2020 November CAD

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2.04% MTD

11.51% YTD

2020 Down 34% then Up 64% ...No Thanks!

Dear Partners,

For the month of November the Caravel Capital Fund Ltd was up 2.04%.

Equity markets around the world initiated a rally on November 2^nd, the likes of which we have never seen.  When things played out as the polls, pundits, and prognosticators forecasted with a split US congress and a Biden presidency, the markets decided to celebrate.  On top of this, add a vaccine around the corner and the revelation that North Americans’ personal bank accounts have accumulated $2 TRILLION in cash since March. Now that helps explain who on God’s green earth has been buying Doordash at a valuation of $60 billion, AirBnB at $100 billion, or (hold onto your knickers for the granddaddy of them all) Tesla at $600 billion. That’s three quarters of a trillion in market value with combined revenue of less than $18 billion and profit of less than $1 billion. You all should know it wasn’t Caravel paying these prices.  Glen is cuing the Prince song 1999 as I write.

One thing that can be observed in Caravel Capital’s 51 month history is our commitment to keeping a vigilant eye on risk.  That means we reef in our sails when we see risk rising and we let out the main and spinnaker when we see calm waters ahead.  With this in mind, we would like to share our outlook for North American markets for 2021.

The combination of:

• The end of a crippling economic global pandemic within the next twelve months,
• A stimulus hangover requiring ten year bonds to yield sub 1.2 % for at least three years,
• $2 trillion of stimulus stashed in the bank accounts of North American consumers, &
• Accelerated adoption of 5-10 years of technology migration into the workplace and home in 9 months.

Or, in other words:

• Deferred capital expenditures,
• Massive pent up consumer demand,
• Increased productivity in work and lifestyle,
• A necessity by central banks to keep money cheap so as not to blow up their governement deficits while they pray inflation brings down their debt to GDP.

The result : a bull market in 2021 and nose bleed valuations.

It is hard to stomach, but harder to ignore that this all adds up to a robust economy in North America and likely Asia/ Europe for 2021.  We would caution with one big caveate: this last burst of economic activity over the next 18 months might be a final soveriegn sponsored binge that pushes valuations too far and causes the people, pensions, endowments, and insurance companies holding these shares to say enough is enough.  An exedous like the NASDAQ in 2000 or the Nikkei in 1989 could ensue.  A move away from risky assets (the Boomer demographic will be 57 to 78).  One more tidbit - in June of 2019 millenials (23 to 38) became the largest demographic in the western world jumping over Gen-X and Boomers. How do the millenials’ work habits and desire for bigger and better compare with the Boomers?  I wouldn’t  look forward to a 1992-2000-like stock market rally.  Perhaps the one thing that could postpone the rational revaluation is a continued improvement in productivity from technology.

A big prediction of ours for 2021 is that oil will be above $60 a barrel by June.

We are pleased to announce after 2 years of being closed to new investment Caravel Capital will be reopening the Caravel Capital Fund Ltd to new investment and new investors for Feb 1^st 2021.  The fund will enjoy better access to opportunities once we exceed $100 million in assets.  We anticipate reclosing the fund once we reach $120 million, a size that both Glen and I have managed before.  We have utilized between 70% and 100% of our available leverage for some time, while demonstrating an ability to steer clear of sharp corrections and bear markets.

As we enter this holiday season, we extend wishes of happiness and safety to all of our partners and their loved ones.  After such a destructive 2020, take a moment to reflect on your prosperity and find joy in sharing with those who are not as fortunate this year.

We thank you for your continued confidence and capital.

Caravel Capital.