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.
Shifting to Neutral
It has been an amazing first three weeks of November …
Our strategic call for a secular bottom in Chinese equities at the time of the October CCP Congress proved to be absolutely right, even if we did not expect the extreme volatility.
Since the Congress, Xi Jing Ping’s administration rolled out measures to ease Covid restrictions and open up the country again, new packages were announced to stabilise the real estate sector and Xi Jing Ping’s rejoined the international community, normalising and pacifying the relationships with America, Europe and Asian countries, all calls we accurately made.
As a result, Chinese equities and, in particular, Hong-Kong listed HSCEI shares and US listed Chinese technology stocks rebounded extremely sharply. China is becoming “investable” again and most of the strategists and pension funds that were recommending to bail out of Chinese assets are now coming back with much more positive outlooks for 2023.
As we once wrote, answering questions from investors citing main houses technical analysts, bear markets are bear markets… until they turn.
Chinese assets have now turned for the long term.
And as we also wrote, the absolute levels and valuation levels reached on October 31st in Chinese equities will not be seen again for years…
In Western markets, our strategic and tactical roadmaps have also played to the dot…
We accurately called the peaking of inflation, Central banks are now talking about easing the pace of rate hikes, and today, James Bullard followed Goldman Sachs in their assessment that interest rates would peak at 5 to 5.25 % in 2023, a call and a level we articulated already at the beginning of 2022, when the “transitory” nature of inflation was still a narrative of the Fed and of the market.
Since the beginning of the month, Government and corporate bonds rallied and the US dollar peaked, experiencing a sharp downdraft that we played through the EUR and the GBP. We also accurately called and traded the sharp rise in Precious metals of the past few weeks.
Since the bottom of October 13th that we timed accurately as the start of our projected bear market rally, European, US and emerging markets stocks rallied strongly, and in the US, the rally was driven by a strong catch up in the mega cap technology stocks, as predicted.
Energy demand is weak, supply is plentiful, strategists are now worrying about an excess of natural gas supply in Europe, and all the gesticulations of OPEC to cut output and support oil prices have failed to sustain any rally. Oil prices broke down again and are trading at the lowest since January 2021, despite bullish calls from prominent Wall Street houses.
As we also expected, real estate prices are now plunging at the fastest pace since 2008, with sharp declines in countries as diverse as the UK, New Zealand or the US. As we highlighted a few months ago when we called the top of real estate, this is THE macro component that may really push Western economies into a sharp recession next year, something that very few commentators seem to acknowledge for now.
Corporate earnings growth is declining fast and we have now entered the stage where they will actually decline. Suffice to count the number of layoffs announcements in the technology sector of late, a sector that was the main purveyor of jobs for the US economy in the past few years, to know that the labor markets will go through pain ahead and that corporate margins are suffering considerably. A few weeks ago, we published a chart showing the breakdown in US earnings growth highlighting the fact that most of the 2022 growth was coming from the technology sector, while main street industries were already experiencing earnings declines. The wave of tech layoffs points to a sharp decline in technology earnings ahead.
Last but not least, the implosion of FTX in November, only two days after we published The Unbearable excesses of a declining America, laid out to the bare the excesses of the Digital Tulip Bulb mania, the mother of all speculative bubble as we called it when we started shorting Bitcoins at 19’000 when the future contract started trading on Dec 19, 2017 and re-iterated in April 2021 when we called the END OF CRYPTOS and timed the peak of Bitcoins
The tale of FTX and his aloof founder is the tale of all the American excesses and lack of pro-active action by its Government and regulators to protect gullible young investors, including Cathy Wood’s followers, against what was not only an obvious massive Ponzi scheme, but also Emoji-based management practices that should have been limited to pre-adolescent social networks, and have no place in corporations, let alone exchanges or “DE(funct) Finance” institutions handling billions of Dollars of customer assets, making loans using digital codes as collateral, paying interests on unproductive deposits and sending money in an untraceable way between unrelated corporations or to private wallets without proper documentation, accounting or audit trails….
After ENRON, LTCM, ARCHEGOS, SUB PRIMES and even LEHMAN, it is again the same tale of excesses of greed and lack of regulations of America s free-wheeling capitalist system.
Despite having supposedly been created by an unknown Japanese mathematician that no one has ever met or seen, Cryptos are very much a US and Silicon Valley creation. A tale of young coders delving into finance, wanting to revolutionise the world and driven by greed and ego.
