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
Mechelany Advisors MODEL PORTFOLIO rose +5.66 % last week as tech stocks and equity markets tumbled.
For the first two months of 2021, our MODEL PORTFOLIO is up +23.32 %,
outpacing ALL equity indexes.
2021 is, for now, our third best year ever and we have been consistently de-risking the portfolio, by increasing cash, bonds and fully hedging our equity exposure.
At 376.39, its NAV is at an All-Time High and on a cumulative basis since inception, Mechelany Advisors’ MODEL PORTFOLIO has now delivered + 276.4 % performances, or a + 20.32 % compound performance per annum for the past 7 years and 2 months.
Our MODEL PORTFOLIO outperforms significantly each and every equity indexes in the world, delivering 4 times the performance of the MSCI, World Equity Index, 2.7 times the performance of the SP500 and 60 % more than the US Nasdaq.
Manager’s Comments
Last week’s strong performance of our MODEL PORTFOLIO despite very negative showing of commodities really came form our strategy to de-risk and take our profits on our long equity positions over the past few weeks and from the sharp breakdown in technology stocks.
Technology Breakdown
Our concentrated shorts in the US tech MEGA caps was truly rewarded with the major technical breakdown in this segment that we highlighted on February 23rd – see TECH BREAKDOWN -.
Our two largest short positions tumbled last week with TELSA down 13 % and AMD losing 5.66 %, while Apple fell 6.6 % followed by Amazon 4.8 % decline. Each and every one of of US tech short portfolio positions was a positive contributor last week and we see this trend continuing.
After an irrational 2020, Investors have finally realised that regardless of the quality of the business and earnings of these companies, valuations are unsustainable with economic growth, inflation pressures and interest rates resuming.
It is clearly our view that we have probably seen the secular top in the FAMANGS and TESLA, following the clear topping out and breakdown of Apple Inc. and TESLA, and that regardless of the behaviour of the global indexes in the future, these stocks will find it difficult to make new all time highs.
Rotation is the name of the game, and the phenomenon is clearly illustrated by last week’s breakdown in the Nasdaq while the SP500 is still in its uptrend.
TESLA’s 2020 meteoric rise is OVER, and all the youngsters that are buying on the dips will ultimately get crushed even if a rebound towards 800 is not out of the question.
Another interesting development last week has been the topping out of the Russell 2000 index, a very late comer in the speculative bubble that saw the same and mid-cap US index soar 43 % in the past 3 months, despite devastated. corporate earnings .
We have started to build a short position there in the past few weeks and are ready to increase it now.
The days of Social Media investing are numbered
In 2020, one of the most unusual feature of the markets has been the taking over fo the US equity markets by a new breed of new investors using the cash handed out by the government to punt the markets on their mobile phone through the option market as if it was a massive video game.
Banding together on Redditt and other social media forums, they have made great money manipulating stocks in a bull market extravaganza fuelled by an irresponsible FED refusing to address the long term consequences of asset bubbles as always.
But things have changed last week, with the SEC starting to suspend trading in stock that are being hyped on Social Media.
U.S. regulators are engaging in the stock market’s version of whack-a-mole — racing to suspend shares of companies with dubious prospects that have been hyped to the moon on social media.
In a Friday statement, the Securities and Exchange Commission said it temporarily halted trading in 15 companies due to concerns that their stock prices were artificially inflated.
“We proactively monitor for suspicious trading activity tied to stock promotions
on social media, and act quickly to stop that trading when appropriate to
safeguard the public interest,” Melissa Hodgman, acting director of the SEC’s
enforcement division, said in a statement.
It was about time the regulators acted and the nomination of Janet Yellen at the Treasury surely has something to do with it.
But what it means is that the millennials speculative mania is starting to be brought under control, and it is only a matter of time before these youngsters lose enough money on their portfolios to be vaccinated for life against speculating again.
Bond Vigilantes are saying enough …
The massive back-up in bond yields over the past two months is NOT your friend if you are an equity speculator. With 30-year yields back at 2.3 % this week, and the soft belly of the curve rising sharply, negative real interest rates have all but disappeared, equity valuations based on discounted cash flow have gone through the roof, and the competition of bond yields vis a vis dividend yields have been restored.
