Dear client or friend of Vailshire Capital Management,
Happy Independence Day Eve!
I hope your weekend is filled with camaraderie, fun, relaxation, and thankfulness for the many freedoms we still enjoy in this great country.
Current Market Conditions
The previously described Covid-related, high-speed economic depression has been met with an equally(?) powerful and rapid response by the US government and Federal Reserve. Service and manufacturing sectors have partially bounced back in our country, helping to lessen the pain of the tens of millions of lost jobs and opportunities our friends and family members have experienced over the past few months.
While I think America’s road to recovery and “normalcy” is destined to be quite long (years, not months), the stock market has generally accepted its government-sponsored liquidity boost and–in some sectors–returned to pre-Covid levels. For the next couple of months, at least, I am cautiously optimistic that stock returns will be positive, though volatile.
The biggest news with practical implications for our investments is that inflation has returned. If the economy remains weak while inflation accelerates, we will experience an extended period of “stagflation,” which Americans have not endured since the 1970s.
I discussed this in some depth with my good friend and famous value investor, Dan Ferris, on a recent Stansberry Investor Hour podcast. Here’s a link to the show if you would like to hear more.
Despite a relatively lackluster portfolio performance over the past month, several non-stock investment alternatives should substantially outperform US stocks in the coming months and years; namely: real estate, gold, gold stocks, and bitcoin.
Strategies for Vailshire’s Separately Managed Accounts
When economic growth is tepid, inflation is accelerating, quantitative easing is happening, and volatility remains elevated, the following assets historically tend to perform well:
- Gold miners and royalty companies
- Gold
- Utilities
- Real estate
- Bitcoin
- Technology and other growth stocks
- Treasury Inflation-Protected Securities (TIPS)
Our plan
The markets will likely remain more volatile than normal over the summer and fall, so get mentally prepared. Seriously. (If you are old enough to remember the geopolitical tension and market turmoil of the 1960s and 1970s, then you will know what I am talking about.) And if you are prone to worry, it may be a great time to tune out the financial headline noise and keep a long-term perspective!
While stock returns may be muted compared to the 2010s, I think that the upside potential for gold stocks, real estate, commodities, and bitcoin–in particular–is tremendous. We are beginning to position our portfolios accordingly.
Our separately managed accounts will be allocated in the following cautiously optimistic, stagflationary manner:
- 25% US Stocks
- 10% Emerging market stocks
- 22-25% Real Estate
- 3-10% Cash
- 20% Gold and Gold Streamers/Royalties/Miners
- 0-20% Bitcoin (based on personal preference and trading permissions)
If you are a Vailshire Client, feel free to log into your Vailshire-managed account(s) at Interactive Brokers and notice how your own portfolios are positioned! (It’s a good idea to log into your accounts occasionally, just to make sure your settings and demographics are up to date.)
Also, if you are not currently holding any bitcoin, but would like to consider doing so going forward (my recommendation), please reach out to me so we can set up your account accordingly and make it happen. Approximately 90% of Vailshire clients now hold some bitcoin in their brokerage accounts via the Grayscale Bitcoin Trust… Nice!
Conclusion
We are living in interesting and, often, troubling times.
Thankfully, Vailshire uses a systematic and diversified approach to investing that constantly monitors our positions and rotates us into asset classes that historically/statistically outperform in whatever economic conditions we face.
For multiple reasons, I think that the next 18-24 months will provide us with some of the best investment returns we have experienced in our lifetimes. If you have money sitting on the sidelines, it might be a good time to put it to work on your behalf!
Investing wisely with you,
Jeff