Economy & Capital Markets:
The US Federal Reserve Bank identifies 0.5% as the long run REAL interest rate. This implies that production (or tax revenue) expansion needed to payback a loan and interest is also expected to be 0.5%. Given the exponential technological advances and still positive demographic growth, there must be many areas where productivity is being crushed.
This 0.5% real interest rate has to be supported by money supply expansion far in excess of that necessary and so gets parked in many unproductive assets (how much does someone’s productivity increase by having one more house), leading to huge inequality of wealth for those who cannot or should not risk investment in these assets. Eventually the money supply leaks into consumer prices which just so happens to negatively effect the wealthy and so elicits a political response.
Through being the best to adapt, humans evolved. This is what has led to the our greatest advancements, the wheel, the plough, the steam engine, nuclear power, the cpu, the discovery of gravity, electricity and penicillin etc. Plato even suggested “adversity is the mother of invention”. However monetary authorities change monetary stance with the insight and frequency of circuit race driver’s gear change, in an attempt to prevent adversity. Instead of, being a truck driver moving to a lower gear when going uphill before sticking it back in cruise for the rest of the journey, allowing the economy to adapt.
With the US Fed trying to forecast too many variables and ignoring adaptability, it now realises it has no insight and has to rely on current data to enable its policies. Ignoring for 15 years the 1955’s Fed Chairman’s message “take away the punch bowl just as the party gets going”, that implies a lag in effect of monetary policy.
Ignoring adaptability is perhaps just a reflection of those in political positions own shortcomings by, relying on group or media think and, being unable to comprehend the advantages of a digital economy’s ability to target the (helpless) individual. Instead of setting a healthy environment where adaptability thrives, they seek to impose macro policies that crush productivity. Further the conflict of interest in extending their power base results in gratuitously spending future taxpayers income and erroneous immigration, further crowding out productive investment.
For 2023 the Fed now expects: 0.5% GDP growth, 4.6% unemployment, 3.1% inflation and 5.1% funds rate.
On 24th February, Russia launched a large-scale invasion of Ukraine which now appears to be faltering but the endgame remains uncertain. Crude oil prices have fallen 1/3rd from the initial spike.
In China on December 5th the required reserve ratio for financial institutions was reduced to a 7.8% weighted average. November 24th established financial principals to maintain a healthy housing market. 18th November established principals for overseas investment in the domestic bond market.
On December 21st the ECB raised its interest rates to 2.00% for deposits, 2.50% for refinancing and 2.75% for margin lending. From March 2023 the asset purchase programme portfolio will be reduced by EUR 15bn per month. For 2023 the ECB expects 0.5% GDP growth, 6.9% unemployment rate, 6.3% inflation, 90.6% government debt to GDP and 2.9% 3m EURIBOR.
Kings’ Portfolio (Global Mega Cap Long/Short Equity Investing):
In an incredible last quarter of 2022, the portfolio returned 24%. With only 6% attributable to the legacy cash sterling’s recovery against the dollar measured benchmark. We have now activated a currency overlay in the style of the portfolio. Other large contributors to performance were 3.57% from Myovant Sciences (US healthcare), 2.54% from Vivint Smart Home (US technology), 2.15% from Harmony Biosciences (US healthcare) and 1.67% from Scorpio Tankers (US energy). Since inception: the portfolio only trails the S&P 500 by 2% cumulative performance but, with a 0.07 improved Sharp Ratio, other incredible features were that shorts and longs have contributed equally to performance, only 3 out of 15 sectors have performed negatively the worst being -2%, out of six years performance only one has been (a single digit) negative. A position in Everaz & its spin off Raspadskaya (Russian steel & coal) is suspended in London, although most of the value has already be depreciated.
Belsize Strategy (Macro & Global Futures Trading):
In May 2021, with the advancement of the firms AI abilities, this long-standing strategy that provided excellent returns during the 2007/8 financial crisis restarted. For the year 2022 performance was -2.5%.
Private Equity Strategy (Illiquid Investments):
In 2021 Q2 the firm added five position (including reservations) to its first venture capital investment in 2019. Sector breakdown now stands at: 29% media & entertainment, 22% communications, 18% real estate, 18% finance and, 8% food and beverage. The technology breakdown in the portfolio consists of 60% apps, 20% hardware, 10% sharing economy and 10% e-commerce. The firm makes no positive discrimination except for the combination of good ideas and teams, however the initial investment was to a female managed business and, we have further invested in one black and two Latin managed businesses. The female managed business was found to be providing false sales reports and, was acquired for stock in a company with a larger consumer base at an unknown valuation.
Crypto Currency Strategy (Inter-day Trading):
Due to the rapid development of the firm’s proprietary AI, in June 2021 a crypto trading strategy was initiated, across 11 currencies each with a market capitalisation over $1Bn. For the year 2022 the trading performance was negative 10% although positive since inception. Unfortunately the portfolio was transferred to FTX from Binance in June due its improved facilities and tools. Whilst we await the final distribution from bankruptcy proceedings that may take several years we will maintain the investment at book value. The firm is now committed to a full decentralised financial system and will repeat our initial investment to a decentralised exchange with preferred trading in proof of stake instruments.
Artificial Intelligence & Technology Development:
The firm continues refinement of existing techniques and adoption of best practice. Human language analysis to identify non quantifiable impacts on capital markets, is in further development. The firm is developing consultancy and possibly software offerings to non-financial firms. Internally we will also apply artificial intelligence to venture capital and private equity investment opportunities.
Firm Operational Update:
Since 2015 the firm has been maintained as a Californian Registered Investment Advisor (RIA) within FINRA and SEC USA government oversight. The firm will seek to establish a US firm to provide a regulatory umbrella for existing clients. Until that time client assets will be managed on a non-professional basis, with reduced contractual liability.