as a result of which there's a further rally of our Hong Kong holdings, something that might be carried over to our US ADR holdings for Chinese stocks tomorrow. The portfolio is up overall ~7% since the end of month report you've received, and therefore the pace of recovery continues to be absolutely breathtaking. Again, precisely as I was stating back in September-October when I used the "rocket ship analogy".
There are still elements of the portfolio which aren't where I'd like them to be - most notably oil, commodities in general. I'm not going to go over them again this newsletter since I've already described all the elements that should govern their prices in previous newsletters. Right now, a push towards Chines reopening is clearing the demand picture a little bit, so oil and metals seem to be rallying on the news after reaching a local bottom last Monday. Ultimately, I still believe that a mix of demand-side positive pressures coming out of China and continuing supply-side imbalances will continue to bring oil prices and other commodities up. I thought it was interesting that OPEC decided to keep production steady when they met today, despite European sanction on Russian oil starting from tomorrow. Finding a replacement for that oil and rerouting that oil is a bullish factor that should increase oil prices.
I will write more as developments continue to take place. Until then, I'm glad to be able to report better news than the prior months. Although a lot of work remains I remain convinced about the viability of this strategy for the time horizon it's designed for. Please do not hesitate if you have any questions at any time.
Regards,
Pranjit Kalita
CIO