January Recap: Setting Up for a Strong FY2026

Opportunity, Restraint, and a Few Hard Reflections

Foreword from Alpha Talon

January was busy, noisy, and deceptively generous for some investors.

From the outside, it looked like opportunity everywhere. From the inside, it was a month where not acting mattered just as much as acting.

There is something deeply human about January. A new calendar resets expectations. Optimism quietly creeps back in. Risk tolerance rises without anyone explicitly deciding it should. Narratives feel fresher, cleaner, more convincing. We’re not immune to that. And judging by market behavior, neither is anyone else.

We’ve already published a meaningful amount of work this month. Ideas, analyses, positioning notes, and early FY2026 thinking are already out in the open. But January is also the month where reflection matters most. Not just for us, but hopefully for you as well.

At Alpha Talon, January is always treated as a month of setup, not a month of conclusions. The goal is simple: set the foundation for a good quarter, which supports a good half, which hopefully compounds into a good financial year. Portfolio construction, risk management, and capital protection sit at the center of everything we do in this period.

Too little risk has its own danger. Underexposure can mean structurally underperforming even when your thesis is directionally right. Too much risk, on the other hand, is far less forgiving. It doesn’t just hurt returns. It removes flexibility. And once flexibility is gone, it rarely comes back when you need it most.

What stood out to us this January is that, unlike many previous years, the investments we already hold matter more than ever. The margin for error feels thinner. Capital allocation decisions feel heavier. The difference between a strong FY2026 and a mediocre one is less about how many new ideas we add, and more about how well we manage, size, and protect the positions we already believe in.

We do see opportunity. But we’re also looking at opportunity more critically than usual. The line between signal and noise feels narrower. The line between conviction and narrative feels easier to cross by accident.

So in this January recap, we want to step back and touch base on a few core areas shaping our thinking as we move deeper into the year:

• Macro economics and the broader global backdrop

• Opportunity versus trap in a narrative-heavy market

• The APAC rally and whether this is catch-up or something more durable

• Our ASEAN reflection, what we missed, and what we’re changing

• Our current holdings, portfolio weaknesses, and how we plan to mitigate them

• Whether markets are drifting closer to the edge of narrative

• How long we realistically have to keep tip-toe dancing just to outperform

• And finally, why everything feels so fragile lately, even as markets go up

January is over. The easy optimism is fading. What remains is execution, discipline, and the ability to stay rational in a market that increasingly rewards confidence over correctness.

That’s the lens through which we’re entering February and the rest of FY2026.

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Macro Economics and the Broader Global Backdrop

Our starting point on global macro is straightforward: we are broadly neutral.

That neutrality, however, is not universally shared within the Alpha Talon team, and that divergence is intentional. When everyone agrees too easily, blind spots form. Macro is one of the areas where internal debate remains healthy and unresolved.

As long-time readers know, we currently carry outsized exposure to cyclical businesses, with a meaningful tilt toward consumer discretionary. That positioning naturally produces disagreement. Some of us are more constructive on growth. Others are more cautious. What matters is that the disagreement is structured, not emotional.

Despite different views, we align on a few foundational truths. Global macro today is uneven, not outright strong or weak. Growth is slowing in some regions, stabilizing in others, and policy support is increasingly asymmetric. The era of synchronized global expansion is long gone.

What we’re left with is a patchwork of regional cycles, each sensitive to different political constraints, fiscal realities, and policy errors.

For a portfolio tilted toward cyclical and consumer-facing businesses, this matters. Earnings durability is shaped less by headline GDP and more by confidence, real wage growth, financing conditions, and institutional credibility. In this environment, being broadly “right” on macro matters less than avoiding being structurally wrong in one key geography.

That’s why our neutrality should not be mistaken for indifference. It’s a recognition that conviction without margin for error is dangerous, especially when exposure is already economically sensitive. We would rather tolerate internal disagreement and slower deployment than force alignment around a fragile macro narrative.

Our macro work this year is less about predicting the next cycle and more about stress-testing what we already own. The question we keep asking isn’t whether growth accelerates or slows, but whether our holdings can survive a world where growth is uneven, confidence is fickle, and policy support is conditional.

The U.S. Macro Picture: Stable, but Not Comfortable

On the surface, the U.S. economy still looks fine.

Growth hasn’t fallen apart. The labor market remains functionally strong. Financial conditions aren’t tight enough to force an immediate reset. This is the version of reality markets are most comfortable with, and it explains why risk assets continue to behave as if policy errors will always be reversible.

