Steven J Cohen CFA Newsletter Q4 2021

Economy & Capital Markets:

On December 15th the Fed indicated that: Treasury and mortgage bond purchases are to end in mid-March 2022, and its benchmark interest rate will rise to 0.9% by the end of 2022 and then onto 1.6% by the end of 2023. Both the stock market and treasury yields maintained their range. Unnecessary promised massive fiscal expansion, due to both high inflation and low unemployment, stalled in the Senate.

Governing bodies have panicked over a virus that has a high transmission but low and known mortality victim profile, causing increased inequality. Governments have relied on an unskilled general population to provide specialist medical procedures on themselves, instead of providing specialist procedures by the medical profession to high mortality profiles. Without restrictions the virus would have had minimal effect on both the economy and social structures. Economies and capital markets therefore remain enthralled by government medical policy.

Also on December 15th the PBC cut the required reserve ratio for financial institutions to an average 8.4% to support supply-side structural reform, at the same time it increase the foreign exchange reserve requirement to 9%. The PBC expects the RMB exchange rate to remain stable, to utilise a further RMB300 bn central bank lending for micro and small business and, to further bing down actual loan rates.

The ECB expects in 2022: 4.2% GDP growth, a 7.3% unemployment rate and 3.2% inflation rate. 3mth EIBOR is not expected to return to zero (from -0.5%) until 2024. Pandemic net asset purchases are expected to continue through 2024. Non-pandemic net asset purchases are expected to continue at EUR 20 bn per month from October 2022. The 3rd target longer-term refinancing operations are expected to end in June 2022.

Kings’ Portfolio (Global Mega Cap Long/Short Equity Investing):

In Q4 the portfolio gained 0.70%. For the year the portfolio gained 7.96% after reaching a return high of 13.77% in June. Since inception the Sharp (risk adjusted return) is 1.02, matching the world equity index and S&P500. Winning positions for the year included: long positions Nippon Yusen KK (Japanese industrials) contributing 2.6%, JPY 1.62%, Danieli (Italian industrials) 1.48% and, short positions Canopy Growth (Canadian healthcare) 2.27% and Ping An Healthcare (Chinese consumer non-cycl) 2.01%. Losing long positions included: GBP 1.30%, Tokai Carbon -1.40%, Ube Industries (both Japanese basic materials companies) -1.10% and, Clinuvel Pharmaceuticals (Australian healthcare) -1.08%

Belsize Strategy (Macro & Global Futures Trading):

In May, with the advancement of the firms AI abilities, this long-standing strategy which provided excellent returns during the 2007/8 financial crisis restarted. Following calibration of the Artificial Intelligence calibration, in the final third of the year the strategy eked out a profit, although adversely effected by blanket economically/socially restrictions for a novel illness that effects a very focused group.

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.

Crypto Currency Strategy (Inter-day Trading):

Due to the rapid development of the firm’s proprietary AI, in June a crypto trading strategy was initiated, across 11 currencies each with a market capitalisation over $1Bn. In the first eight months of the strategy, low double-digit returns were recorded.

Artificial Intelligence & Technology Development:

Early in Q1 2021 the firm completed its software development target for the year. Apart from further improved accuracy of decision making, a surprising offshoot was increased speed. This has allowed far greater diversification across instruments and time horizons. The firm now looks to improve its human language analysis to identify political impacts on capital markets. 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.

Newsletter Q3 2021

Economy & Capital Markets:

In September the US Fed, revised expectations of 2021 growth down to 5.9% and inflation up to 4.2% whilst, indicating the Federal Funds rate will rise to 0.3% in 2022 and then to 1% in 2023.

The Peoples Bank of China views: contact-based consumption constrained, problems for small businesses and manufacturing and, fiscal imbalances for several regional governments. However, in a refreshing contrast to western bureaucrats, will maintain money supply in-line with economic growth and leverage stable. It will manage the RMB with reference to a basket of currencies, currency flows and balance of payments. It also seeks to improve bond default resolution and to stabilise land and house prices. The 14th Five Year Plan commenced in 2021 and, in Q2 2021 monetary policy returned to normal as before the pandemic.

Kings’ Portfolio (Global Mega Cap Long/Short Equity Investing):

In Q3 2021 the Kings portfolio returned 1.6% (7.2% ytd) with a 0.66 Sharp (0.69) out-performing both the World & US indices on a risk adjusted basis (Sharp). Relative out-performance was due to contribution from our short positions. Top contributors were long Paladin Energy 1.21% (Australian uranium), short Brilliance China Automotive 1.08%, short Fibrogen 0.86% (US pharmaceuticals). Biggest detractors were our legacy long position in GBP -1.93% and a long position in Xtep International -0.63% (Chinese sportswear).

Belsize Strategy (Macro & Global Futures Trading):

In May, with the advancement of the firms AI abilities, this long-standing strategy which provided excellent returns during the 2007/8 financial crisis was restated. Results are steady improving inline with trading, risk limitation and machine learning calibration, and they finally overcome some expected short term fluctuations to produce a profit in the last month.

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.

Crypto Currency Strategy (Inter-day Trading):

Due to the rapid development of the firm’s proprietary AI, in June a crypto trading strategy was initiated, across 11 currencies each with a market capitalisation over $1Bn. Trading, risk limitation and machine learning calibration is a continuous process. The fist two months of the quarter provided excellent results whilst in the last month these were reduced due to adverse news flow and the growing sophistication of market participants.

Artificial Intelligence & Technology Development:

Early in Q1 2021 the firm completed its software development target for the year. Apart from further improved accuracy of decision making, a surprising offshoot was increased speed. This has allowed far greater diversification across instruments and time horizons. The firm now looks to improve its human language analysis specifically truth and deception. 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.

