End of Week Update (Oct 1st wk '22)
Dear LPs:
Given the heightened state of market gyrations, I want to communicate with you more frequently so you are at peace with the why and what of the process.
On Friday, per my Thursday newsletter, there was indeed a big sell-off in almost every market due to newly released employment numbers, which weren't "bad enough" for the markets apparently (twisted logic right there!). Therefore, we gave back about half of the week's gains until that point and ended up being up about 8.6% for the week (+4.5% on total invested money). I expect these kinds of situations to happen more in the upcoming weeks, although I feel confident that we will be able to ride out this bad period without the need to sell anything to raise cash (last week our maintenance margin for instance increased by 20%; infact I decided to increase our U.S. semiconductors exposure by 10% during Friday's intense 6% sell-off which is clearly extreme given the recent analyst upswing on the sector for 2023).
However, despite all the bad moves in most of the portfolio, I'm heartened by the movement in the price of oil after what OPEC+ did last week. So, at least oil (and commodities in general) might be uncorrelated with the rest of the assets which is a welcome change from last month. In other words, more and more assets might continue to break their correlations as we come out of this extreme period.
Here's an article on the FT that suggests the shaping up of the macro environment, not that dissimilar from what I have suggested would happen in terms of the price of oil and the geopolitical reverberations due to it.Almost a half-century ago was the Yom Kippur War that led to the stagflationary 1970s. What happened last week with OPEC+ will be regarded to be as historically relevant in the future, upending the global order. This is precisely why I like this business, since I had talked about this in my numerous emails and newsletters from the past, and although the rest of the portfolio is temporarily suppressed, oil’s move of 22% last week shows that things are progressing along as expected, and some of the macro stuff is showing results. When oil came all the way down to $78 from $122 in June, I never lost faith for 1 second. While still ways to go, this is a prime example of the fortitude that’s needed to stick with your convictions. Couldn’t be more excited for the other elements of the portfolio to also follow suit!
Price movements will follow the macro movements soon, but until then, we can take comfort in the fact that the first piece (macro) is moving along in the intended direction for the most part.
This week there's another big economic number being released - inflation print from September. Once again, the market reaction will be similar in vigor to the employment numbers from last week (if inflation is cooling, then markets will rally, otherwise another decline). I will be in touch about that during the week.
Finally, as I've been following the markets, it's been reported more and more that so long as your time horizon is a little bit longer term and not short-term, valuations are becoming more and more attractive for risk assets. In other words, keep buying the dips whenever possible. I have been doing this steadily for over 3 months now hence the doubling down on positions whenever possible.
Sincerely,
Pranjit Kalita
Chief Investment Officer