To SMA clients and friends of Vailshire Capital Management:
- US net liquidity hit a recent local high in mid-December and swiftly turned lower… staying true to its 20-month channel since April 2022
- Global M2 is attempting to break out of its 32-month channel as we speak
- My outlook for 2024 remains generally bullish for risk assets and sound money
Current Market Conditions
Important Trends in Net Liquidity and Global M2
Happy New Year from Colorado Springs!
Since today (29-December) marks the last trading day of 2023, I thought I would get my monthly update to Vailshire separately managed account (SMA) clients a bit earlier than usual.
After an impressive run higher in many of our favorite assets… including technology stocks, small cap stocks and, especially, bitcoin and bitcoin proxies, the final trading day of 2023 is replete with much profit taking and rebalancing. This is causing many of these assets to take a big short-term hit. But given the recent sizable gains, I am certainly not complaining.
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–hit a recent local high in mid-December and swiftly turned lower… staying true to its 20-month channel since April 2022. As such, US small and mid cap stocks are susceptible to a move lower, following recent local highs themselves.
On the contrary, global M2 (approximate; see X/Twitter post below) is attempting to break out of its 32-month channel as we speak. This bodes well for the continuation of outperformance for worldwide risk assets and sound money; including bitcoin, gold, and megacap technology stocks.
Even though occasional pullbacks will always occur from overbought levels, my outlook for 2024 remains generally bullish for risk assets and sound money in the setting of lower inflation, declining interest rates, a lower federal funds rate, a weakening US dollar, a still-resilient US economy, and low unemployment, among other factors.
Strategies for Vailshire’s SMAs
Only small tweaks were made to Vailshire SMA portfolios in December, most of which are already reflected in our end-of-quarter asset rebalance. Residual rebalancing may occur in early January 2024 as well.
Notably, our energy ETF was removed to make room for increased Bitcoin proxy exposure. Why? In the setting of increasing global M2 (which I expect to persist throughout 2024 and 2025), there is almost no better way to achieve the highest risk-adjusted returns than via bitcoin exposure.
By the second week of January 2024, I expect news outlets to be filled with stories of the pending SEC approval of multiple Bitcoin ETFs. I believe that the acceptance of bitcoin-related products by the largest Wall Street firms (who, previously, were some of its most vocal detractors) will only add to the already astounding price increases to which Bitcoiners have become accustomed over the past 10+ years.
In addition, with the next Bitcoin halving expected to occur in late-April 2024, this will only serve to reduce liquid supply in the setting of ever-increasing demand. As we know from Economics 101, increased demand for a fixed/limited supply asset can only lead to one outcome… a higher price. As of today, my end of 2024 price target for bitcoin is $100k. And, for 4Q 2025, it is $475k. Time will tell if these guesses are remotely accurate!
As such, don’t be surprised to see our portfolio allocations to bitcoin proxies actually increase throughout the first half of 2024, as we prepare for the next (expected) leg higher of the bull market. (Note: Just my guess. 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%)
- 5% FNV (gold royalty)
- 25% MSTR (bitcoin proxy)
- 7.5% 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% FNV (gold royalty)
- 15% MSTR (bitcoin proxy)
- 7.5% 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%)
- 12.5% FNV (gold royalty)
- 15% MSTR (bitcoin proxy)
- 2.5% WGMI (bitcoin miner 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% WGMI (bitcoin miner 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):
- 98% MSTR (bitcoin proxy)
- 2% 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
Rebalancing and Taking Profits After a Solid Quarter
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.
Periods of expanding global M2 have frequently correlated strongly with ongoing outperformance of risk assets and sound money… especially bitcoin and bitcoin proxies.
Even though we will likely experience significant volatility throughout 2024 and 2025, I expect these coming years to be quite profitable because of our portfolio positions. As such opportunities arise, I even hope to increase our allocations to what I believe are the world’s best assets.
As I stated in the Tweet/X post above, “the Bitcoin bull market hasn’t even started yet… we are still in the pre-game warmup.” I cannot predict the future, but I remain quite optimistic based on past performance and current macroeconomic conditions.
If you have considered adding to your Vailshire investment portfolios in the past couple of years, I think that early 2024 could be a great time to do so. Only time (and patience!) will tell.
Living well and investing wisely with you,
Jeff Ross, MD/MBA