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
Gross Performance
– 2.26 % Last Week
– 0.01 % Month to Date
– 0.01 % Year to Date
+ 1078.63 % Since Inception Jan 1st 2014
+ 31.20 % Per Annum CAGR 9.1 Years
NAV 1178.63
MAXIN GLOBAL FUND – USD Standard Class C
Net Performance
Manager’s Comment
Since equity markets bottomed in mid-October, the path of the US equity market has been rather predictable. Our expected year-end rally reached our target range of 4’100 on the SP500 at the beginning of December 2022 and since then, has been framed in a range below the 4’000 level.
Over that period of time, the US Dow Jones Industrial Index and Main Street giants such as staples and industrials outperformed the Nasdaq and the technology sector.
European equities and other risk assets have been far less predictable, and the first three weeks of 2023 are seeing a typical sentiment squeeze, where retail investors are turning forcefully bullish and bidding up stocks and risk assets in the hopes that the sharp liquidity tightening of 2022 is nearing its end, ignoring economic numbers, corporate news and CEO actions that are not really painting a rosy scenario.
If Bonds, US, Chinese, Japanese and Asian equities have behaved according to our roadmap, we have clearly been taken by surprise by the strength of the European equity markets which rose 8.6 % since the beginning of the year and are trading only 4 % below their December 2021 all-time high, as if none of the Russian invasion of Ukraine, the resurgence of inflation to 10 %, nationwide strikes to demand higher wages and a sharp reversal in monetary policy did not happen over the past 12 months.
As always, when markets become irrational, our management style focused on value tends to suffer temporarily and this is what has led our portfolio to underperform the major indexes in the past three weeks, and last week again.
Last week’s negative performance is entirely due to Friday’s bounce and to our strategic decision to build our short positions in sharply overbought and overvalued equities and indexes ahead of the Corporate earnings reporting season.
Conversely, we have made good profits on our long positions in equities, bonds and commodities, compensating for the unrealised losses on our shorts and enabling our Fund to be flat for the first three weeks of January 2023.
Another negative contributor last week was the share rise in Cryptocurrencies, where players have gone bullish again despite the accumulation of bad news with yet another exchange and crypto lender filing for bankruptcy. We took advantage of the rise to increase our short positions in the segment.
From a macro-economic standpoint we are in the “Sweet Spot” between declining inflation on one hand, and the release of negative corporate results while major macro-economic clouds are accumulating on the horizon on the other hand.
On the corporate front, US banks reported uneven results with Goldman Sachs suffering significantly from its forays into consumer banking and most major banks making large provisions for the deteriorating of credit they already see on their portfolios.
Procter & Gamble’s results showed a marginal decline in nominal terms and a strong 6 % decline in volume, testifying of the sharp slowdown in consumption in Q4 2022.
Last week, two US tech giants, GOOGL and MICROSOFT announced the largest layoffs in their recent history, both laying off on short notice in excess of 10’000 employees or 5 to 6 % of their workforce. The market interpreted this as good news, but it is clearly far more a testimony of the very sharp deterioration of their underlying businesses than good news for an industry that has now seen most of its majors shedding staff, devastating the economic landscape of Silicon Valley. Office prices in San Francisco are now down by 30 % since the summer and the city is starting to look like a declining economic area.
On the macro front, US retail sales collapsed by -1 % in December after a revised -1 % decline in November, the sharpest fall in consumption in a decade, and the largest seen in 40 years when deflated by inflation.
To add insult to injury, industrial output and production also declined sharply in December, meaning that all the engines of US economic growth are decelerating at the same time, even if the lagging global GDP numbers and the labor markets have proved remarkably resilient for now.
On the inflation front, the sharp collapse of the Producer Price Index released last week was taken as good news by equity investors, as yet another sign that inflation is declining fast, but it is in fact far more an indication of the poor underlying business conditions as corporation are slashing prices in the face of dwindling demand.
Central Banks in the US and Europe have not finished the job yet, and the recent rise in asset markets has just made their task more difficult by easing monetary conditions. Moreover, a strong labour market is still the main driver of sustainable inflation and they will have no choice but to keep tightening liquidity ahead.
The real estate crisis is gaining momentum, with data showing real estate prices falling sharply around the world and default rates starting to climb. As we have argued many times in recent articles, the looming real estate crisis should be more acute and more damaging than the one that led to the 2008 Great Financial Crisis.