We always argued that the bull mania would end with rising rates and last week’s blow off in bond yields was what was needed to burst the bubble in no-dividends growth stocks.
30 year Treasuries yields have MORE THAN DOUBLED since March 2020, with significant impact on corporate cost of financing, public debt cost of financing and the mortgage market.
We have steadily increased the proportion of Treasuries in our portfolio, taking it to 47 % of assets on Friday as yields are peaking in our view.
Game over for Bitcoins
Tesla, Gamestop, Bitcoins and SPACS are all symptoms of the crazy speculative bubble engineered by the FED and the Helicopter Money handed out by the US Government to youngsters bored to death during lockdowns.
The decision of TESLA to invest in Bitcoins and the hype created by one-time-to-be-star Cathy Wood are all the hall marks that people are buying bitcoins for the wrong reasons and will end up being burnt.
We shorted Bitcoins on Dec 19 2017 at 19’000, the very day the Future contract started trading in Chicago. We took our profits in 2018 at 7’000, 5’000 and 3’500. We then started to accumulate Bitcoins again in May 2020 at 7’000 and below 10’000 and took our profits between 20’000 and 25’000.
Cryptos went wild and Bitcoins traded as high as nearly 60’000 last week.
But it is GAME OVER now and WE ARE READY TO SHORT THEM AGAIN.
By the way, it is not an accident that BITCOINS, TESLA and the NASDAQ are ALL turning at exactly the same time…. This are signs that the speculative bubble is bursting
GOLD on a string but SILVER still positive
Last week saw a worrying sell-off in Gold prices as the US dollar remind strong against all market prognosis due to rising rates. The decline in real interest rates is also a bad sign for Gold and precious metals.
But as the following chart shows there is no decisive technical breakdown yet and we expect a rebound to take hold soon. HOWEVER, and contrary to our previous prognosis of an ultimate target at 2’200 in Q2 2021, we see the next move capped at or below the 2000 high. So we stay in Gold miners for a ride but no more.
The technical picture is different with SILVER that showed considerable resilience last week and is ready to challenge the 30 US dollars barrier very soon.
As can be seen from the long term chart below, SILVER has underperformed GOLD considerably and contrary to the yellow metal, SILVER has considerable industrial demand in electronics, solar panels and Electric Vehicles.
The strong global economic recovery we expect to unfold in the second half of the year should make SILVER close the gap with Gold and outperform it considerably.
Intermediate Top in COPPER and OIL
Copper and Oil have been major beneficiaries of the prospects of a global recovery and have both risen considerably in the past few months.
Copper has more than doubled since March 2020 and Oil has gone form -35 to our long stated ultimate target of 60 aided by exceptional cold weather in Europe ad the USA
Both recovery commodities have now reached significant resistance levels at extremely overbought levels.
We are ready to SHORT BOTH for a trade and consolidation before their next advance
Chinese Equity Markets taking a Breather …
As our regular readers know, we have been advocating for two years now that Chinese Assets, the Chinese Yuan and Hong Kong listed Chinese equities are the most promising equity markets for the coming decade.
A large part of our performance since the beginning of 2021 has been our outsized allocation to Chinese equities and Hong Kong listed equities in our MODEL PORTFOLIO.
In the past two weeks, we have been regularly taking our profits there and started hedging our Chinese Portfolio.
As the following table shows, Chinese equities were the worst performers last week with a – 7.65 % decline for the CSI 300, as the Chinese Government is clamping down on speculation and reining in its technology giants.
We avoided the downdraft by being disciplined and our value investing philosophy made our portfolio more defensive while we were adding hedges.
Both domestic and Hong Kong Listed Chinese shares are taking a breather and will offer soon another opportunity to pile in for the nest leg of the bull market
Transaction List
Last week was an extremely busy week where we kept on de-risking our MODEL PORTFOLIO taking profits and reducing exposure in China, Japan and Europe while adding US treasury bonds, and hedges in China . We also tactically took profits on Platinum as well as our US tech short ETF as our net short US exposure was becoming too large in proportion of the portfolio.
The reduction of our Chinese equity risks was particularly timely, as was our bailing out of Japanese and European stocks.
New Asset Allocation
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