Our discomfort sits beneath that surface.

The U.S. economy today is far more dependent on competent execution from policymakers than it was a decade ago. Fiscal discipline is weak. Debt servicing costs are structurally higher. That combination makes the system less forgiving. Policy mistakes don’t just cause volatility. They compound.

What’s changed isn’t the existence of tools, but the margin for error around them.

Fiscal policy is now structurally expansionary, not cyclical. Deficits persist even during growth. Higher rates mean debt servicing is no longer abstract. It’s an active economic constraint.

Monetary policy, in turn, is boxed in. Inflation is lower, but declaring victory too early carries credibility risk. Growth is slowing, but not weak enough to justify aggressive easing without reigniting excess leverage. The policy corridor is narrow, even if markets refuse to price it that way.

That’s why policy errors feel more dangerous than they used to. Liquidity is no longer free. Every intervention reinforces leverage, compresses risk premiums, and trains markets to expect rescue. That feedback loop works until it doesn’t.

We’re not arguing the U.S. is on the brink of collapse. We’re arguing that stability is now conditional rather than inherent. It depends on disciplined execution, coherent communication, and the absence of major shocks.

That’s an uncomfortable foundation. Not because outcomes must be bad, but because the system is less tolerant of error.

Consumer Confidence: Holding Up, but Fraying at the Edges

Consumer confidence hasn’t collapsed, but it is fragile.

Households aren’t behaving like they’re in recession, but they’re also not behaving like they feel secure. Sentiment swings rapidly with inflation prints, fuel prices, and headlines rather than improving balance sheets.

Confidence today isn’t anchored. It’s triggered.

When confidence becomes headline-driven, it loses durability. Consumers stop forming expectations over years and start reacting over weeks. A soft CPI print lifts sentiment. A gas price spike reverses it. Markets rally and sell off accordingly.

The danger here is denial.

Headline inflation is an average. Consumers don’t live in averages. They live in categories. Food, housing, insurance, healthcare, and utilities still feel expensive. Prices rarely fall. They reset higher and stay there.

That gap between official improvement and lived experience matters. It erodes trust in data and, eventually, in policy. If inflation stalls or reaccelerates, repricing could be abrupt because expectations are already leaning hard in one direction.

Retail behavior reflects this fragility. Spending comes in bursts, followed by hesitation. Promotions work. Full-price demand doesn’t. Credit increasingly fills the gap, acting as a substitute for confidence rather than a complement to growth.

Consumer Spending: Strong, but Uneven

Consumer spending remains a key pillar of the U.S. economy, but its composition has changed.

Higher-income households continue to spend comfortably. Wage growth at the top has held up. Asset prices remain supportive. Balance sheets are resilient. Inflation is an inconvenience, not a constraint.

Lower- and middle-income consumers are far more selective. Spending is price-sensitive, promotion-driven, and increasingly reliant on credit.

This creates a dangerous asymmetry.

How durable is an expansion when strength is carried by a narrowing slice of consumers? What happens to earnings and valuations when that support weakens?

Credit, Savings, and Why Politics Is Now Involved

Pandemic-era excess savings are largely gone. Buffers have thinned. Credit usage has risen, particularly revolving balances.

In isolation, this isn’t alarming. Credit has always smoothed consumption. The problem is the price of that credit.

With structurally higher rates, what used to be a bridge becomes a drag. Minimum payments rise. Flexibility shrinks. Consumption becomes binary.

This is why credit costs have become political.

The push to cap consumer credit rates around 10% isn’t about stimulating growth. It’s about preventing demand from breaking. It buys time. But it doesn’t fix the structural problem.

At Alpha Talon, we see this as net negative for long-term growth. Credit shouldn’t replace savings. Savings are psychological capital. They allow households to absorb shocks without panic.

When confidence is built on debt, growth becomes fragile by definition.

Labor Market: Strong, but Lagging

The labor market still looks healthy. Unemployment is low. Wages are growing, albeit more slowly.

But labor is a lagging indicator.

The real signals are hiring intentions, hours worked, wage progression, and job mobility. And those are softening. Firms aren’t firing aggressively. They’re freezing.

Youth unemployment is flashing early warning signs. Entry-level hiring is tighter. Career ladders are harder to access. This doesn’t hit headline data immediately, but it compounds over time.

The risk isn’t mass unemployment. It’s underemployment and stalled progression. That erodes confidence, productivity, and long-term consumption.

People have jobs. They just don’t feel secure or mobile. That distinction matters.