It is the tale of the US tech industry, with its VCs that are ready to entrust billions to young chaps with no management experience, giving them the credibility and legitimisation that enables them to float and become billionaire on paper thanks to retail investors ready to put unrealistic valuation prices on businesses that may never generate profits ( Wework, Uber, et al.. ).
It is a tale of Venture Capitalists ( Seqoia ) institutions ( teachers pension funds ), fund managers and even sovereign funds pouring money into ventures with absolutely no due diligence on corporate governance, operational procedures, accounting standards, board supervision or audits… Irrational FOMO all the way…
And it is a tale of unbridled and unregulated social media and influencers touting investments to the public with no disclaimers, no offering documentation, no legal or financial advice leading investors to lose trillions in the process.
Where have the regulators been ? Where have all the US Congress hearings conclusions after having listened to seasoned finance professionals such as Jamie Dimon or Charlie Munger ? Where are the regulatory actions of the SEC or the US Government ?
China was highly criticised in 2021 for totally banning crypto ownership, trading and mining in its drive to protect its citizens and its youth from the likely downfall of the space, a writing that was clearly on the wall… Once again, it’s Government and regulators are doing their job after having done their due diligence ….
With 98 % of the crypto tokens having already crashed to earth, it is amazing to see that some people are still betting on or holding on to Bitcoins and Ethers as investments… The tail-end and last chapter of the crypto demise is still to come. We have been trading the structural short side all along and are still short today. But we would welcome an open and public debate with anyone willing to try to convince us of any rationale to buy these tokens …
Our roadmap has been pretty accurate all along 2022, apart from the extreme volatility of Chinese equities, again caused by the irrational fears of US investors and commentators when it comes to China.
With only 5 weeks left in 2022, we are shifting to Neutral Exposure
We may see one last hurrah in US equities and tech stocks ahead of the new year and it may take the SP500 to our ultimate target of 4150 / 4160. But we are already witnessing a sharp decline in momentum and many many sell signals appearing in individual stocks. Hedge funds will probably try to push the indexes for the close of the year and our bear market rally may extend temporarily into the beginning of 2023 before turning sharply down. But it may also prove to be more short lived than we expect..
Investors’ sentiment may be supported by soothing Central Banks that will become more data dependant, but the market narrative next year will be more about economic deceleration and earnings decline than about inflation.
European equities have outperformed and are now clearly overbought. There again, not one day passes by without having new sell signals in individual stocks.
Chinese equities are structurally positive, but the sharp advance of November needs to be digested before we make new significant advances apart from in the technology sector that is reporting at month end.
The sharp rebound in Chinese real estate stocks is over for now.
US bond yields have already done 80% of the move we have been expecting and will probably reach our expected 3.50 % target before year-end. Only a sharp downturn in equities will take them through that level.
The US dollar is bottoming and should mount a rebound to a lower high, a clear negative for emerging markets equities and the precious metal complex in the short term.
To date, 2022 has been an extremely volatile year that is still leaving traditional investors with substantial losses on both the bond and equity components of their portfolios.
Only active managers with the right macro calls and timing managed to deliver positive returns this year.
Private equity investments are entering stormy waters, with operational results hampered by the combination of inflation and lower revenue growth, and the market rug being pulled out from under their potential valuation exit strategies.
Debt unwinding, the real estate sector and the banking sector are the main dangers of 2023 and 2024. Interest rates have not peaked yet and inflation will remain stubbornly high.
We shall be using the next stage of the rise in Western equity markets to re-instate our structural short positions and all the pull backs in Chinese equities to trade the long side.
But for now, and after the unexpected and unwanted volatility of the past couple of months, our priority is to contain volatility, hence our Neutral equity stance…
MAXIN GLOBAL FUND – USD
Transaction Update 18 Nov 2022
Since the bottoming out of Chinese equities and their sharp rise since the beginning of the month, we have been trading the long side with tight trailing stops on most of our positions.
Today, with the first pullback in the HSCEI index, many of those stops were activated and were were taken out of our positions, protecting our profits and giving us the ammunition for an active trading of the market and individual positions. The only sector where we added to position is technology and we added to positions in Xpeng EV maker and gaming giants Netease and Baozun. Many of those companies are reporting earnings by month end.
Our exposure to China is now down to 60 % of the portfolio, a sharp decline from our 120 % exposure at the bottom of the market in October.
In the US, we shorted AMD and NVDA again, but stand ready to reverse to long and go long some tech stocks depending on the close of tomorrow.
In Europe, we added two new short positions in VINCI and HANOVER RUCK
And finally, we re-instated our strategic SHORT in Oil.
New Asset Allocation
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