Economy & Capital Markets:
On March 16th the Fed raised: the effect Federal Funds Rate to an average of 3/8th %, with a projection for the year-end of 1.9% and, 2.8% by end 2023. The long end of the bond market sold off in response.
On 24th February, Russia launched an large-scale invasion of Ukraine, several significant trading partners imposed varying financial restrictions on Russia. Since the middle of the March, it appeared that Russia’s initial military expectation would not be met and that it would seek to reduce its incursion, stock markets recovered.
Following no major policy win the Democrats are introducing a new Legalisation of Cannabis bill that would increase tax revenue although, it may not clear the Senate. The capabilities of the US President is questioned even in supporting media-platforms therefore, the Vice-President could be promoted. There are expectations of Republican gains in mid-term congressional elections.
The PB of China sees domestic: shrinking demand, supply shocks and waning expectations. M2 is expected to growth at the pace of GDP with, corporate loan rates falling. There will be more support for smaller businesses, sci-tech and greener industry. Whilst the country maintains a zero Covid approach lockdowns will continue.
For 2022 the ECB signals: 3.7% GDP growth, 7.3% unemployment rate and 5.1% inflation rate. 3mth EIBOR in not expected to rise to 0.3% until 2023. Pandemic net asset purchases are indicated to continue through 2024. Non-pandemic net asset purchases are indicated to continue at EUR 20 bn per month. The 3rd target longer-term refinancing operations are signalled to end in June 2022. Key interest rates will be maintained until consistently expected 2% underlying inflation rates.
Kings’ Portfolio (Global Mega Cap Long/Short Equity Investing):
In a career threatening quarter the portfolio lost 14.3%, as it’s risk adjusted return (Sharp Ratio) since inception crashed below that of both the US and World Equity Indices. Long positions: Lasertec (Japan semi-conductors) contributed 2.42% to the portfolio loss in the quarter, LPP (Polish clothing)1.97%, Great Wall Motor (China automotives) 1.61% and, Mercari (Japan media-platforms) 1.47%. In addition, a residue short position in Brilliant Motors (China automotives), that is held is at profit, was removed from exchanges in the USA and awaits the lifting of suspension in Hong Kong to liquidate. Further, as well as several closed long losing positions in Polish stocks, a position in Everaz & its spin off Raspadskaya (Russian steel & coal) is suspended in London.
Losses were influenced by a coincidence of pivotal moments including: (reversal of) monetary policy that has been unnecessary for 10 years, (reversal of) martial law due from unwillingness to quarantine an insignificant but vulnerable part of the population, fiscal expansion at a time of full employment, humiliating EU & US foreign policies encouraging war in Europe. Whilst the strategy had performed at an excellent risk reward level since the end of the Great Recession (2009), absolute performance was impacted by political unwillingness to allow poorly allocated assets to be redeployed. As the artificial intelligence employed in this strategy seeks to allocated under rational (non-political) criteria, it has therefore suffered.
The does strategy continually looks to improve the economic fundamental techniques employed and, learns from its own historic mistakes. If responsible politics return the portfolio can provide outsized absolute returns, if they do not, only adequate risk adjusted returns can be expected. However, artificial intelligence looking for shorter term indicators based on capital market information, are now in development to enhance returns.
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. Following calibration of the artificial intelligence, in the final third of 2021 the strategy eked out a profit but, in the last quarter had a small loss due to the coincidence of pivotal moments (above).
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.
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. In the second month of 2022 a loss was recorded that erased the profits from the previous 10 months. The strategy has been trading flat since then.
Artificial Intelligence & Technology Development:
The firm continues refinement of existing techniques (above) and adoption of best practice. Human language analysis to identify political impacts on capital markets, is in further development. The firm also looks to develop consultancy and possibly software offerings.
Firm Operational Update:
Since 2015 the firm has been maintained as a Californian Registered Investment Advisor (RIA) within FINRA and SEC USA government oversight. At present the firm’s administrative headquarters are in London, UK; if global travel restrictions return to pre-Covid levels we expect this to be more fluid.
Impact Investing:
The firm looks to develop infrastructure for the deployment of capital in impact investing over the next five years.