Inflation: Stable on Paper, Painful in Reality

Headline inflation has stabilized. That’s comforting for markets.

But prices don’t go down. They reset higher.

Housing, insurance, healthcare, education, food, and services remain expensive. Real wages have improved marginally, but the gap created over the past decade hasn’t closed.

We don’t believe inflation returns cleanly to 2% without structural trade-offs the economy and politics are unlikely to accept. A 3-4% regime may be the least bad outcome.

The economy can adapt, but adaptation isn’t thriving.

Growth becomes slower. Earnings concentrate in sectors with pricing power and scalability. Technology benefits. Labor-intensive sectors struggle.

The disconnect between data and experience fuels frustration and policy risk. Inflation expectations remain sticky because people anchor to what they pay most often, not what economists measure.

The Federal Reserve Constraint

The Fed is operating in an unusually narrow corridor.

Inflation is lower but unresolved. Growth is slowing but not weak. Markets are loose yet fragile. Institutional scrutiny and political pressure complicate communication.

Legal accountability isn’t political interference by default. Due process matters. We maintain confidence in Chair Powell and the integrity of the institution.

That said, optics matter.

Credibility is central banking’s real currency. Once it’s questioned, even correct decisions become harder to transmit. Guidance loses stickiness. Silence is misread.

Add fiscal pressure and political agendas into the mix, and the margin for error shrinks.

The next Fed Chair will matter enormously.

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Macro Economics Beyond the U.S.: Fragmented, Uneven, and Increasingly Asymmetric

If the U.S. macro backdrop feels stable but uncomfortable, the rest of the world feels uneven, conditional, and far less forgiving.

Outside the U.S., global macro is no longer about synchronized cycles. It is about asymmetry. Different regions are operating under very different constraints, facing different policy trade-offs, and reacting to shocks at very different speeds. That matters enormously for capital allocation, because asymmetry is where both opportunity and fragility live.

The key theme we keep coming back to is this: the global system has lost its shock absorbers. In previous cycles, weakness in one region was often offset by strength elsewhere. Today, many regions are either constrained, repairing balance sheets, or politically boxed in at the same time.

That doesn’t mean collapse. It means lower tolerance for error.

Europe: Low Momentum, High Sensitivity

Europe’s macro problem is not imminent crisis. It is lack of growth momentum.

Growth remains weak, productivity gains are modest, and demographics are unfavorable. Even when inflation cools, domestic demand struggles to reaccelerate meaningfully. Consumers are cautious. Corporates are hesitant to invest. Fiscal space exists in theory, but in practice it is fragmented and politically constrained.

The single-currency structure compounds this issue. Monetary policy is necessarily blunt. What supports growth in one country tightens conditions in another. That makes fine-tuning almost impossible and leaves the region reacting rather than leading.

The bigger issue is sensitivity. Europe is highly exposed to external shocks.

Changes in U.S. rates transmit quickly into European financial conditions. Energy price volatility hits households and industry harder than in most other developed regions. Trade cycles matter more. When global demand slows, Europe feels it disproportionately.

This is why European recoveries tend to feel technical rather than organic. They stabilize, but they rarely build momentum without external support.

From an investment perspective, Europe demands selectivity. Broad beta is unattractive. Opportunity exists in global champions, niche exporters, and businesses with pricing power, but the macro backdrop offers little tailwind on its own.

United Kingdom: Stagnation, Not Transition

The UK sits in a category of its own. At this point, the Brexit adjustment phase is largely over. What remains is something deeper: structural stagnation driven by weak productivity, inconsistent policy, capital flight, and declining confidence.

The UK economy isn’t collapsing. It’s drifting downward. Growth exists, but it doesn’t compound. Investment is cautious. Public services are strained. The tax burden is high relative to perceived value delivered. And perhaps most importantly, both foreign and domestic capital are increasingly disengaging.

This is not about ideology. It’s about incentives. When high-income earners, entrepreneurs, and globally mobile capital no longer see a compelling reason to stay fully invested in the domestic economy, momentum quietly drains away. That is extremely hard to reverse once it becomes embedded.

We don’t see the UK as an opportunity today. We see visible risks, limited upside, and a long, politically difficult path to repair. For now, it remains outside our capital allocation framework.

The UK’s geopolitical positioning has quietly become an economic constraint rather than an advantage.

Alignment with the United States has deepened, but it has come with trade-offs. The closer the UK moves toward Washington, the further it drifts from Europe in practical economic terms. That pull has not meaningfully replaced the scale, integration, or frictionless access the EU once provided.

