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.
Taking Some Profits on Our Shorts and Re-Entering China
During the February Hype where the. markets became wildly bullish betting on a quick decline in inflation and an end to monetary tightening, we kept on shorting US and European equities and particularly the tech segment, taking our net short exposure to the highest since December 2021.
Today, and as we predicted, markets turned sharply down with the SP500 losing 2.05 % and the Nasdaq 2.50 % in their worst trading day since November, conforming to our roadmap of a downdraft into February.
As we expected, and contrary to the short-sighted market enthusiasm, inflation is not coming down in a straight line and resilient inflationary pressures are visible in the most stocky comments of inflation. Moreover, one of the main driver of the recent decline in the headline gauges has been used vehicles prices which have started shooting up again as US consumers are rushing to buy lower priced vehicles as they can longer afford new vehicles due to sharply higher prices and the decrease in their purchasing power.
As a result, the bond markets have reacted and listened to the FED, sending yield back u to the highest levels seen in November 2022. We argued that the disconnect between bond markets and equity markets could not last, and today’s sharp fall in equities is just the correction of this anomaly that was unsustainable.
We took advantage of the sharp fall to take some trading profits on our short positions, buying back shares we sold a few day before are much higher prices while maintaining a strategic negative bias for now. We took partial profits on MSFT, AAPL and AMD as well as in our short SP500 and Nasdaq though the futures and our invested ETFs, and we also took advantage of the spike in volatility to take some profits on our long volatility positions.
Conversely, we initiated a new short position in the Oil sector through the XLE SPDR, re-instated our short position in WAL MART on its bad results and re-instated our short positions in the CAC40 and the IBEX 35 in Europe, rolling the future contracts into April.
Oil companies have been star performers last year as their profits were exceptionally strong for reasons that will not be sustained ahead. We see them now as a strategic short for the coming months with significant downside potential.
The European equity markets are hovering at all time highs and are oblivious to the sharply deteriorating macro-environment in Europe with the ECB having to raise rates far higher than most economists or market participants envisage for now. The market consensus if for the ECB to end its tightening efforts at 3.5 % by July 2023, and we differ considerably on this conclusion as inflation will remain far more resilient than most expect under the pressure of widespread wage increases and a resurgence of commodity prices.
European real interest rates are still way too low and are nurturing inflationary pressures instead of taming them. In the past month or so, countries as diverse as Italy, Spain, Portugal or France have seen their inflation numbers turning back up and the social cost of high inflation in Europe is becoming unbearable for politicians.
As a net result, our portfolio remains short equities to the tune of 150 % of its assets and we remain strategically negative on global equities, even if we do. to exclude a last push higher towards 4’100 or even 4’300 into March April, before a sharp down leg going into the summer.
The technical situation of the market is extremely delicate.
Today the SP500 took out the first support level at 4’015 and closed below 4’000 and we always expected it to test the 4’000/ 3980 support region in February. The question now is whether it will hold the 3980/ 3972 levels and rebound to mount the rally back to the 4100/4300 or whether it will crash through theses levels to fall in a straight line towards 3800/3700 to the coming few days or the beginning of March as some strategists expect.
This could bring forward the timeframe of our roadmap for the next leg of the bear market with the February top marking the beginning of that leg rather than another challenge up before we start it.
Our readers should know that in any case, a rebound towards 4’300 will only set the stage for the very sharp downdraft we expect to happen in the coming months with an ultimate target for the bottom at between 2800/ 3000 sometimes between June and October 2023.
This will mark the end of the bear market that started in January 2022 before we mount a new bull market into 2024, so the problem for us is not the strategic exposure of our exposure but trading the wild volatility of the markets and investor’s sentiment over the coming period.
As our readers and investors know, we were amongst the very few strategists to go all-in into China in October 2022, something that delivered spectacular results for our portfolio, nd we were also amongst the very few to actually take profits and even go next short I the past few weeks as the world and their cousin were becoming bullish on China.
As we expected, Chinese equities experience a 10 % correction and sometimes 20 to 25 % in individual stocks and we made good money on our short position there which we closed the day before.
Today, we started re-entering China in individual securities buying Brokers, real estate, Solar and biotech companies again and will continue to increase our exposure to Banks, autos and insurance companies in the coming days as we are now at levels where the normal correction is nearing its end.
The only sector that we shall not enter just yet is technology as we see more downside ahead in the main Chinese tech giants.
Our move remains gradual for now, but our indicators are telling us that Chinese equities may be entering a period of strong outperformance again in the coming months as the effects of the re-opening of China start being felt in the economy and consumer confidence is being restored.
MAXIN GOBAL FUND – USD
Transaction List 21 Feb 2023
New Asset Allocation
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