End of week updates (November '22 2nd week)
Dear Birkoa LPs:
This is a short update for the week that just passed.
Happy to report that our fund finished this week higher by ~13% overall (meaning ~28% if the base is what we were at the beginning of the week), so now we're 27.3% from breaking even. This time round, there were actual good news wrt to the 2 dampeners I had always been suggesting were artificially hurting our portfolio.
U.S. inflation numbers came in softer than expected yesterday for October, and that means peak inflation may have passed. With Fed's rate hiking cycle seemingly towards its end, the markets and our positions were able to go on a major run the past couple of days.
China has officially begun removing COVID restrictions on travel and quarantining. Although this isn't the full thing, Chinese stocks, commodities and even our positions from Europe to the U.S. were able to march higher as a result.
The net compounding effect of these 2 factors in successive days have resulted in a major momentum drive for our portfolio, benefitting all positions, gaining close to 20% from where we were early Thursday morning. Although not declaring victory and while fully aware that things won't always be on a straight line, so long as the fundamentals on the ground remain as they are today with progressive march towards further inflation down and Chinese reopening, I expect us to recover the losses in a matter of months if weeks.
This glimpse is what I meant by the quick recovery when any one of the 2 dampeners lift, since our positions are quite strong and there's no investment in unproven names. That was also what gave me the confidence and the nerve to keep buying Chinese stocks including a Chinese property developer (which had dropped 45% last to last Monday) as they were continuing to hit new bottoms. As you know by now, the core point of the strategy is to be ahead of everyone else by one stage of the cycle, and so long as the fundamentals remain, I don't much care about what everyone else is doing or saying, and how silly I look in the short-run. While it might seem like a crazy thing to do to be buying Chinese stocks until less than 2 weeks ago, to me it was merely an opportunity to buy my convictions for cheap. Ultimately, you cannot do what everyone else is doing and expect to win in the long run - legendary hedge fund managers like Soros and Druckenmiller always go against the herd. Plus, it enables us to quickly break even at much lower prices when things inevitably do start turning, the beginning of which we are seeing happen the past 2 days with real good news!
The one asset category that's not benefited from the near-secular market optimism the past 2 days is cryptocurrencies. However, we actually shielded ourselves from crypto tokens since I had gotten so convinced to double down on China that I made money available by coming out of crypto (meant to be temporary). The logic was the pace of recovery in China when it did turn would've been much higher than crypto, which I expected to remain stagnant until early 2024. This time the timing was right, plus it enabled us to be completely shielded from the whole FTX/Sam Bankman-Fried saga, which has led to a run on cryptocurrencies due to forced selling. While we seemingly picked the exact bottom in doubling down on China this time, it won't always be this perfect each time. But the logic is what's important and I will only do something like this under very rare circumstances. Probabilistically, when you come out of a position to go into another position, your probability of being right diminishes from (1/2) to (1/4).
I expect to continue building in the weeks ahead and remain cautiously optimistic that we'll break even and more very soon. I am happy but not overjoyed, encouraged but not euphoric. Finally, I expect U.S. tech to have bottomed out by the end of the year if they haven't already and I continue to monitor a starting point for some names like a hawk. But in order to be able to do that, I'll have to take some winnings, and since oil is the best performing asset thus far, seeing that I expect peak oil to reach around the same timeframe ($110 minimum), I'll be judicious in executing this. Compounding on winnings is the best way to make money in the long run, and every position has its natural horizon. Also, our excess liquidity and maintenance margin positions have increased further and possibilities of forced liquidations (the only thing that would've hurt us) are very, very low.
I'll keep writing and providing updates in the days ahead.
Sincerely,
Pranjit Kalita
CIO