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.
TOPPING OUT
Yes ! We know !
It is always difficult and risky to call market tops or bottoms when the crowd is fully behind the trend, and we may be wrong, but our indicators usually don’t lie and they are all flashing red right now !
European Stocks and, in the US the Nasdaq, have been red hot since beginning of the year adding 8 to 9 % in the first three weeks, a feat not seen since 2021. Wishing the markets, Insurance and Luxury have been flying high colours in Europe while Tech is living a great revival in the US.
TELSA rose from USD 101.8 on January 6th to 143.75 at the close today, a 41 % rise in less than 15 days.
Granted, the stock had fallen -36 % in December after 5 consecutive months of declines that saw it lose 2/3 of its value.
January 2023 has seen a major reversal in sentiment from the extreme pessimism of the 4th quarter to extreme optimism about the future course of the US economy, the likelihood that the FED will tame inflation without causing a recession and the current earnings downdraft to be temporary.
This is all sound and good, and indeed inflation gauges have come back down while the US economy has proved to be quite resilient for now. Investors are now betting that the FED will not hike rate above 5 % AND that the US economy will actually avoid a recession or go trough a mild recession before rebounding sharply
But as we highlighted in previous articles, this hopes runs against a few realities :
1 . Even if the current economic numbers are resilient judging from the 2.6 % estimates of the 4th quarter GDP to be released on Thursday, the advanced indicators are painting a far more dire picture.
From retail sales to industrial production, to investments, all the component s of economic activity have collapsed in the last two months of 2022 and are not showing signs of any rebound.
There are heavy debates on the pertinence of the US Leading Economic Indicators that were published today and that showed a sharp decline of 1 % for December after a revised decline down of -1.1 % in November.
Regardless of whether strategists and economists find it relevant, the fact of the matter, is that since it started being published in 1958, it has always heralded recessions when reaching current readings and the speed at which it is declining right now has no equivalent in the past apart from 2020, which led to a -8 % annual contraction in the US GDP.
Finally, the US real estate crisis is just starting and it should be as significant if not more significant than the one experienced in 2008 which led the the Great Financial Crisis.
US House prices have started falling sharply,
Existing Home sales are collapsing
And Mortage rates are at the highest they have been since the 2000s, and way higher than they were in 2006 when real estate prices started tanking. Adding higher rates to higher prices of bare necessities due to inflation, consumption is bound to fall sharply, and this is what we are seeing in retail sales already.
The above indicators tell us that contrary to the current optimistic market narrative, the US economy will plunge into a sharp economic contraction by the summer, and that investors optimism is probably misplaced.
2 . Corporate earnings are declining, Valuations are still highly expensive and regardless of the speed at which inflation comes down, interest rates are at the highest in 20 years and bound to go higher in 2023, making the value of discounted cash-flows collapsing..
Whichever one looks at it, equities are more overvalued today than they were last year despite the 16 % decline in the SP500 since its 2022 peak, as the market trades on roughly 20 x current earnings while earnings are declining. When measured in terms of Price to Earnings growth, valuations have actually exploded upwards and are not sustainable.
For now investors expect earnings to recover sharply ahead, and they don’t seem to be listening to the CEROs of the giant tech companies that are laying off staff at a pace not seen since the 2008 crisis.
Tomorrow’s earnings results from Microsoft and JNJ, and of Tesla the day after will give a sense of the damage inflicted in the 4th quarter of 2022, but far more interesting will be the guidance provided by management for 2023.
Technically, When looking at the SP500, today saw the index post a textbook intraday top right under our resistance level at 4041-4070.
From here, the index should start declining in the next few days towards the next support level at 3880 -3820 before staging another rally towards 4050 – 4100 in March April.
Should the market see a break down below 3820, then it opens the door to a drop towards the 3600-3650 October low region, from where the market should attempt a set up to rally to the 4300 region over the spring.
So, when looking at all the indicators we monitor, we should be very close to topping out temporarily with sentiment having gone back into extremely positive, the put call ratio having collapsed, the VIX Index at an all time low and most the indexes and individual stocks having reached over extended levels.
We are therefore increasing our short positions and taking more profits on our long positions
MAXIN GLOBAL FUND – USD
Transaction List 23 Jan 2023
New Asset Allocation
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