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
Our MODEL PORTFOLIO added + 1.79 % on the week, outperforming the major indexes again.
Year-to-Date, we are almost at an all-time high at +24.62 %, surpassing each and every equity Index and our Compound Annual return since inception is again above 20 % per annum.
Last week, our MODEL PORTFOLIO benefitted strongly from the advance in US treasury Bonds and strong rallies in Gold, Silver and Gold Miners. We kept on taking profits on long equity positions, further reducing our exposure and were stopped out on our Sort positions in Bitcoins and TESLA.
SINOPHARM, a recent BUY recommendation of ours was our best performer last week with an 11 % advance, while QuantumScape was our worst, pulled down by -22 % as Scorpio Capital Shorted the stock citing lack of transparency and manipulation.
Next week, we shall increase our positions in Guangshen Railways (525 HK), China Communication Construction ( 1800 HK) and China Railways Construction ( 1186 HK )
The latter companies trade at unimaginable 2.5x earnings and can be bought at 20 to 25 % of their actual book value, while delivering earnings yields of respectively 20.7 and 22.7 % per annum… TO be compared with the 1000 PE and 40x times book value of TESLA:
No doubt that for the Redditt generation of investors, we are old fools that are out of fashion, but we have been managing money for too long not to know that value is value and exuberance is costly …
EXUBERANCE AT ALL-TIME HIGHS
Equity Markets had another bumper week reaching new all-time highs on the MSCI World Index, the Dow Jones Industrial, the SP500, and even the NASDAQ which passed the 14’000 level for the first time in history.
Breadth is strong, earnings are strong, economies are strong and markets are at record highs..
Strong Economic number are popping up all around the world with China recording +18.3 % annualised GDP growth when compared to last year and a 34 % jump in retail sales. US retail sales were strong in March, growing +9.8 % while employment numbers were also on the strong side.
Despite these bumper economic news and a US CPI at 2.6 % and a PPI at 3.1 %, Bond markets rallied strongly on the week, boosting our Model Portfolio’s Performance.
Last week was also a watershed event for the Crypto-currency scene with the listing of Coinbase (COIN),a great digital tokens trading platform with massive growth in revenues and earnings thanks to the current craze in crypto-currencies.
The IPO was priced at 250, rose to 429 and finally settled at 342, giving it an 85 Billion valuation at one point, for a company generating 1.2 trillion of sales and 427 million of profits.
Meanwhile, Bitcoins had a wild week, completing the major top formation that we have been predicting, before a significant correction takes place
Both have led us to publish our piece THE END OF CRYPTOS right on the day of the COIN IPO, as a marker of the beginning of the end of the crypto craze.
Global Equities are entering the corporate earnings seasons at the highest valuation EVER recorded the using CAPE ratios and with the highest level of earnings expectations ever. They are also trading at the lowest earning yields ever, meaning that investors are ready to pay the most ever for future corporate profits.
Stocks are over-extended, over-owned and over speculative and we are in the middle of a bubble that can extend further – probably into 2020 – but has reached a level where a sharp correction is to be expected.
Markets are supposed to be rational, but there is no rationality when you get 1.5 % earnings yields on equities on one side of the Pacific and 24 % earnings yields on the other side or when TESLA has a market cap of 710 Bln. and trades on 1000x its earnings while Volkswagen, its most dangerous competitor, has a market cap of 137 Billion and trades at 11x earnings…
Blame the FED, as always, and its reckless monetary policies…
Nearly a quarter-century has passed since Alan Greenspan uttered his now-infamous phrase “irrational exuberance.” Yet the former Federal Reserve head’s description of the dot-com mania seems pale to describe some of the wackiness going on these days.
The manic ebullience of some market aspects has spilled over into popular culture, as testified by the cover of New York Magazine, which asks, “Can I SPAC My Stonks With NFTs?“
Paul Macrae Montgomery, and behavioural economics have demonstrated that markets were all but rational, and rather driven by liquidity emotions and herd mentality.
Paul originated the magazine-cover indicator. He showed that the cover stories of general-circulation periodicals, such as Time, captured a trend just weeks or months before it was about to reverse.
The image of a bear on the front of one newsweekly marked almost the exact bottom of the 1973-74 bear market, while another bemoaning “interest rate anguish” came as rates were making their historic top in the early 1980s.
The splashing of esoteric stuff like special purpose acquisition companies and nonfungible tokens, along with slang like “stonks,” on the cover of a nonfinancial magazine probably would indicate that these examples of excess might be cresting.
Beyond the circumstantial evidence of these cultural indicators, there are unmistakable signs of heady times. Besides the stock market debut of Coinbase Global (ticker: COIN), the cryptocurrency exchange that commanded a market capitalisation dwarfing that of the Nasdaq exchange, an obscure micro-cap called Hometown International (HWIN) was valued at $100 million, even though its operation consisted of a single delicatessen in New Jersey with sales just over $35,000 during the past two years.
The real fodder for this lunacy is the abundance of cheap money, which has lifted the equity and speculative debt markets to unprecedented levels.
We call it the POWELL BUBBLE..
On the bond side, Bank of America credit strategist Oleg Melentyev thinks getting paid a mere 6.50% on a CCC junk credit with 14 times leverage indicates that the reach for yield has hit its limit while Bank of America’s $15 billion offering set a record for a bank, topping the $13 billion by JPMorgan Chase ( JPM) just a day earlier, at the tightest spreads over benchmark Treasuries ever.
At the end of the day, investors have the choice… They either join the speculative frenzy, as they have done with unprecedented amounts of money flowing into equities in the past couple of months, they may chose to remove all their hedges as testified by the lowest level of hedging recorded in the past 20 years – just another sign of extreme bullishness – or they safely take their chips off the table and stay in the safety of cash, bonds and Precious Metals.
As we have highlighted in our previous reports, Volatility is again at extreme lows, meaning a sharp volatility event is just around the corner. see our article titled STOCK CORRECTION AHEAD.
We have no hesitation…
With our third-best yearly performance achieved in just the 1st quarter and a 24 % performance year to date, we chose the safe camp…
Last week, we kept on reducing our long positions in US Equities, Europe, and even took some chips off the table in China, while re-instating our short positions on the Nasdaq and the SP500 and added a long volatility position.
We were stopped out on our short positions in TESLA and Bitcoins, but it is only a matter fo time before we re-instate them.
We are currently almost 60 % long bonds, marginally short equities and almost at 20 % in commodities, being short Oil and Copper and long precious metals.
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