More importantly, alignment with the U.S. has not translated into substantial domestic economic benefits. There has been no meaningful reacceleration of productivity, no surge in investment, and no structural growth impulse tied to this alignment. The relationship is strategically important, but economically underwhelming for domestic revitalization.

At the same time, alignment with China is effectively closed off.

After years of diplomatic confrontation, security posturing, and policy decisions that explicitly curtailed Chinese investment, any pivot toward China would now appear hypocritical and politically toxic. Even if Chinese capital could support parts of the domestic economy, especially in investments, infrastructure and industrial sectors, however the public and political cost would be severe.

Recent controversies, including backlash surrounding the construction of a new Chinese embassy and concerns over its proximity to critical infrastructure, highlight this reality clearly. Alignment with China would likely undermine public confidence rather than restore it, regardless of potential economic upside.

This leaves the UK in an awkward middle ground. Too distant from Europe. Economically under-rewarded by alignment with the U.S. Politically unable to engage meaningfully with China.

Layered on top of this is growing political fragmentation at home. Anti-immigration sentiment has hardened across the spectrum, not just against illegal migration, but against skilled and legal immigration as well. That stance directly conflicts with the needs of a modern, services-driven economy.

The result is a negative feedback loop. Restrictive policies reduce talent inflows. Reduced talent lowers growth potential. Lower growth accelerates capital flight. Capital flight reinforces political anxiety. And the cycle repeats.

This is not a transition phase. It is a stagnation trap. Until incentives change meaningfully for capital, talent, and enterprise, the UK’s path forward remains narrow, politically constrained, and economically unconvincing.

China: Stabilization First, Recovery Later

China’s macro trajectory is perhaps the most misunderstood globally.

This is not a cyclical slowdown waiting for stimulus. It is a balance-sheet repair cycle layered on top of demographic pressure, property-sector restructuring, and shaken consumer confidence.

Households, developers, local governments, and parts of the private sector are all deleveraging at the same time. That matters because when everyone is repairing balance sheets, stimulus loses effectiveness. Liquidity stabilizes the system, but it doesn’t ignite demand.

That’s why China’s policy response feels incremental. It’s designed to prevent collapse, not engineer a boom.

Consumer behavior reflects this clearly. Spending hasn’t disappeared, but it has downgraded. Confidence is defensive. Households prioritize liquidity over lifestyle. This is why we see full restaurants replaced by noodle shops, noodle shops replaced by empty store fronts, value spending over experience spending, and saving behavior driven by extreme uncertainty rather than optimism.

Deflationary pressure is the natural outcome of this dynamic. Demand slowed faster than policy response, and policymakers are deliberately tolerating some deflation rather than reigniting leverage.

Our framework remains unchanged:

• 0-12 months: stabilization

• Extended period: flat, cautious growth

• True recovery: likely no less than five years

This is not pessimism. It is realism rooted in how balance-sheet recessions actually resolve.

China Politics: Post-Purge Uncertainty and Unverified Security Reports

Following what appears to be the near-completion of the recent military purge, political risk in China has re-entered focus due to unverified but serious reports circulating among on-the-ground networks in Beijing.

According to multiple independent sources with local proximity, there have been allegations of an attempted internal power grab involving elements of the military. These sources report that the incident was not successful and that central authority remains firmly intact.

Several of our sources which consisted of colleagues, independent journalist and friends located in Beijing have reported hearing gunshots and loud explosions during the period in question. These accounts are anecdotal and cannot be externally corroborated at this stage (due to the censorship), but the consistency across witnesses warrants attention.

Additional unverified reports suggest that high percentage of members of Xi Jinping’s personal security detail may have been killed while attempting to protect him. We stress that this claim has not been confirmed by any official channels.

In the aftermath, our sources indicate that a further large-scale purge has taken place, reportedly involving approximately 3,000 additional military personnel, alongside the removal of the remaining senior generals, such as Zhang YouXia, as well as actions taken against their immediate family networks.

From a political-risk perspective, the key takeaway is not the specifics of any single claim, but the broader implication: elite security, military loyalty, and internal cohesion remain areas of sensitivity, even after extensive consolidation of power.

We will continue to monitor developments closely and will update our assessment only as additional, verifiable information emerges.

Japan: Stability With Structural Limits

Japan remains one of the more stable macro environments globally, but stability should not be confused with growth.

