Birkoa Newsletter (updates end of Nov. 1st wk '22)
Dear LPs:
In this newsletter, I will provide a very brief set of updates and leave larger qualitative things for later. To be frank, I have explained very elaborately what I've been waiting for patiently for the strategy to show its intended results in several previous newsletters, and since by and large things are still in flux, I don't feel like talking too much here. All I can say is that we continue to be in the right direction, providing we remain adherent to our time horizon of 6 months - 3 years per position.
Before I get to it, please note that the portfolio is up about 10% as of this writing since the end of month statement you received this Wednesday (meaning it recovered 10% of the overall losses in the past 5 trading days - now down ~37% YTD). I've been through this roller coaster before and it's frustrating that end of months don't reflect moments when the portfolio trends in the right direction, thus I'd ask you to not take too seriously these end of month statements as they're merely a snapshot in time. The only thing that matters is what it'll be at the end of each position's intended time horizon and overall in units of 3 years at end. That being said, nobody wants to win on a monthly basis more than me but that's not how I make decisions.
This week there has been some important movement out of China re: COVID reopening. These reports, first from Reuters on Monday and Bloomberg today, have led to massive rallies, with the Hang Seng Index rallying 5%+ two days of this week (today was the largest rally since March). US-listed Chinese names we hold have done the same while US stocks are not doing too well today. This is what I mean when I say these losses would be recovered very quickly once the artificial dampener of COVID zero is lifted. Chinese equities are counter-cyclical to the US markets especially when the latter is in a bear market, and this week provides a glimpse of it.
The reopening rumors are not confirmed yet by the government, but seem credible enough. Oil is back at over $92/barrel and Palladium, which was sliding the past 2 weeks, is up 3% today. Commodities have more room to run when China demands comes back online, so again, this is simply a trailer of what'll happen on the commodities side when this artificial dampener is lifted.
My confidence in eventually making a large return on your capital is quite well-founded. The above 2 examples based on an unconfirmed rumor should give you that confidence. When COVID zero truly lifts, you can imagine the massive rally we'll see if this week's actions are to be believed. I expect to recover our losses within 2 months at least in Chinese names.
I will continue providing more updates as and when I think is necessary, and/or when things shape up.
P.S.: While I certainly hope this is the end of COVID zero in China, in no way am I saying it's the end of the pain I've warned you about temporarily since the Chinese Communist Party leadership is so unreasonable. Similarly, in the U.S., the Fed's aggressive tightening continues to be the second dampener on some of our positions (namely, crypto, semis, cloud-based enterprise stocks, sometimes even oil and energy names). Although today we saw the largest drop in the Dollar Index since March 2020 on the basis of rising unemployment numbers, which helps our case since that breaks the back of this artificial Dollar strength. Lots of interesting jitters remain and except for oil and commodities, I still consider us to be in the positioning phase. When things get really cheap, I am still buying. I am only focused on the eventual return at the end of this strategy's time horizon so I truly don't care about looking foolish in the short-run for exogenous reasons. The only thing that remains relevant as mentioned prior is that our maintenance margins are maintained so forced liquidations don't happen, and we're pretty well covered in that regard. In fact, I took some actions the past 2 weeks that've provided us with a greater cushion in that area. This is a once-in-a-decade moment to buy cheap and although every moment wouldn't involve doubling down on leverage, this is one of them and I had a responsibility to make the most of it.
Finally, as always, happy to hop on a call with each of you individually if you have any questions.
Regards,
Pranjit Kalita
CIO