Birkoa Newsletter (Oct '22 wk 3 updates [**corrections])

Dear LPs:

Here are the updates at the end of this past week (Oct. 3rd wk '22). Correcting some wrong links from the previous version, which you may discard.

1. Markets ended up higher and our portfolio ended up higher. We finished higher by ~4% on the week although at one point we were up over 8% by mid-Tuesday, prior to giving some of it back. The reason I'm highlighting the details is to show how choppy the markets still remain. The markets move very significantly on political news and on the Dollar strength, with everything almost being negatively correlated to the Dollar.

2. Oil finished higher. Although it had the potential to finish higher than some modest gains it finished the week with, the fears of recession are still not allowing oil to move per fundamentals. It is widely assumed that oil will cross $100 by end of December since Russian oil bans for Europe will kick in Dec. 5. That being said, our energy ETF did quite well this week and will possibly do well next week as well, since both Exxon and Chevron report earnings next Friday. Expect continued outperformance on account of strong earnings. Oil and energy has been the highest performing sector by far this year, and although we missed the first quarter of this year, we've still done alright on this sector thus far (we'd have done far better had we launched in January so timing figures into the picture short-term but long-term it won't matter as much, which is what I'm interested in).

3. Palladium stalled. It's been oscillating around the $1975-2200 range for a while. Palladium, like oil, has supply side issues emanating from Russia while auto demand (Palladium is used in batteries) has remained steady despite a growing risk of slowdown. China, whenever it comes back, will increase the demand picture while supply side issues remain. In order to benefit from that jolt, I've been waiting on Palladium steadily to rally. [**LINK CORRECTION]

4. Crypto. From what I've seen, the crypto tokens don't move per the daily stock market as much as earlier. They seem to be holding steady at the $1300 ($19250) range for Ether (Bitcoin). However, the crypto ETF consisting of stocks like Coinbase in this space, does mostly move with the stock market, especially whenever liquidity seems to be the root cause of worry. This week, we held steady in this field and are just off the lows in our crypto ETF. Liquidity concerns were a bit improved this week in the markets although mid-week there were tremors of pain.

5. Chinese equities. Frustrated by lack of movement on COVID zero although COVID travel restrictions are being curbed some more this week. Monetary space in China continues to be the key and the CCP in its party conference has pledged more support to the Chinese economy and its tech sector. Tech names did okay this week, especially in a few select names like Pinduodo. In the absence of Chinese economy being able to liftoff from COVID restrictions, however, the unfortunate correlation with the US stock markets remain and we'll simply have to wait it out.

This week there was obviously the event where markets pushed out a British PM on account of rising bond yields in the UK, which had led to massive liquidity problems for proper functioning of the markets. Although the US situation is not quite as dire, there are persisting liquidity concerns here as well, and some Fed officials have begun worrying about the steep rate of tightening. In fact, on Friday around 8:30 am futures were pointing to a -1% start but Wall Street Journal dropped an article of Fed officials's concerns about rate hikes, and the markets soared that day from that point. The yield on the US 10-year had briefly crossed its highest level since 2007, and the markets immediately pulled back signifying some have had it with the rising yields, leading to some famous bond managers to remark that peak yields may be near [**LINK CORRECTION]. The drop in yields helped in furtherance of the rally, but the technicalities of the markets once again highlight the dependence on liquidity, which is weighing exogenously on our macro positions. This is a prime example of the fickleness of the markets, which is why I've been writing these newsletters more frequently during this time to show you why you shouldn't worry too much instead just let this moment pass (because it will). I expect that once these "artificial dampeners" lift that our fund's positions, most notably China, will take off. Right now, it's like having an exogenous weight placed on them, which is frustrating so it's important to remain patient.

Next week, a lot of the big tech names will report earnings. Microsoft, Amazon, Google and perhaps Apple are expected to do well, while Facebook is expected to do poorly. I think overall the demand picture has remained strong in Q3 '22 which will continue to boost this nascent bear market rally, thus I expect some further upside to our positions so we can come out of this temporary hole we're in right now. Energy's widely anticipated outperformance is expected to provide further spike to our energy stocks and even oil positions.

I will be in touch with more during the week. 

Regards,

Pranjit Kalita
CIO