Corporate governance reforms have improved capital efficiency. Shareholder returns are better. The labor market is tight. But long-term growth remains constrained by demographics and productivity limits.

Japan benefits in global risk-on environments, particularly when yen weakness supports exporters and global demand holds up. It struggles when global growth slows or when external volatility spikes.

For investors, Japan remains a potential relative stability play, not a high-growth one. Opportunities exist in well-run companies with improving capital discipline, but macro tailwinds are limited and highly possible.

The Bank of Japan sits at the center of Japan’s macro risk profile.

Years of ultra-loose monetary policy have left the BOJ with limited flexibility. Yield curve control, massive balance-sheet expansion, and prolonged negative or near-zero rates stabilized the system, but at the cost of future optionality.

Any attempt to normalize policy risks destabilizing government financing, the banking system, or the yen. But maintaining the status quo risks further currency weakness, imported inflation, and erosion of household purchasing power. This is a narrow path, and the margin for error is not large.

Adding to this complexity is rising fiscal pressure under Japan’s new prime minister, Sanae Takaichi.

Public debt is already extraordinarily high. Aging demographics mean higher social spending is unavoidable. At the same time, political incentives increasingly favor fiscal support, wage subsidies, and targeted stimulus to sustain household confidence.

This creates a growing tension between fiscal expansion and monetary normalization. The more fiscal pressure builds, the harder it becomes for the BOJ to step back without triggering market stress. Over time, this risks blurring the line between monetary independence and fiscal necessity.

Markets have largely tolerated this arrangement so far because stability has been maintained. But tolerance is not the same as sustainability.

Emerging Markets: Selective Relief, Not Broad Reacceleration

Emerging markets are benefiting from dollar stability and some capital rotation, but this should not be mistaken for a synchronized EM recovery.

Conditions vary widely.

Countries with improving fiscal discipline, political stability, and domestic demand are doing well. Others remain highly sensitive to external financing conditions, commodity volatility, or policy credibility.

This is where blanket EM exposure becomes dangerous. Dispersion is high. Winners and losers will diverge sharply.

The Big Picture: A World With Less Cushion

Stepping back, the defining feature of global macro outside the U.S. is reduced resilience.

Europe lacks growth momentum.
The UK lacks political and economical direction.
China lacks consumer and policy confidence.
Japan lacks sustainable growth.
Emerging markets lack uniformity.

This doesn’t mean markets can’t rally. They clearly can. But it does mean shocks propagate faster, recoveries are slower, and policy mistakes carry more weight.

In a world like this, macro is not about predicting the next boom. It’s about avoiding being exposed where recovery assumptions are fragile.

That’s the lens we’re applying as we move deeper into FY2026.

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ASEAN: Structural Compounding, Not Just a Trade

Let’s slow this down for a moment, because ASEAN deserves more respect than it usually gets.

For years, ASEAN sat in that uncomfortable middle ground. Good ASEAN companies are not cheap enough to scream distress. Not exciting enough to dominate headlines. Always mentioned as “long-term potential”, but rarely treated as something we can build around. That’s partly why we missed the April rally. And it’s also why, after stepping back, we realized this isn’t just a trade we failed to catch. It’s a compounding story we underweighted.

The key distinction here is simple: ASEAN is growing for reasons that don’t depend on leverage, stimulus, or narratives. That alone already puts it in a different category from most regions today.

What stands out most when we look closely at ASEAN economies is that growth is increasingly domestically driven. This is not export-only, policy-dependent, or credit-fueled expansion. It’s income growth feeding consumption, consumption feeding financial deepening, and financial deepening reinforcing growth.

As incomes rise, households spend more on basics first, then on services, then on financial products. Banking penetration increases. Insurance adoption grows. Digital payments scale. Credit becomes more accessible, but importantly, not yet excessive. This creates a long runway where earnings grow not because margins spike, but because the addressable market expands year after year.

ASEAN’s demographic profile is doing something that most developed markets can’t replicate. Populations are young, urbanizing, and entering their peak earning years. This isn’t theoretical. We can see it in wage growth, in consumer behavior, in housing formation, and in rising demand for financial services.

Contrast that with Europe, Japan, or even parts of China, where demographics are either flat or working against growth. In ASEAN, demographics are an accelerant, not a drag.

A young workforce doesn’t just mean more consumption. It means higher risk tolerance, faster adoption of new products, and greater willingness to formalize financially. That’s why digital banking, insurance, and payments scale so quickly once they reach critical mass.

One thing we underappreciated initially is how valuable boring politics can be.

