To SMA clients and friends of Vailshire Capital Management:
- Also crabby (chopping sideways) are US net liquidity and global M2 monetary supply
- As these provide the figurative oxygen for US and global asset rallies, there is no reason to currently be overly bearish or overly bullish… based on my data sources
- I anticipate that price movements will make their largest moves higher in the second half of 2024, and into 2025
Current Market Conditions
Everything is Trending Sideways…
Hello from Colorado Springs!
Not much has changed since my last monthly update:
- Inflation remains mildly high
- Interest rates have normalized
- The economy remains resilient
- The Federal Reserve remains mildly hawkish
With vastly improved, but still a bit high, levels of inflation here in the United States, the Federal Reserve continues to maintain a relatively hawkish stance as vigilant “inflation fighters.”
The US economy continues to defy the bearish expectations of many economists and churn out somewhat healthy data. US manufacturing has been contractionary for well over a year, but this may be changing to the upside according to today’s S&P Global Manufacturing PMI, which was mildly expansionary.
With persistent GDP growth and mildly elevated inflation numbers, US Treasury yields are appropriately positioned in the 3-5% range. I expect this range to persist for the foreseeable future.
Also crabby (chopping sideways) are US net liquidity and global M2 monetary supply. As these provide the figurative oxygen for US and global asset rallies, there is no reason to currently be overly bearish or overly bullish… based on my data sources.
US net liquidity (see X/Twitter post below)–a combination of the Federal Reserve’s balance sheet, the Treasury’s general account, and the Overnight Reverse Repurchase Agreement market–continues to chop sideways near the upper end of its 21-month channel since April 2022. As such, US small and mid cap stocks are likely to continue trending sideways near their local highs.
Similarly, global M2 (approximate; see X/Twitter post below) continues its sideways, choppy movement near the upper end of its 33-month range. This suggests ongoing sideways (“crabby”) price action for worldwide risk assets and sound money; including bitcoin, gold, and megacap technology stocks.
Until these liquidity and global M2 trends materially change, I don’t expect a meaningful change in direction of any of the above-mentioned asset classes. The first half of 2024 should continue being a great time to add to or dollar cost average into fantastic assets (especially bitcoin and bitcoin proxies) prior to an expected surge higher during the final few months of 2024 (my opinion).
Strategies for Vailshire’s SMAs
Similar to December 2023, only minor changes were made to Vailshire SMA portfolios in January.
Most important was the addition of my favorite new spot Bitcoin ETF (FBTC), managed by Fidelity. Fidelity has been very pro-Bitcoin for several years, and is far ahead of its fellow brokerage firms in terms of Bitcoin understanding, mining, and custodial services. As such, I am happy to hold FBTC shares across Vailshire portfolios.
The addition of this ETF, with concurrent reductions in both MSTR and WGMI (both of which remain great assets to own), are reflected in each portfolio allocation, below.
Also, for Conservative portfolios at Interactive Brokers, which have limited trading privileges, the Amplify Transformational Data Sharing ETF (ticker: BLOK) was added in place of FBTC. I expect the performance of these two ETFs to be similar over the coming 1-3 years.
The price of bitcoin and bitcoin proxies pulled back from overbought levels during the month of January. This is both healthy and unsurprising. When possible, I will use such pullbacks as opportunities to rebalance and/or increase our position sizes in these assets. Unchanged since 2023, my end of 2024 price target for bitcoin is approximately $100k. And, for 4Q 2025, it remains approximately $475k. Time will tell if these guesses are remotely accurate! (Note: Past performance is not necessarily indicative of future returns.)
Our Vailshire SMA portfolios remain allocated towards a 40% equity, 40% sound money, and 20% fixed income structure:
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%)
- 15% FBTC (spot bitcoin ETF)
- 5% FNV (gold royalty)
- 15% MSTR (bitcoin proxy)
- 2.5% WGMI (bitcoin miner 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% FBTC (spot bitcoin ETF)
- 10% FNV (gold royalty)
- 10% MSTR (bitcoin proxy)
- 2.5% WGMI (bitcoin miner 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%)
- 10% BLOK (bitcoin proxy ETF)
- 12.5% FNV (gold royalty)
- 7.5% MSTR (bitcoin proxy)
- 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%)
- 10% FBTC (spot bitcoin ETF)
- 15% FNV (gold royalty)
- 2.5% MSTR (bitcoin proxy)
- 12.5% cash
FIXED INCOME (20%)
- 20% OCSL
Vailshire’s Bitcoin Proxy separately managed accounts (SMAs) are allocated as follows (current starter % position size):
- 49% FBTC (spot bitcoin ETF)
- 49% MSTR (bitcoin proxy)
- 2% cash
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
US Technology Stocks Looking Toppy?
NASDAQ equities (ticker: QQQ; see above chart) continue to range near all-time highs. This is occurring in the setting of sideways global M2 (approximate; see bottom blue line) movement. This is a bit of a bearish divergence and suggests that either: 1) NASDAQ stocks may be overdue for a drawdown; or, 2) global M2 is on the verge of breaking higher. Only time will tell.
While we patiently wait for a change in the dynamics of inflation, interest rates, monetary policy, fiscal policy, US net liquidity, and global M2, we can continue rebalancing and/or adding to our portfolio of pristine assets throughout the first half of 2024.
As I have previously written, I anticipate that price movements will make their largest moves higher in the second half of 2024, and into 2025.
I continue to believe that the coming months will provide an excellent opportunity to increase portfolio position sizes in anticipation of an ensuing bull market across risk assets.
While many of our favorite portfolio assets took a breather during the last couple of days of 2023, I am increasingly confident that any pullbacks are simply additional buying opportunities for 2024.
As we await this change, I want to thank you for continuing to be a client of Vailshire Capital Management. I couldn’t do what I love doing without you!
Living well and investing wisely with you,
Jeff Ross, MD/MBA