Mechelany Advisors’ MODEL PORTFOLIO has been running in a fully transparent way since January 1st 2014. Its Purpose is to implement the conclusions of our research analytical process in a portfolio managed using institutional liquidity, diversification, risk management and asset allocation processes. In our TRANSACTION UPDATES we keep our reader informed in real time of the transactions in our MODEL PORTFOLIO
Performances
Global equity markets lost momentum last week delivering flat performances overall as the earnings reporting season is coming to an end. Bond yields kept climbing and action was concentrated in Bitcoins where the crypto-currrency made a new all-time high at 55’000 reaching a cumulative aggregate value of US$ 1 Trillion.
Our MODEL PORTFOLIO delivered a very strong positive week, adding +6.72 % to reach + 16.72 % Year to Date, powered by our successful stock picking.
In 2021 to date, our Model Portfolio is outperforming substantially all equity indexes delivering more than twice the performance of the US Nasdaq.
On a cumulative basis over the past 7.2 years, we are now at + 256 % performance, outperforming the US Nasdaq by 24 % and delivering more than twice the performance of the SP500.
Our annual compounded average is now at + 19.40 % per annum over the past 7.2 years.
Manager’s Comments
Our strong positive performance in a week where global indexes are flat, despite our almost neutral equity exposure, comes from our deeply entrenched value investing bias and our successful stock picking.
Being long Chinese Hong Kong listed stocks and short US technology stocks is paying off and most of our Chinese equity plays have delivered strong positive performances while our CHINA DEEP VALUE STOCKS have risen extremely sharply as the Biden administration is looking at normalising its ties with China and will ultimately lift investment sanctions.
Our two best performing Chinese stocks last week were the two giant mobile companies, followed by the world largest construction companies that are under sanctions. The financial sector has also done well with banks and insurance companies benefitting from a positive yield curve, strong economic momentum and buoyant asset markets.
The Chinese authorities are trying to calm speculation and the Chinese technology index is now getting overbought.
Another testimony of our timely stock picking was our decision to add QUANTUMSCAPE to the Model portfolio on February 15th at $ 46.40 and the stock close the week sharply higher contributing its 14 % advance to our portfolio last week. Our additions of Petrochina and Guangshen Railways were also timely.
Finally our US tech short position almost all delivered positive contributions last week as the segment is clearly losing momentum since September as we highlighted many times. Last week, many of them started showing clearly negative configurations and we are nearing the tipping point that is going to take them to severe corrections.
TESLA INC: closed below 800 for the first time in weeks, a very negative sign.
Irrational retail-driven markets
At Mechelany Advisors, we have been managing money for 36 years based on research, analysis, fundamentals and technical analysis. We have always considered that taking risks required in-depth due diligence, systematic risk management and disciplined processes.
Our string of above average performances from 2014 to 2019 was the direct result of these values and our negative performance of 2020 was due to the unfolding of an irrational environment driven by inexperienced retail investors taking control of the markets.
In 2020, Tesla, the electric-car maker, rose more than eight-fold. Bitcoin is valued at more than $55,000 and has nearly doubled this year. Video-game company GameStop was at the center of a wild ride that gripped Wall Street and Washington last month. Individual investors banded together online, often trading through Robinhood Markets Inc., to drive GameStop and other stocks to astronomical levels.
All the above are the signs that the financial markets are in the grip of a phenomenal investment bubble that will end up in tears in the coming 12 months.
Faced with COVID, the Fed and the US Government have been playing with fire. Ben Bernanke’s helicopter money theory was put to the test and the sending of checks indiscriminately to individuals locked down at home has developed a speculative frenzy of proportions never seen in history.
This was already coming on the back of too much liquidity following the Great Financial Crisis of 2008 and the ill-conceived and counter cyclical tax cut of Donald Trump in 2018, providing the fuel and the cash for corporations buying back their own overvalued stocks without restraint.
Suffice to look at the charts of the major US technology stocks over the past few years and their valuation expansion to see that things are ABNORMAL, and NOT a NEW NORMAL
The following charts from Sentiment Traders give an indication of how abnormal things are …
So, to put things in perspective …
. Too much liquidity in the system in 2019 and 2020 triggered asset inflation
US 30 year treasury yields
. note the Dec 2018 reversal of monetary policy.
. Yields have now almost doubled since March 2020
US Fed balance sheet. ( 7.5 Trillion is 7.5 x the level of 2007, it cannot continue to increase at the same rate )
. Helicopter Money has bred unprecedented speculation by unexperienced investors
. Economic recovery and too much liquidity is now translating into Cost-push inflation
. Hourly Wages are now up 6.1 % year on year
( never happened in the past decade)
… and commodity prices are flying ( Copper is up 100 % since March 2020 )
. The cost of money has started to rise with bond yields with a major impact of mortgage rates
. The momentum of the leaders of the entire bull market is fading while the Russell 2000 is more overbought than ever
What we are saying is that the conditions are falling in place for a major correction in equities in the next couple of months, and the beginning of a secular bear market in no more than a year.
We reduce exposure regularly and advise investors to lighten up and not chase this rally higher.
Transaction List
Asset Allocation
Portfolio Details
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