Malaysia, Indonesia, and Singapore don’t dominate global headlines. Policy tends to be incremental. Institutions, while imperfect, are improving. Rule-making is generally predictable. That predictability lowers risk premiums and encourages long-horizon capital.

We don’t need perfect governance for compounding. We need consistency. ASEAN increasingly offers that.

This is especially important in a world where geopolitical noise and policy volatility are everywhere. Capital doesn’t just chase growth. It chases places where growth isn’t constantly interrupted.

If there’s one place we think people consistently misunderstand ASEAN, it’s the financial sector.

Banks, insurers, and financial services companies in ASEAN have been compounding quietly for decades. Not explosively. Quietly. Credit penetration is still rising. Insurance penetration remains low relative to income levels. Wealth products are still early. Payment ecosystems are still expanding.

This is the kind of growth that doesn’t show up in a single quarter, but looks obvious over five to ten years.

What makes this attractive is not just growth, but balance. Many ASEAN financial institutions are conservatively run, well-capitalized, and disciplined on risk. They didn’t over-lever during prior cycles. They didn’t blow themselves up chasing yield. That restraint now gives them room to grow as economies mature.

As incomes rise, financial services scale almost mechanically. More deposits. More lending. More insurance. More fee income. We are not speculating.

Another thing that aligns well with our portfolio philosophy is dividends.

ASEAN financials, and increasingly consumer-facing businesses, tend to return capital. Payouts are not aggressive, but they are consistent. Dividend growth tends to track earnings growth, which itself tracks income growth and financial penetration.

This creates a powerful long-term dynamic: we get paid while we wait, and the payment grows over time.

In a global environment where growth is fragile and valuations are stretched, that matters more than people admit.

It’s tempting to view ASEAN as a derivative trade on China or global trade flows. That’s outdated.

Yes, ASEAN benefits from supply-chain diversification, nearshoring, and regional trade. But its growth story doesn’t collapse if China slows or if the U.S. cycles. Domestic demand will do more of the heavy lifting as ASEAN economy grow and mature.

That insulation is rare. Where other regions depend on external reflation, ASEAN benefits from internal normalization. People are moving from informal to formal economies. From cash to digital. From basic banking to full financial ecosystems. Those transitions take decades, not quarters.

Going forward, we are treating ASEAN as a core strategic allocation, not a tactical trade. That means being patient. Accepting that we won’t time every entry perfectly. Focusing on businesses that can compound for a long time rather than spike quickly. Prioritizing balance sheets, payout discipline, and exposure to rising domestic incomes.

We’re also anchoring part of this exposure through Hong Kong-listed financial companies with large ASEAN footprints. That gives us scale, liquidity, and governance standards we’re comfortable with, while still capturing regional growth.

The biggest risk in ASEAN isn’t macro collapse. It’s impatience. This is not a place where returns come from hype. They come from years of steady execution. If we expect instant gratification, we’ll get bored. If we expect explosive multiples, we’ll be disappointed. But if we’re willing to let compounding do its work, ASEAN offers: growth that doesn’t require heroics.

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Our Current Holdings, Portfolio Weaknesses, and How We Plan to Mitigate Them

Through the Lens of the Alpha Long Portfolio

Stepping back and looking at the Alpha Long Portfolio as a whole, our starting point is one of measured comfort, not complacency.

Most of our current holdings are asymmetric by design. We are invested in businesses we believe are fair, and in some cases undervalued, with real assets, real cash flows, or clearly defined optionality. These are not momentum placeholders. They are companies we are willing to underwrite through volatility, drawdowns, and periods where price action diverges from fundamentals.

That said, comfort does not mean optimality. And January is precisely the time when we stress-test not just what could work, but what could break.

We are broadly comfortable with the quality of the businesses we own.

The asymmetry in the portfolio is intentional. In many cases, downside is protected by balance-sheet strength, replacement value, or structural demand, while upside is driven by execution, normalization, or long-cycle growth. These are not fragile stories that require perfect macro conditions or constant narrative reinforcement.

Even when prices move against us, the underlying businesses remain intact. That distinction matters enormously in a market where price action often runs far ahead of fundamentals and then snaps back violently.

In short, we are not relying on belief to justify ownership. We are relying on businesses that can survive disappointment.

One area where we are deliberately under-allocated today is dividend-paying, long-term compounding businesses, particularly across G10 economies, explicitly excluding the UK for now.

This is not a yield grab. We are not chasing headline payout numbers. What we are looking for is durability and sustainability.

