Summer is in full swing and Colorado Springs is enjoying its wettest season since the late 1940s. We’re not used to all of the green grass and tree leaves around here, but I’ll take it!
I hope each of you is enjoying some time outdoors with your family and friends.
Current Market Conditions
Inflation is still the primary economic story. In the press, it has gone from “absent” to “transitory” to “surprisingly persistent.” It’s not surprise to us here at Vailshire, however, as we’ve been profiting from the so-called “reflation trade” over the past nine months!
Inflation acceleration or deceleration is important to track because it has serious investment implications across multiple asset classes. Examples include long-term US Treasury and related bond rates, currency strength, commodity prices, and the movement of certain equities.
After rising dramatically over the past year, inflation appears to be plateauing at a relatively high level.
The economy is also growing in fits and starts as the Covid recovery continues. However, the increasingly prevalent “Delta variant” is causing another wave of infections across the world, and no one–vaccinated or unvaccinated–is completely immune to it.
How the economy reacts to this now-endemic virus is another data set that I pay careful attention to. Such factors play an important role across multiple asset classes, in similar fashion to inflation.
Bitcoin (see the above graph) has finally found a bottom and has started to recover after three months of turmoil. The expulsion of this “freedom money” from communist China was a short-term punch in the face to prices, but is a true blessing in the long-run as the Bitcoin network strengthens and expands more rapidly across the rest of the free world.
Since bottoming on June 22nd below $29,000 and wobbling throughout the first half of July, the tide has finally turned and the price of one bitcoin is back above $40,000 at the time of this writing. While short term price fluctuations are impossible to predict, I remain highly confident that we will see much better days for bitcoin in the coming quarters and years.
As I often post on Twitter, the Bitcoin secular bull market rages on!
Strategies for Vailshire’s Separately Managed Accounts
As the markets have transitioned from recent GDP and inflation acceleration to a more stable equilibrium of the two, we have taken advantage of the sideways movement by rebalancing our portfolios. Certain assets perform better than others when inflation is stable/accelerating and GDP is slightly decelerating.
Of note, financial stocks had been performing well over the prior quarters, but have been replaced with positions in technology and real estate equities, which tend to perform better in the current economic environment.
Although bitcoin and related assets took a big hit over the past three months, the rebalancing of our portfolios has shifted some recent gains in most US stocks into these highly undervalued categories.
Depending on your financial objectives and individual account investment privileges, Vailshire’s separately managed accounts are currently allocated in the following manner:
- 27.5-40% US stocks (large, mid, and small caps, including technology and energy stocks)
- 10% emerging market stocks
- 5% real estate equities
- 2.5-10% cash
- 30-50% bitcoin, ethereum and/or related proxies (based on personal preference and trading permissions)
- 5% commodity-based equities
If you are a Vailshire Client, feel free to log into your Vailshire-managed account(s) at Interactive Brokers and see how your own portfolios are positioned. (It’s a good idea to log into your accounts at least quarterly, just to make sure your settings and demographics are up to date.)
Conclusion
As the market transitions to a new inflation and economic growth equilibrium, we have accordingly switched to a more optimized portfolio of assets, using our systematic, full-cycle investment approach.
Being early adopters and investors in Bitcoin and related entities means that we are likely to reap larger than average returns as these assets gain international acceptance and adoption. If history rhymes–and I believe it does–then the coming months and quarters may provide some serious gains across these and other assets within our portfolios.
I continue to believe that this is an outstanding time to put new money to work in the above-mention investments. While tomorrow’s price action cannot be predicted with accuracy, the future has never looked brighter for Vailshire clients.
Living well and investing wisely with you,
Jeff Ross, MD, MBA