MAXIN GLOBAL FUND - USD is a Long / Short Directional hedge Fund incorporated in Luxembourg. It started trading on February,22 2022 and replaces MAXIN ADVISORS' MODEL PORTFOLIO which has been trading since January 1st 2014. At MAXIN ADVISORS, we manage FULLY TRANSPARENTLY and publish the transactions on a DAILY basis and the details of the portfolio on a WEEKLY basis.
MAXIN GLOBAL FUND / MODEL PORTFOLIO
– 0.81 % Last Week
+ 1.28 % Month to Date
– 5.88 % Year to Date
+ 1009.40 % Since Inception Jan 1st, 2014
+ 29.71 % Per Annum CAGR 9.25 Years
MAXIN GLOBAL FUND – USD Standard Class C
+ 1.14 % Month to Date
– 6.00 % Year to Date
+ 32.64 % Since Inception
+ 29.79 % Per Annum CAGR 13 Months
Estimated NAV USD 1326.42 132.64 ( Base 100 )
Last week marked a major turning point in the global financial markets with two events causing a seaside change in both market psychology and the technical setup of most asset classes.
On Tuesday, Jeremy Powell testified in front of Congress and only 5 weeks after having sent equities flying with an extremely imprudent dovish speech on February 1, he turned his message upside down painting a very hawkish outlook with heightened probabilities of a 50 basis point hike in March and a peak rate probably closer to 6 % than 5 % and not before 2024.
Bond markets reacted negatively and equities lost the upside momentum they had started the week before, marking a sharp reversal and breaking below their October 2022 uptrend for the first time.
On Thursday, Silicon Valley Bank, America’s 16th largest bank with in excess of USD 212 Billion in assets, experienced a rush of depositors withdrawing money as it tried to raise equities and sell its liquid portfolio of assets following the losses accumulated in 2022 on their massive bond portfolio. On Friday, the FDIC took control of the bank, the first time the regulators had to intervene to save a bank since 2008, sending ripples through the world financial markets and fears of contagion.
What is particularly interesting about the SVB situation s that its is the tip of an iceberg that has been developing for more than a year now, where the entire eco-system of the US technology sector, VCs, Start-up’s and vast sums of money being thrown at tech ventures had dried up with the reversal in the markets and the rise in interest rates. For decades, VC’s have been funding projects in the hope of finding the new unicorns, but in the past 12 months, that money became harder to find, leaving the Silicon Valley with a massive real estate crisis and significant layoffs as many start-ups had to fold their operations. As SVB was the main conduit for that money, its growth in deposits dried up as well, leaving it with a difficult liquidity position.
The other interesting part is that, as we highlighted many times in 2022, the sharp rise in interest rates and sharp slowdown in real estate could pose a systemic risk and a banking crisis considering the very large number – more than 5’000 – small to medium banks operating in niche markets.
SVB’s demise came precisely from the massive losses they incurred on their large portfolio of bonds in the face of rising bond yields. They did nit do anything wrong apart from investing their liquidity in long dated Treasury bonds in search of yield at a time where interest rates were at zero. With bond yields rising sharply last year, their large holdings of US Treasuries depreciated in value leaving them with significant losses in 2022. And SVB is probably not the only US financial institution that is experiencing losses on their bond portfolios or assets such a real estate or mortgage-backed securities.
The consequences of SVB’s fallout could be far reaching for the entire start-up environment as most tech VCs and most of the startups in which they have invested kept their available cash at SVB, potentially questioning their ability to fund their running costs and burn capital. The economic impact on Silicon Valley could be daunting if their assets are blocked for an extended period of time.
This is what financial crises are made of and the SVB case is not very different from Lehman and Bear Sterns in 2008. The systemic crisis is unfolding and, it is one of the largest niche bank that is the first victim of the rise in interest rates, after the demise of Crypto-specialized niche bank Silvergate the week before.
In terms of markets, last week marks a significant turning point that most probably cancels the possibility of our expected “Last Hurrah” towards 4’300, confirming that the 4Q bear market rally reached its top in February at 4195, as initially expected, and that we have already started the second leg of the secular bear market in Western equities.
The current situation can be summarised in a few charts
A significant turnaround in Bonds
US treasuries tried to rise above 4 % only to fall sharply to 3.70 % on Friday. We had been accumulating US treasuries over the past couple of weeks and we now expect 10 year yields to fall quite sharply ahead.
The SP500 has peaked and is turning down
US equities have now completed the bear market rally that started on October 13th 2022 and are now en route towards our ultimate target of 2’800/ 3’000 by the summer/Fall of 2023. It will not be a one-way street and volatility is to be expected, but the strategic positioning is clearly down. Last week, we were quick to re-instate our strategic short position in US equities through ETFs alongside our individual equities short positions.