We want exposure to businesses that can generate consistent free cash flow, grow dividends sustainably over time, reinvest capital intelligently, and absorb macro volatility without impairing equity value.

These companies exist across sectors and geographies, but they are rarely obvious at the same time they are fairly priced. They tend to look boring when they’re cheap and expensive when they’re popular. That means patience is not optional. It’s part of the process.

There is an inherent tension in running an asymmetric, actively managed portfolio, we don’t pretend otherwise, and we reflect about it all the time.

Asymmetry demands engagement. It requires constant thesis updates, catalyst tracking, regulatory awareness, and reassessment as facts change. That complexity increases portfolio-level volatility, even when individual position sizing is disciplined.

Active management is intellectually rewarding, but operationally demanding. It complicates risk management, makes volatility harder to smooth, and increases the cost of being wrong on timing. We are very aware of this trade-off.

This does not mean we are abandoning asymmetry. It means we are becoming more intentional about where we deploy it and how much of the portfolio it should represent at any given time.

Our exposure to biotechnology has been a source of strength, and we don’t shy away from acknowledging that.

In the current environment, biotech offers some of the cleanest asymmetry in public markets. Scientific inflection points, regulatory catalysts, and mispriced pipelines create opportunities that are hard to replicate elsewhere.

But concentration risk is still risk. Over time, excessive exposure to biotech increases portfolio volatility, binary outcomes, and correlation during stress events. Even great science does not eliminate drawdowns. Eventually, too much biotech exposure can push portfolio risk beyond what we are comfortable holding over a long duration.

We are not rushing to reduce exposure for now. We are planning for rotation when theses mature, not reacting to price moves. Timing matters less than discipline.

Today, the Alpha Long Portfolio carries a dividend yield of roughly 3%. That is acceptable, but it is not where we want to be over the long run.

Our target is to move that yield toward and eventually if possible above the 4-5% range over time.

That shift will not come from simply buying higher-yield assets today. It will come from rotation. As certain growth or asymmetric theses mature and risk-reward compresses, capital will be recycled into higher-quality dividend compounders, businesses with visible payout growth, and companies where yield is supported by cash flow, not leverage.

The end state we are working toward is a portfolio that blends a core of high-quality, dividend-paying compounders, a layer of growth and asymmetric positions, and active management only where it is genuinely rewarded.

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Are Markets Moving Ever Closer to the Edge of Narrative?

Markets today are not irrational, but they are increasingly story-dependent.

Price discovery is being driven less by discounted cash flows and more by coherence of narrative, speed of dissemination, and perceived inevitability. Fundamentals still matter, but they are often deferred rather than debated.

This typically happens when macro visibility is poor and confidence is conditional. When investors cannot anchor to stable growth, inflation, or policy regimes, they anchor to stories that feel explanatory and directional. AI, reshoring, geopolitical alignment, strategic importance, and “once-in-a-generation” themes become substitutes for certainty.

The danger is not believing a story. The danger is believing only the story.

The clearest signal that markets are nearing the edge of narrative is when valuation discussions stop referencing margins, returns on capital, or balance sheets and start referencing inevitability. We hear it constantly now. “This will happen”, “Demand is locked in”, “Policy will support it”, “Everyone will need this”.

At that point, downside scenarios quietly disappear from models.

What’s different this cycle is how fast narratives propagate and how broadly they spread. Entire value chains can be re-rated in weeks, regardless of where profits actually accrue. Optionality replaces valuation. Timing risk gets dismissed as noise.

Another warning sign is impatience. Markets are rewarding immediacy. If earnings don’t show up now, stocks sell off. If a story doesn’t gain traction quickly, it’s abandoned. Capital rotates violently from one theme to the next.

This shortens feedback loops and increases volatility. It also increases the probability of overshoot, because price is no longer allowed to wait for proof.

Narrative markets often feel safe because liquidity is abundant and drawdowns are shallow, until suddenly they aren’t. Risk gets hidden by flows. Correlations drop temporarily. Everything works, until one thing doesn’t.

The closer markets get to the edge of narrative, the more outcomes become binary. Either the story holds, or it breaks. There is very little room for slow disappointment.

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How Long Do We Have to Keep Tip-Toe Dancing Just to Outperform?

The honest answer is uncomfortable: this feeling probably never goes away.

Markets rarely announce when they become fragile. They just feel different. Liquidity is still there. Prices still go up. Opportunities still exist. But the margin for error narrows quietly.

