To SMA clients and friends of Vailshire Capital Management:
- “O recession, where art thou?”
- Inflation, though still higher than desired, continues to show signs of abating
- When bitcoin enters a bull market, there is (historically-speaking) no better asset class to own
Current Market Conditions
Where is the Recession?
Hello from Colorado Springs!
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I was honored to join Cedric Youngelman, host of The Bitcoin Matrix podcast to discuss everything from my dual careers in finance and healthcare, macroeconomics, Bitcoin, equites, bonds… and much more!
Feel free to check out the episode using the following link, entitled: Live Well. Invest Wisely. and let me know your thoughts.
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“O recession, where art thou?” — I recently posted this on Twitter after recent Chicago PMI numbers and new orders were not only no longer contractionary, but were outright expansionary and bullish.
There is much discussion on the business channels and across my macroeconomic circles about the possibility of the economy achieving a “soft landing” recession. This would be in spite of the Federal Reserve’s continued hawkish stance towards inflation.
Inflation, though still higher than desired, continues to show signs of abating. Long-term Treasury yields, which are a fairly accurate representation of future economic growth and inflation expectations have seemingly peaked and rolled over… at least for the time-being. If this trend continues, and the US dollar continues to weaken relative to other major world currencies, then risk assets and bitcoin may continue to perform quite well.
In addition, both worldwide and US net liquidity have experienced local bottoms in late September/October 2023, and have since been steadily (albeit slowly) rising. This is encouraging to see, as liquidity is the “oxygen” of risk asset markets. If liquidity is starting to expand again, then stocks and bitcoin should perform relatively well.
The graph below depicts weekly US net liquidity (blue line; top panel), Global M2 (blue line; middle panel; by MigueFinance), and Chinese liquidity injections (orange bars, “PBoC Liquidity Injections [tedtalksmacro]”) since the beginning of May 2023, compared with Bitcoin (BTCUSD), NASDAQ stocks (QQQ), the S&P 500 (SPX), and US small cap stocks (IWM). — Note that US net liquidity has mildly expanded by +2.4% and approximate global M2 has started to recover, while China has continued injecting liquidity into its markets. — The best performers include bitcoin (36.0%) and QQQ (21.0%), while IWM (6.3%) has relatively underperformed.
Strategies for Vailshire’s SMAs
Vailshire portfolios continue to adapt and evolve in the setting of uncertain macroeconomic and geopolitical conditions. As stated in last month’s update, I was happy to finally add high-yielding fixed income instruments to our portfolios after a very long hiatus; secondary to very low interest rate policies throughout the 2010s.
Our fixed income exchange traded funds (ETFs) were consolidated into a single business development company managed by–in my opinion–the very best managers in the fixed income and distressed debt space: Oaktree Capital Management. The security is Oaktree Specialty Lending Corporation (ticker: OCSL) and yields approximately 11% at current prices.
The majority of the loans in this security are first lien and floating rate, which combine to add a layer of safety and very strong yields in this decade of expected higher and more volatile interest rates. We may be adding to this position in the coming quarters and years if management proves itself adept over time throughout this uncertain economic environment.
Bitcoin price has continues to perform quite well in light of a potential spot bitcoin ETF approval by the SEC in early January and the next halving in late-April 2024. As I have written previously, when bitcoin enters a bull market, there is (historically-speaking) no better asset class to own. In light of this, we have been steadily increasing our portfolio’s bitcoin proxy holdings over the past couple of months.
After some recent adjustments, our Vailshire portfolios are now allocated towards a 40% equity, 40% sound money, and 20% fixed income structure. I believe that this three-pronged approach will serve us well throughout this decade of anticipated economic stagnation, high and/or volatile inflation, and eventual credit and monetary expansion.
