Its been a while since my last portfolio update. The recent months have been extremely volatile. The market itself has been a roller coaster - Q4 was the final wash out for growth stocks, while Q1 has largely played out as I anticipated in my article Tax Loss Selling, Window Dressing & The January Effect in 2023:
The Dow Jones is up only 0.4% in Q1 2023
The S&P 500 is up 7.0%
The Nasdaq is up 16.8%
Cathy Wood’s ARK Innovation ETF is up 29.1%
My portfolio is up 30.2% after fees (1%/10%)
In fact, some market participants have suggested that the Nasdaq has entered a new bull market after being up more than 20% from the lows last year. I remain cautious. The banking system across the globe remains severely stressed, as I pointed out in my recent article.
Likewise, my portfolio positioning has been a roller coaster. I was never 100% satisfied with my positioning - until now. Below you can find my recent portfolio update.
Banks Are Not Out Of The Woods Yet
Despite the severe banking crisis in the US and Europe, the market has rallied substantially in the last weeks (except for bank stocks). I explain this as follows: The collapse of Silicon Valley Banks, Credit Suisse and co has demonstrated that banks are breaking first as a result of the excessive interest rate hikes by the FED and other central banks. Paradoxically, this is in my opinion good news for all other interest rate sensitive sectors: Central banks normally can’t allow the banking system to break, so everything that is not breaking yet is now less threatened by further rate hikes as central banks must focus on containing the banking crisis, which one way or another should result in monetary easing.
While conventional system had suggested that higher interest rates are good for banks, it turned out that this is not true if after more than a decade of zero interest rate policy, rates are raised too fast and too high. The flight of bank deposits to large banks that are too big to fail, as well as to money market funds and T-bills yielding 5% instead of 0% on bank deposits is going on at a fast pace.
The banking system is bleeding and for that reason everything but bank stocks has rallied. Unless central banks want to risk a major breakdown of the financial system, they are in my opinion now clearly forced to pause rate hikes and will have to start reducing soon after. I still think central banks may be forced to do significant emergency rate cuts. Week after week, banking data will reveal a more critical state of the banking system and show an ongoing deposit flight, that is being replaced with very expensive emergency loans for banks that only further destabilize them.
A Regime Shift?
The current banking crisis is thus most likely the end of the hawkish hiking cycle. Inflation is coming down fast across the globe - maybe even too fast. This development is further supporting a change in monetary policy. The entire credit environment has become extremely restrictive, so that things are falling of a cliff, and only significant monetary easing will be able to turn around that ship. I am already observing a significant change in tone by FED officials.
Portfolio Update
In the recent two weeks I have updated my portfolio positioning for this new environment.
I have bought back a 10% position in Opendoor based on falling interest rates.
I have started a 5% position in Carvana after a surprise Q1 EBITDA guidance.
I have initiated new positions in two small German residential REITs trading at 70% discounts to NAV: TAG Immobilien and LEG Immobilien.
I have mostly trimmed Meta platforms, after an incredible run-up since the lows in November 2022. I am still very positive on Meta, so it remains one of my top positions, but I will not hold a 30% position in a stock after the easy money has been made.
I will follow up with write-ups on my positions in the weeks to come. Stay tuned.