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
In a week where the correction in global equities that we had predicted started, our MODEL Portfolio rose +5.01 %, taking its year-to-date performance to +35.35 %, giving us the best year since its creation for now.
With a Nav at 413, our Model Portfolio has now more than quadrupled in value since launch, far outpacing each and every equity index in the world, delivering more than 4x the performance of the MSCI World Equity Index, 3x the performance of the SP500 and outpacing the Nasdaq Index by 91 %.
Our Model Portfolio is running at a +21.61 % average annual performance against 8 % for the MSCI World, and 17.46 % for the Nasdaq.
The week was rich in events.
As we feared, the inflation numbers released on Wednesday were the worst in 40 years, with the CPI rising to +4.2 % you and the PPI shooting up to +6.2 %. The Fed’s view is that these numbers are transitory, and they may be right when it comes to the magnitude of the rise, but it is highly unlikely that inflation will fall back to levels in sync with the current ultra -accommodative stance of the FED.
Central Banks have created an asset bubble that has translated into commodity prices and especially food prices, and inflationary alarm bells are now resounding all across the world.
If one adds to the macro picture, weak retail sales, low job creation AND rising wages, the success of the FED monetary policies becomes questionable. As we have argued all along, the COVID-19 economic downdraft and job losses were not a monetary phenomenon but a health hazard.
There should be more momentum ahead. The latest full-life studies on Pfizer and Moderna vaccines have shown 94 % positive results, leading the Atlanta-based CDC to recommend lifting the need to wear masks, a move hailed by President Biden himself.
Elon Musk also rocked the world of crypto-currencies by turning around and suspending the possibility for clients to pay for TESLA cars in Bitcoins. His stated rationale of too much energy consumption is little credible and Musk appears more and more like a market manipulator using his following to influence the markets. TESLA made US$ 100 Mio profits trading Bitcoins last quarter and it remains to be seen whether they still hold their position.
Musk’s turnaround sent the Crypto collapsing and we fully benefited from the move, despite having been taken out of our short position last week-end.
Our disciplined approach to trading Bitcoins had us have a Sell Stop order on a down break of 58’000 and we were re-instated in our Short position at 57’812 the day before his announcement.
We also increased our short in cryptocurrencies by shorting the Grayscale ETHEREUM Investment Trust.
As we stated in our timely post in April THE END OF CRYPTOS, we have probably seen the top in cryptocurrencies and last week’s announcement by the US Justice Department that it was launching a probe into Binance, one of the largest cryptocurrencies trading platform, for money laundering and criminal activities, confirmed our view that the existing set of crypto-currencies will ultimately be outlawed in most countries.
Last but not least, and as we predicted, see SHORTING THE COMMODITY BUBBLE , Commodities peaked last week as China took measures to contain price rises and fight speculation.
Corn, Soybeans, Wheat and Lumber all marked a significant peak and even Copper has probably reached its peak for now.
We had added to our short positions during the week and fully benefited from the fall.
Although the animal spirit of Buying the dips saved the week on Friday, the correction is far from over and the sharp divergence between the Tech Heavy Nasdaq and the Old economy Dow Jones Industrial points to further weakness into June and the beginning of the summer.
We see the SP500 falling to between 3’800 and 3’600 before the correction is over, but much more importantly, the US tech leaders of the secular bull market have finally turned the corner and the all-time highs seen in the past six months will probably not be revisited for years.
TESLA, our biggest short position, can be seen as a bellwether. It ended the week at 589, 34 % lower than its 900 peak and has now started the second leg of its bear market, one that will see the stock fall towards 400.
Interestingly enough, and as we also expected, European equities have outperformed strongly this week, and should lead the summer rally when it unfolds. Many of the stocks we acquired on their own merits and Buy signals following their Q1 results are delivering strong performances and showing positive configurations.
The sharp Breakdown in Asian Stocks and particularly Taiwan and Korea means that emerging markets are bound to suffer more ahead.
On the other hand, Chinese Domestic stock delivered a very strong BUY signal on Friday, leading us to increase substantially our exposure there.
Granted, the world indexes fell sharply last week with Asia losing 3 % on the week, but our 5 % advance last week came from multiple factors combining together.
In the Commodity sphere, we benefitted from the advance of precious metals and the fall in the other commodities where we are short and have added to our shorts. Corn was a clear positive contributor with a 17 % fall on the week.
Our bond portfolio was a negative contributor as inflation numbers scared investors
Our US long Equity special situation portfolio did well with Viatris up 13 % and 20 % since we recommended it in April 2021, Epizime and Intercept pharmaceuticals also rallied strongly while QuantumScape is still suffering from liquidations. We are watching carefully to add to positions there.
Our European Equity Portfolio did remarkably well with almost all our stocks up, led by Commerzbank and Unicredito.
Our Chinese H-share portfolio was almost all negative with China Telecom, Kuaishou and Geely leading the pack down, but we are now reaching the end and expect the portfolio to perform well in the coming weeks.
US listed Chinese shares did also badly but we are also of the view that this Is the end of the move while the Chinese domestic market is looking very promising.
Our US Short Tech Portfolio did very well on the week with all the stocks falling sharply, despite the strong rebound on Friday, with Tesla and AMD leading the pack down with -12 and -5 % declines.
Cryptocurrencies were also a great contributor – thank you Elon Musk – with Bitcoins down -13 % on the week and ETHER marking a major top.
It is clearly Game Over for Bitcoins with the next move down to 30’000
And ETHEREUM have clearly marked their peak
The week was definitely busy starting with an execution of our stop-loss on our Short Bitcoins, a position that was re-instated on May 12th as the Crypto failed to push above the 60’000 level. We also added a small short in ETHEREUM
We added Chinese Oil companies to our Chinese portfolio and re-instated our positions in Telefonica and Unicredito on Monday.
We increased our shorts in Corn, Copper and Soybeans on the 12th while adding new position in Europe with CARREFOUR, ORANGE, BAYER, FRESENIUS, DEUTSCHE TELEKOM and COMMERZBANSK, taking our European equity exposure to 16 % of the portfolio.
On the 13th, we took some profits in Gold and Silver while keeping our Gold Miners position for a last move of Gold towards 1780.
On Friday, we added CITIC Securities and Food manufacturer and Distributor YangYuan ZHIHUI to our Chinese Portfolio while investing 5 % in our preferred CSI 300 Leveraged ETF as the index rebounded strongly off its long term moving average and out of its Bollinger Bands.
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