Finally, last week saw US public debt reach its statutory limit of USD 31.4 Trillion on Thursday, forcing Janet Yellen to implement extraordinary measure to prevent a default of the US Government at least until June 2023.
A fierce political battle is mounting in Washington leading Joe Biden reaching out to Republican leader Mc Carthy to avoid a potentially catastrophic power struggle on the raising of the US debt ceiling with dramatic consequences if the US were to default even temporarily on its obligations or had to stop paying its employees.
When investors’ sentiment disconnects from economic reality, something ends up giving up, and it is usually a sharp reversal in sentiment and not a sharp improvement in what are by essence slow- moving macro trends.
We are entering the crucial stage of the earnings season next week with the large technology companies reporting their earnings and valuations still at sky-high levels
The sentiment squeeze is reaching its end and last week’s resurgence of volatility with sharp downdrafts on Wednesday and Thursday followed by a sharp rally on Friday, testifies of the turning point. Volatility always marks turning points and most indexes are now forming topping out patterns and clear reversals.
Most European equity indexes and Industrial Dow Jones stocks are overbought and the US mega cap technology stocks hold the key to the future direction of the markets.
For markets to decline, sentiment has to become bullish, and it juts has.
That was the missing piece in the global configuration for the year-end bear market rally to complete its top.
Retail investors’ sentiment has reversed completely from the dire pessimism of last October to the highest optimism since the peak of the summer bear market rally.
Another sure sign that sentiment has fully reversed and that we are reaching a turning point is the VIX volatility index that recorded lows last week that usually mark reversals in equity markets.
At the same time, macro conditions are deteriorating at the fastest pace since the beginning of the Great Financial crisis of 2008, and at levels that always heralded major equity bear markets ahead.
So the disconnect between sentiment and fundamentals could not be greater, and our roadmap for a major bottom at much lower levels in the summer / fall of 2023 is unfolding as expected.
In the Short term, and as we highlighted many times before, the direction of equity markets going into the end of the first quarter will hinge on the results of the technology mega caps on one hand, and on the length of the sweet spot between declining inflation and unfolding of the economic contraction.
In the US, as long as the SP500 holds below 4’000, we should revisit the downside towards at least 3’880 / 3850 quite soon, and potentially towards 3’720 and 3630. Failure to hold the October low at 3580 would send the markets immediately much lower.
But our most likely scenario is for a rebound from any of the above support levels that should send US equities higher into March / April 2023, towards 4’100 again, and maybe eventually 4’300 at a maximum ( a 7,5 % maximum upside from here ) before the next big decline towards 2800/ 3’200 unfolds in Q3 2023.
Technology and the Nasdaq are at a crucial juncture, with the short term outlook positive but the long term outlook highly negative. The SP500, the Nasdaq and the largest Tech mega caps are in triangle formations that, if broken to the downside on bad corporate results, would take the markets sharply lower very quickly.
Next week’s earnings releases will be crucial in that regard.
Conversely, Industrial and staples delivered strong SELL signals last week.
European markets are levitating at unsustainable levels and are the most extended they have been in a long while, supported by a strong EURO and irrational rises in insurance and luxury stocks.
European stocks will have to face the harsh reality of much higher interest rates ahead and spreading social protests that take significant tolls on economic activity.
China has become the darling of the global investment community after having been termed un-investable only three months ago. The Chinese economy is re-opening and, as we predicted, the Government is unleashing all its monetary and fiscal power to stimulate growth and its financial markets. The markets will be shut next week for the Chinese Lunar holiday celebrating the New Year of the Rabbit, but most Chinese indexes are overbought for now, calling for prudence.
Japanese and emerging markets are on a positive path and should continue to outperform in the short term.
On the macro front, Bonds are in neutral territory and could well decline in the coming weeks as investors re-assess the balance between inflation and declining economic activity.
The US Dollar is extremely oversold and marking a significant bottom, that could be crystalized by a much more hawkish tone by the FED. For now, the FED is watching the sharp decline in economic indicators with disarray as the main variable that they would want to see declining, the job market, is the only one staying up.
As a consequence, Gold and Precious Metals are extremely overextended and could reverse course any time soon.
In conclusion, there are 7 trading days left in January and next week will be crucial in the fight between sentiment and reality. As always, we are managing our risk like milk on the fire.
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Risk Analysis and Performance Contribution
Portfolio Details
Asset Allocation
Transaction List
Week Ending Jan 21 2023
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