European equities have peaked and are turning down
We have been warning investors to take their profits in Europe and re-instated all our short positions in European equity indexes on Thursday. Friday’s close does not yet encompass the SVB news and the ECB meeting this coming week will plant yet another nail into the coffin of the sharp rally of 2023 in European equities.
Chinese Equities irrationally sold off
Despite the fact that they have strictly nothing to fear from the SVB fallout or even from high US rates, as always, global investors sold Chinese H-Shares indiscriminately last week, shares that they have been buying after the train left the station in November. The technical picture has turned negative and we were indeed too early in coming back to the space. However, we are long value and do not expect the current downdraft to fall much further.
Cryptos are collapsing again
The dead cat bounce of the last two months is finally succumbing to the accumulation of bad news in the space and the much sharper regulatory tightening with the SEC having now filed criminal actions against a major player of the industry for having sold, traded and offered tokens that the SEC considers to be securities without the due registration and supervision. Moreover, with some stable coins having kept some of their collateral with SVB, the peg of their coins is now being endangered and it is likely that the sphere will see further liquidations of the main coins such as Bitcoins and ETHER ahead.
We had kept our short positions despite the volatility and increased them again in the past week, taking our short exposure there to 6.5 % of our portfolio.
Volatility is back
It has been the main piece missing to call the top of the Q4 bear market rally. Last week saw the first sharp rise of the VIX index breaking out of its extended consolidation. We have been long volatility and increased our exposure again last week, translating into a sharp recovery in these positions for our portfolio.
We end the week marginally lower despite the sharp fall in Chinese equities thanks to our highly diversified exposure and our ability to stay with positions and trade actively. For March MAXIN GLOBAL FUND is up +1.14 % net of fees and is well positioned for what we expect ahead with a net short exposure exceeding 60 %.
The past eight weeks have been extremely complicated to trade due to the irrationality of the up-move, but as always, fundamentals always come back to the fore and irrational markets do reverse sharply.
The SP500 has now given back almost all its 2023 gains, high flyers like TESLA and NVIDIA are now turning and we are actually making money on our TESLA short. We have even started taken some profits to reduce exposure.
We see very little in the current environment that could propel equities higher. On the contrary, the FED testimony and the SVB fallout are a wake-up call for overly bullish investors and over-invested portfolios. We would not be surprised to see the beginning of a wave of profit taking and sharp liquidations from long only investors.
After last week’s bout of irrational selling, we see Chinese equities finding a floor rather soon. Western economists and commentators have been “disappointed” by the prudent 5% GDP growth target enacted by the new administration that came to power last week-end. But 5 % is a strong growth rate in a world that is otherwise plunging into a much deeper contraction than most expect, as testified by the behaviour of bonds and the record level of inversion of the yield curve.
In Europe, the second estimate of euro-zone GDP confirmed that the economy stalled in Q4 last year and also revealed that domestic demand fell off a cliff. Data published so far this year point to continued stagnation, but we think a recession is on the cards as the impact of tighter monetary policy intensifies. Next week all eyes will be on the ECB where another 50bp hike seems to be a done deal. We suspect that policymakers will hint at further substantial rate hikes to come if they don’t surprise the markets with a lager rate hike already.
|In China, Bank loan growth jumped to a 14-month high in February and broad credit growth accelerated for the first time since September. Chinese banks extended a net RMB 1,810 Bln in new local currency loans in February, which was above most expectations (the Bloomberg median were RMB 1,500 Bln). Aggregate financing (AFRE), the PBOC’s measure of broad credit, also exceeded consensus expectations, rising RMB 3,160 Bln, way exceeding Bloomberg’s estimate of RMB 2,250 Bln. Year-on-year growth in the outstanding amounts offers a better guide to underlying trends than the net increase numbers published by the PBOC, which are highly seasonal. Based on this, bank loan growth accelerated from 11.3% y/y to 11.6%, the highest since December 2021. This was despite the PBOC reportedly telling some banks to slow their lending in February. Much of the acceleration was driven by faster lending to households thanks to the recent uptick in property sales. In addition, lending to corporates continued to accelerate as business sentiment brightened thanks to the pivot away from zero-COVID.|
We expect credit growth to pick up further over the coming months boosting economic activity. A cyclical upswing in housing demand is already underway and the NPC promised further measures to bolster housing demand. And with business confidence recovering and financing constraints on real estate developers being eased, investment spending should also rebound.
This explains why we have been starting to accumulate Chines equities again, even if last week proved us wrong in terms of the short term timing.
Globally, our low March volatility bodes well for the future and we would not be surprised to make back in March the negative 5.88 % recorded since January and hopefully delivering positive performances for the 1st quarter considering our positioning
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