Steven J Cohen CFA Newsletter Q2 2021

Economy & Capital Markets:

In June the US Fed, improved expectations of 2021 growth to 7% and inflation to 3.4% and, indicated that they expect to increase interest rates to 0.6% in 2023, a long way off.

The PB of China views: resident consumption constrained, problems for small businesses and fiscal imbalances for several regional governments. However, in a refreshing contrast to western bureaucrats, will maintain money supply and leverage in-step with economic growth. It will manage the RMB with reference to a basket of currencies, currency flows and balance of payments. It also seeks to improve bond default resolution and to stabilise land and house prices.

Kings’ Portfolio (Global Mega Cap Long/Short Equity Investing):

In the first half the dollar portfolio returned 5.48% with a 0.7 Sharp, whilst the S&P500 returned 14.42% and the ACWI 12.34%. The portfolio suffered a 6% decline in the last month impacted by market rebalancing to accommodate the US Fed’s interest rate expectation. Japanese basic material companies: Tokai Carbon and Ube Industries contributing -1.4% and -1.1% to the fall. US healthcare company Evolent Health and shorting UK technology company Micro Focus also contributed -0.75% and -0.63% with, the portfolio’s natural US dollar short position adding -0.98%. At the end of the period the portfolio held a very conservative 65% in cash.

Belsize Strategy (Macro & Global Futures Trading):

With the advancement of the firms AI abilities, this long-standing strategy which provided excellent returns during the 2007/8 financial crisis was restated in May. A small loss was reported, inline with expectations that were impacted by the US Fed’s acknowledgement of a need to bring forward interest rates increases. Operational procedures are developing.

Private Equity Strategy (Illiquid Investments):

During the period 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.

Crypto Currency Strategy (Inter-day Trading):

Due to the rapid development of the firm’s proprietary AI, in June a crypto trading strategy was initiated, across 11 currencies each with a market capitalisation over $1Bn. Operational activities are being fine-tuned to accommodate the AI decision-making within the firms risk limitations. The results were inline with expectations given market conditions, with a small profit. This strategy is not expected to be available for external parties.

Artificial Intelligence & Technology Development:

During in the first month of the quarter the firm completed its software development target for the year. Apart from further improved accuracy of decision making, a surprising offshoot was increased speed. This has allowed far greater diversification across instruments and time horizons.

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-Covd levels we expect this to be more fluid.

Kings Portfolio Newsletter Q1 2021

Economy & Capital Markets:

During the period yields on the 10 year US Treasury increased to 1.76% from 0.67% a year ago, but 1 year bill yields fell to 0.07% from 0.15%, whilst the US Federal Reserve projected inflation for 2021 of 2.4% falling back to 2% next year. With negative real yields across the curve, capital markets remained relaxed about the emergence of inflation, allowing an interpretation of the steepening of the curve, as a better risk/reward environment. However the suspension of commercial bank emergency reserve exemption measures did see ripples in equity markets. With low coupons, government borrowings have ballooned out to levels that remain difficult for future generations to return the principal through taxation, contrasting with the post-WWII beneficial demographics. Increased US long yields contributed to a recovery in the US dollar and pressured gold.

Whilst proposals to lift the US corporate tax rate to 28% from 21% do little to encourage entrepreneurialism, they do indicate a level of fiscal responsibility missing from the last 20 years as the present administration fulfill campaign infrastructure promises.

Indication of over 300% total debt to GDP in China give the PBOC little opportunity to raise interest rates that would severely reduce profits of the highly leveraged property sector. However domestic demographic and technology impact on inflation continue to depress that need.

Performance:

In the first quarter the dollar portfolio returned 6.2% with a 1.5 Sharp, whilst the S&P500 returned 5.8% and the ACWI 4.9%. At the end of the period the portfolio held 27% cash and, had a 41% net long position in basic materials, 18% in consumer cyclicals and 15% in financials. Best positions were Nippon Yusen KK (Japanese shipping) contributing 2.6% to total performance, Short JPY 1.8%, Danieli & Co (Italian metals) 1.5%, Tronox Holdings (US titanium) 0.9% and Komatsu (Japan construction machinery) 0.9%.

Firm:

The firm maintained it’s Californian financial licence allowing it’s global client base to be protected under Californian (USA) laws and regulations.

Kings Portfolio Newsletter Q4 2020

Economy & Capital Markets:

Uncertainties in 2020 (Brexit, Covid, US elections, elongation of the economic cycle) have now dissipated. Unemployment remains elevated and inflation absent, permitting central bankers to continue their folly of creating massive wealth inequality through near to zero interest rates, as apposed to increasing the volocity of money. Interestingly governments across the world are now reviewing their policy of encouraging corporate monopolies eg Ant (China) & Facebook (USA), which should assist somewhat in reducing inequality caused by central banks.

Performance:

For the year the dollar portfolio returned 12% with a 1.32 Sharp, equivalent to 75% of the S&P 500 or ACWI gains with an incredible 25% of the volatility. Longs contributed 8.13% and shorts 3.92%. Biggest contribution to gains where positions in Sunrise Communications Group, Sumitomo Metal Mining, GBP, Everaz PLC and Sasol Ltd, whilst we lost on Air Canada, Kawasaki Kisen Kaisha, USD, EQT Corp and Voya Financial Inc.

Development:

Intra & daily trading artificial intelligence was successfully developed. However optimal leverage in trading positions amplify operational risks too great for third parties.

For the firm, the biggest challenge of the year was several vendors unexpectedly modifying software (API). This was overcome in a timely manner though multiple additional techniques to benefit future data access.

Firm:

The firm’s administrative offices return to London from Zurich at the end of January 2021. The firm relinquished its Swiss financial licence and will seek to continue to operate under its Californian financial licence.