To SMA clients and friends of Vailshire Capital Management:
- Net liquidity contraction in June was less bad than many had anticipated
- An increasing number of institutional investors are starting to understand that proof of work Bitcoin and proof of stake “crypto” have nothing relevant to do with each other
- Vailshire’s 60% stock and 40% sound money portfolios hope to outperform in a decade of suspected stagflation
Current Market Conditions
Debt Ceiling Resolution
Happy Independence Day from Colorado Springs!
It was a relatively quiet and unexceptional month in Macro Land in June. With the resolution of the debt “ceiling” debacle at the beginning of the month, the markets seemed to breathe a collective sigh of relief.
In late-May, there was much fear and trepidation about the effects of the Treasury’s need to refill its general account on net liquidity but, thankfully, the bulk of this contraction was offset by withdrawals from the overnight reverse repo facility. All in all, from May 31 through June 28, net liquidity in the US only contracted by -$77B, which is a relative drop in the bucket and much less bad than many experts had expected.
In addition, the Federal Reserve held the federal funds rate steady at 5.0-5.25% during its mid-June FOMC meeting. This did not disappoint risk assets, which continued a solid performance throughout most of June.
The SEC delivered long-awaited lawsuits against two popular cryptocurrency exchanges: Coinbase and Binance. As you know, I am generally not a fan of the broader proof of stake “crypto” space, as it has been wrought with nefarious characters, frauds, and scams. These SEC actions should serve to clean up the space, put some bad actors behind bars, and make a clearer path forward for the only proof of work cryptocurrency that matters: Bitcoin.
While these lawsuits temporarily held down the price of bitcoin as risk assets continued to rally, I think that the formerly negative perception of the Bitcoin network by the popular press and Baby Boomers is starting to change. Essentially all of the major brokerage firms and other financial institutions–many of whom have historically been staunchly and vocally opposed to Bitcoin–are now clamoring to be the first to offer up spot bitcoin ETFs to their many millions of clients. If the SEC approves their applications in the coming year, then watch out for the $btc price to catch a bid!
The graph below depicts weekly US net liquidity (green and red bars) since the beginning of May 2023, compared with the 11 largest Vailshire portfolio holdings of: AutoZone, Inc.(ticker: AZO), small cap stocks with high free cash flow (FCF) yields ETF (CALF), large cap stocks with high FCF yields ETF (COWZ), Franco-Nevada Corp. (FNV), MicroStrategy (MSTR), NVR, Inc. (NVR), NASDAQ stocks (QQQ), Texas Pacific Land Corp. (TPL), Tesla, Inc. (TSLA), Vanguard Total International Stock Index Fund (VXUS), and Valkyrie Bitcoin Miners ETF (WGMI). Note that US net liquidity has mildly contracted by -1.85%. Outperformers include TSLA (54%) and WGMI (22%), while AZO (-7%) and FNV (-10%) have relatively underperformed.
Strategies for Vailshire’s SMAs
I was enthused to add several long positions to our “stagflation-busting” portfolios over the past two months. In addition, we started to rebalance our portfolios at the end of the quarter. This process should be completed during the first week of July.
Our Vailshire portfolios continue to be allocated towards a 60% stocks and 40% sound money structure. I believe that this two-pronged approach will serve us well throughout this decade of anticipated economic stagnation, high and/or volatile inflation, and continued credit and monetary expansion.
Here is a summary of our current 60/40 “stagflation-busting” Vailshire portfolio allocations:
Vailshire’s Aggressive separately managed accounts (SMAs) are allocated as follows (current base % position size):
EQUITIES (60%)
- 2.5% ADBE
- 7.5% AZO
- 5% CALF
- 7.5% COWZ
- 2.5% MELI
- 7.5% NVR
- 5% QQQ
- 7.5% TPL
- 5% TSLA
- 2.5% TT
- 2.5% V
- 5% VXUS
SOUND MONEY (40%)
- 10% FNV (gold royalty)
- 15% MSTR (bitcoin proxy)
- 10% WGMI (bitcoin miners)
- 5% cash
Vailshire’s Moderate separately managed accounts (SMAs) are allocated as follows (current base % position size):
EQUITIES (60%)
- 2.5% ADBE
- 7.5% AZO
- 5% CALF
- 7.5% COWZ
- 2.5% MELI
- 7.5% NVR
- 5% QQQ
- 7.5% TPL
- 5% TSLA
- 2.5% TT
- 2.5% V
- 5% VXUS
SOUND MONEY (40%)
- 15% FNV (gold royalty)
- 10% MSTR (bitcoin proxy)
- 5% WGMI (bitcoin miners)
- 10% cash
Vailshire’s Conservative separately managed accounts (SMAs) are long-only and are allocated as follows (current base % position size):
EQUITIES (60%)
- 2.5% ADBE
- 7.5% AZO
- 5% CALF
- 7.5% COWZ
- 2.5% MELI
- 7.5% NVR
- 5% QQQ
- 7.5% TPL
- 5% TSLA
- 2.5% TT
- 2.5% V
- 5% VXUS
SOUND MONEY (40%)
- 20% FNV (gold royalty)
- 5% MSTR (bitcoin proxy)
- 5% WGMI (bitcoin miners)
- 10% cash
Vailshire’s Ultra Conservative separately managed accounts (SMAs) are long-only and are allocated as follows (current base % position size):
EQUITIES (60%)
- 2.5% ADBE
- 7.5% AZO
- 5% CALF
- 7.5% COWZ
- 2.5% MELI
- 7.5% NVR
- 5% QQQ
- 7.5% TPL
- 5% TSLA
- 2.5% TT
- 2.5% V
- 5% VXUS
SOUND MONEY (40%)
- 20% FNV (gold royalty)
- 5% MSTR (bitcoin proxy)
- 15% cash
**As written in prior emails and client updates, SMA clients in CA, FL, MN, and TX remain in cash-only positions as Vailshire awaits state-specific regulatory approval to begin/resume investing on behalf of these client accounts. Approval will hopefully occur in the coming days or weeks.**
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
Start of a New Bull Market?
Graph (above): Since bottoming on 21-November-2022, bitcoin has been in a strong uptrend, as depicted by the blue and red regression trend channel. Note also that the price is above both its 50- and 200-day moving averages… signs of bullish momentum.
Surprisingly stable liquidity and increasing clarity in the “Bitcoin, not crypto” discussion have provided the backdrop for generally positive price action across many risk assets and bitcoin over the past few months.
Vailshire’s “stagflation-busting” portfolios continue to fare well in these otherwise uncertain times. While a recessionary bear market may still lie ahead of us in the coming months or quarters, we are staying invested for what we believe to be the best long-term outcomes with a diversified core of fantastic assets.
Thank you for your continued trust in me and in Vailshire Capital Management.
Living well and investing wisely with you,
Jeff Ross, MD/MBA