Here is a summary of our current 40/40/20 “stagflation-busting, income-generating” Vailshire portfolio allocations:
Vailshire’s Aggressive separately managed accounts (SMAs) are allocated as follows (current starter % position size):
EQUITIES (40%)
- 2% AAPL
- 2% ADBE
- 2% AMZN
- 2% AZO
- 2% CALF
- 2% COWZ
- 2% GOOGL
- 2% LMT
- 2% MA
- 2% MELI
- 2% MSCI
- 2% MSFT
- 2% NVDA
- 2% NVR
- 2% SHOP
- 2% SQ
- 2% TPL
- 2% TSLA
- 2% TT
- 2% V
SOUND MONEY (40%)
- 5% FNV (gold royalty)
- 25% MSTR (bitcoin proxy)
- 5% WGMI (bitcoin miner ETF)
- 2.5% XLE (energy ETF)
- 2.5% cash
FIXED INCOME (20%)
- 20% OCSL
Vailshire’s Moderate separately managed accounts (SMAs) are allocated as follows (current starter % position size):
EQUITIES (40%)
- 2% AAPL
- 2% ADBE
- 2% AMZN
- 2% AZO
- 2% CALF
- 2% COWZ
- 2% GOOGL
- 2% LMT
- 2% MA
- 2% MELI
- 2% MSCI
- 2% MSFT
- 2% NVDA
- 2% NVR
- 2% SHOP
- 2% SQ
- 2% TPL
- 2% TSLA
- 2% TT
- 2% V
SOUND MONEY (40%)
- 10% FNV (gold royalty)
- 15% MSTR (bitcoin proxy)
- 5% WGMI (bitcoin miner ETF)
- 2.5% XLE (energy ETF)
- 7.5% cash
FIXED INCOME (20%)
- 20% OCSL
Vailshire’s Conservative separately managed accounts (SMAs) are long-only and are allocated as follows (current starter % position size):
EQUITIES (40%)
- 2% AAPL
- 2% ADBE
- 2% AMZN
- 2% AZO
- 2% CALF
- 2% COWZ
- 2% GOOGL
- 2% LMT
- 2% MA
- 2% MELI
- 2% MSCI
- 2% MSFT
- 2% NVDA
- 2% NVR
- 2% SHOP
- 2% SQ
- 2% TPL
- 2% TSLA
- 2% TT
- 2% V
SOUND MONEY (40%)
- 12.5% FNV (gold royalty)
- 15% MSTR (bitcoin proxy)
- 2.5% XLE (energy ETF)
- 10% cash
FIXED INCOME (20%)
- 20% OCSL
Vailshire’s Ultra Conservative separately managed accounts (SMAs) are long-only and are allocated as follows (current starter % position size):
EQUITIES (40%)
- 2% AAPL
- 2% ADBE
- 2% AMZN
- 2% AZO
- 2% CALF
- 2% COWZ
- 2% GOOGL
- 2% LMT
- 2% MA
- 2% MELI
- 2% MSCI
- 2% MSFT
- 2% NVDA
- 2% NVR
- 2% SHOP
- 2% SQ
- 2% TPL
- 2% TSLA
- 2% TT
- 2% V
SOUND MONEY (40%)
- 15% FNV (gold royalty)
- 10% MSTR (bitcoin proxy)
- 2.5% XLE (energy ETF)
- 12.5% cash
FIXED INCOME (20%)
- 20% OCSL
Vailshire’s Bitcoin Proxy separately managed accounts (SMAs) are allocated as follows (current starter % position size):
- 95% MSTR (bitcoin proxy)
- 5% cash
**As written in prior emails and client updates, SMA clients in TX remain in cash-only positions (most earning interest at Interactive Brokers) as Vailshire awaits state-specific regulatory approval to begin/resume investing on behalf of these client accounts. Our legal team is doing everything in its power to get this approval as quickly as possible, which has already been accomplished in CA, FL, and MN in 2023. I am sorry for the ongoing delay in trading/investing for Vailshire’s TX clients!
If you are a Vailshire client, feel free to log in to your account(s) at Interactive Brokers and see how your own portfolios are positioned. (It’s a good idea to log in and review your account(s) at least quarterly, just to make sure your settings and demographics are up to date.)
Conclusion
The Bitcoin Secular Bull Market Marches On
Inflation and interest rates are falling, while liquidity has quietly started to expand again… if only at low rates of growth.
Risk assets and bitcoin continue to see the telltale economic signs and have performed admirably throughout most of 2023.
Our Vailshire portfolios continue to adapt and evolve to the underlying macroeconomic and geopolitical conditions. We are well positioned for a variety of probable outcomes over the coming months and years.
Thank you for your ongoing trust in me and in Vailshire’s systematic investment process. I am honored to have you as a client and will continue to work hard on your behalf.
Living well and investing wisely with you,
Jeff Ross, MD/MBA