That sense of needing to move carefully becomes persistent rather than episodic.

“How long do we have to keep tip-toe dancing?” is a question we ask ourselves constantly. It comes up in every due-diligence process, before every new position, and especially before any accumulation decision.

If a position requires us to assume calm markets, perfect execution, or stable narratives just to justify ownership, that’s already a warning sign.

Market participation increasingly feels less like a grand Vienna ball and more like tip-toe dancing across a crowded floor in a New York jazz club. Everyone is moving, but no one feels relaxed. There’s an unspoken sense that something is unresolved. A mismatch between prices and confidence. Between optimism and fragility.

We don’t like that feeling. But we see no way out of it.

When markets feel like this, mistakes are not forgiven. They are punished quickly and often permanently. Drawdowns feel less like volatility and more like write-offs. Recoveries feel conditional, not assured.

That’s why we are currently very biased toward holding cash. Cash is not a view. It’s optionality. It’s the ability to say no, to wait, to survive other people’s urgency. In an environment where the cost of being early is high and the reward for patience is underrated, sitting on the sidelines is not inaction. It is risk management.

We would rather miss upside than write off capital. There will always be another trade. There is not always another balance sheet.

So how long do we keep tip-toe dancing? As long as everyone else is dancing…

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Why Everything Feels So Fragile, Even When Markets Are Going Up

Markets are going up, but confidence isn’t keeping pace. That disconnect is the tell.

What we’re feeling isn’t fear in the traditional sense. It’s unease. Prices are behaving as if the system is stable, while the underlying foundations are still shifting. That divergence rarely resolves cleanly.

The AI Bubble Is Now Everywhere AI is no longer a sector. It’s a label.

What began with model providers and hyperscalers has spread globally and horizontally. Software, hardware, infrastructure, industrials, logistics, energy, data, and even consumer-facing businesses are now framed through an AI lens.

When everything is positioned as a beneficiary of the same theme, diversification quietly disappears. Correlations rise beneath the surface. The market starts behaving like one big trade.

This is no longer just a U.S. phenomenon. The January rally across APAC is a clear example. Price action has been overwhelmingly tech-led, particularly in Taiwan and Korea, where semiconductors and supply-chain players dominate index performance.

That doesn’t mean AI demand is fake. It’s very real. But expectations are no longer localized to where value is actually captured. Entire markets are being re-rated on the assumption that AI demand will be permanent and evenly distributed.

When a theme becomes universal, disappointment doesn’t need to be dramatic. It only needs to be incremental. Slightly slower capex, marginally lower utilization, or small pricing pressure in one link of the chain can ripple through everything priced as “AI-adjacent”.

That’s how fragility builds quietly. Through overextension, not disbelief.

The Risk of the Biggest Self-Fulfilling Prophecy

Markets increasingly feel like they’re running on belief rather than proof.

People buy because they believe others will buy. Companies spend because competitors are spending. Capex is green-lit not because returns are proven, but because not spending feels riskier than spending.

This isn’t fraud. It’s collective extrapolation.

Expectations race ahead of cash flows. Timelines compress. Uncertainty is waved away as a timing issue. Capital moves ahead of reality.

If reality catches up, the system stabilizes. If it doesn’t, it explodes.

That explosion is what turns optimism into volatility. Capex pauses. Marginal buyers disappear. Liquidity thins. Assets that were “long-term holds” become “positioning problems”.

Markets didn’t misunderstand the future. They tried to live in it too early. It make sense when uncertainty is a the fate of the market, rather live in certainty now and deal with the uncertainty later.

And when outcomes stop being debated and start being assumed, risk becomes invisible. Invisible risk is the most dangerous kind.

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Going Into February

February is about execution, not reinvention.

We will continue to lean on the Alpha Trade Portfolio for performance, while keeping the Alpha Long Portfolio hedged and macro-aware, particularly around consumer risk and second-order effects.

We remain focused on finding good businesses at fair prices, not perfect businesses at any price. Durability matters more than narrative. If something requires everything to go right, we pass.

We will stay close to the data, looking for trends rather than headlines. Macro rarely breaks portfolios overnight. It erodes them slowly when ignored.

February is also a key earnings month for several core holdings. Earnings are where narratives meet reality. We will be listening closely to guidance, tone, and capital allocation decisions.

Some theses will be reinforced. Others may mature or break. We are prepared to act either way.

More reports are coming. More work is being done.

We are not looking for excitement. We are looking for clarity. That’s how we’re approaching February.

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