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.
A Few Points in a Few Charts
Sometimes it is useful to rapidly focus on key data to keep the big picture in mind.
Today, we shall focus on very different trends that are worth highlighting in our views
Declining Age Expectancy and Surging debt do not go well together…
America’s life expectancy was already lower than most similar developed countries, but what has changed recently is that it is now declining sharply, following COVID and increasing criminality. Today, America’s life expectancy is actually lower than the one of countries like Lebanon or Somalia.
When at the same time, debt has exploded upwards, the weight of the debt burden falls on a lower number of tax payers, compounding the negative impact of the economy. As the excellent chart highlighted by Banque Syz’s Charles Henry Monchau, it took 215 years for the US to reach USD 7 Trillion of accumulated debt, and the same amount was added in only 27 months n^between 2020 and 2022.
And as we expect the cost of servicing that debt to exceed the primary deficit by 2025, due to higher rates, the dynamics at play lead to a dangerous debt spiral ahead.
US Banks will be sitting on massive unrealised losses for years
We predicted the current banking crisis and expect it to take yet another turn later on this year.
We also highlighted that it was far more profound and generalised than the 2008 episode.
The US banking system has around USD 3 Trillion of net equity for nearly 22 Trillion of assets, mostly consisting of credit and loans to corporations, households and real estate that are illiquid by nature. The liquid part of their assets are usually kept in “Hold to Maturity” bonds that are appearing in their books at nominal value, instead of the normal mark-to market accounting standards.
Today, for the largest banks that segment represents US$ 2.5 Trillion with the chart below showing the breakdown amongst them.
At current bond yields, liquidating this portfolio would represent in excess of USD 600 Billion of losses.
As cash is flowing into money market funds, their shirts term liquidity are depleted. If bond yields were to start rising again, sometimes in 2024 or 2025, them the problem would be of a larger magnitude.
But the real issue is that this issue will remain a core threat for the US financial markets for at least a decade.
And, even if the figures are not published, the problem is even worse with European or Japanese banks.
A highly concentrated equity rally usually marks a late stage
Despite the banking crisis and the sharp fall in financial stocks, the US indexes have kept on stable or even rising in the past few weeks. Forensic analysis shows that it was entirely supported by a very limited of US large cap technology stocks with NVDA, TSLA and META rising by 81, 55, and 68 % in the first quarter, and sharply up as well during the banking crisis.
This situation is very similar to the December 2021 peak where the last mile of the rally was carried by the vertical acceleration of the FAMANGs.
When the music stops and those over extended, overly expensive and over owned stocks roll-over, the global indexes will tank.
The phenomenon is compounded by their heavy weighting in the indexes and as the next chart shows, long equity allocation with CTA has now gone back to levels that previously preceded major tops. As CTAs are agile investors, when the market turns, their exposure will decrease fast.
This research produced by Goldman Sachs predicts that households will be massive net sellers of equities in 2023 ( 750 Billion ) and 2024 ( 500 Billion )
During 2019-22 retail investors were a huge buyer of equities and triggered the massive 2021 – 2021 rally, being flush with freshly printed COVID cash & no alternatives. Now that excess cash has been depleted and that households are now at the lowest savings ratio in decades, Goldman expects major equity withdrawals as people start using savings, the economy weakens and credit yields are an attractive and safer alternative.
USD 3.4 Trillion of potential supply from the Rising Sun
Bank of Japan Governor Haruhiko Kuroda changed the course of global markets when he unleashed a $3.4
trillion firehose of Japanese cash on the investment world when he came at the helm of the Bank of Japan.
By maintaining bond yields and interest rates at extremely low levels and allowing the Japanese yen to depreciate sharply, Kuroda enticed Japanese savers, some of the largest in the world to file the Japanese financial markets and invest massively abroad. One of the explanation of the strong rally in Europe equities in the past six months is actually that flow of Japanese money int the European markets.
Now, his successor Kazuo Ueda is likely to dismantle his legacy, setting the stage for a flow reversal that risks sending shockwaves through the global economy.
investors are gearing up for the seemingly inevitable end to a decade of ultra-low interest rates that punished
domestic savers and sent a wall of money overseas. The exodus accelerated after Kuroda moved to suppress bond yields in 2016, culminating in a mountain of offshore investments worth more than two-thirds Japan’s economy.
With Japanese inflation surging to 4 %, the new governor Ueda, may have little choice but to end the world’s boldest easy-money experiment just as rising interest rates elsewhere are already jolting the international banking sector and threatening financial stability.
The stakes are enormous: Japanese investors are the biggest foreign holders of US government bonds and own
everything from Brazilian debt to European and emerging markets equities.
Now that rates are going higher and that the Bank of Japan is losing its grip over its bad markets, Japanese investors are repatriating their assets home, and the Japanese Yen has turned.
The flow reversal is already underway. Japanese investors sold a record amount of overseas debt last year as local bond yields rose. The trend is set to accelerate forward.
UK House Prices decline as fast as in 2009
We have tome the top of the global real estate markets in June 2022 and have constantly warned that the coming crisis would be global and severe, fuelled by the sharpest rise in Mortgage rates in decades.
After Sweden and numerous signs that the US commercial real estate market is in danger, the UK is already mired in a strong downturn.
UK house prices fell at the sharpest annual pace since 2009 after surging interest rates increased the cost
of borrowing, one of the biggest mortgage lenders said.The average cost of a home fell 3.1% from a year ago in
March, steeper than the 2.2% drop expected by economists, Nationwide Building Society said Friday.
Prices have fallen 4.6% from their peak in August, bringing the average value to £257,122 ($318,320).
It will be hard for the market to regain much momentum in the near term since consumer confidence remains weak and household budgets remain under pressure from high inflation. Moreover, Housing affordability remains stretched, despite the nascent decline in house prices.
And the problem is not limited to the UK; Her is the affordability ratio in the US.
A Few Points for China Doubters
Besides the visible shift of large parts of the world away form the US and closer to China, that is also visible in the accelerating adoption of the Yuan in commodity trading, Investors should realise that today, CHINA MANUFACTURING VAUE ADDED represents 30 % of the world capacity, or the same as the US and Europe combined.
China is ALREADY the dominant economic power of the world.
And its economy is humming. The lates datas shows that the recovery may be stronger than mots expected and some major Wall Street banks have just revised their growth target for 2023 to 5.7 % instead of the Government’s official target of 5 %
And its real estate market has now stabilised, further boosting consumer confidence
MAXIN GLOBAL FUND – USD
Transaction Update 30 Mar 2023
Today, we have been taking some profits in China reducing marginally our exposure by selling some of our long HSCEI Future piston as our first target at 7’000 was reached, cashing in 20 % profits on our FT50 China ETF, and riding the strong advance of the Electric Vehicle segment to take some profits on XPENG and NIO.
In Europe, while we added to our short position in the German DAX and Italy’s FTSE MIB indexes, we added some individual long positions in ADIDAS and VOLKSWAGEN that we traded successfully in the past, adding SEAGATE TECHNOLOGIEs and PHILIPS as new investments.
Those four stocks are amongst the most interesting recovery stories in Europe and are extremely cheap considering their projected earnings growth ahead. One of the most striking feature of the German stock market is the sharp underperformance of Volkswagen when compared to MERCEDEZ BENZ and BMW, despite its extremely successful AUDI and PORSCHE brands, its exposure to China and ist hold over the EV market.
In the US, we added to our long position in LI-CYCLE, the fast growing battery recycling company that is now building a new plant in New York and started expanding in Europe with a JV in France.
New Asset Allocation
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