May/June 2021 Update

Happy Memorial Day! It is good to pause and be thankful for those soldiers who paid the ultimate price for our country’s freedom. Thanks to each of you who has served our country.

Current Market Conditions

Right on schedule… optimism has returned.

The United States economy continues to fire on all cylinders as the post-Covid shutdown reverses and businesses have returned to near-100% capacity. People are out shopping and eating again, which is great to see. But alongside a thriving GDP is a more nefarious actor: inflation.

Inflation is rearing its ugly head across the commodity sector with diffusely rising prices, from lumbar to copper to corn… and everything in between. Among almost anything we buy, we are getting more for less.

Assets like stocks, commodities, and real estate are likewise increasing in value. And those fortunate enough to own such assets are seeing their net worth rise over time. Others who don’t own such things are unfortunately falling farther behind… increasing the wealth gap.

When inflation rises, so do long-term interest rates. Bond prices fall in tandem with rising rates, making this a poor time to own US Treasuries and related instruments.

You may have noticed that bitcoin had its worst intra-bull market drawdown since 2013, which was painful to endure. Thankfully, we are likely through the worst of it and better times should be coming in short order. Based on my extensive research, we may see the price of bitcoin rise 3x or more from here (to $100k+) by the end of 2021.

Strategies for Vailshire’s Separately Managed Accounts

Despite the unexpectedly large pullback in the price of bitcoin and ethereum in May, my assessment continues to lean towards optimism across multiple asset classes. That is, I continue to believe that now is the time to remain aggressively positioned for significant investment profits. This means, as in prior months, adding new cash to our accounts when applicable and being almost fully invested (very low cash positions) across our Vailshire portfolios.

After the recent large drawdowns in both our bitcoin and ethereum holdings, this is the perfect time to buy more (or simply hold) for the expected surge higher. While these bigger-than-normal position sizes add significant volatility to our portfolios, I anticipate that the coming large price movements will be to the upside–resulting in significant market outperformance.

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
  • 7.5-15% 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

My research continues to point to positive underlying market conditions for the foreseeable future. This means that we will remain aggressively positioned for profits in the near-term.

If the economic environment should change, then our full-cycle systematic portfolios will be adjusted accordingly. As always, Vailshire strives to stay positioned within the asset classes that are most likely to outperform the broader market in whichever atmosphere we find ourselves.

Of note, the recent large drawdown in bitcoin and ethereum prices have given us excellent long-term buying opportunities at current prices. I continue to believe that that coming gains in these (and related) entities will be unlike anything that can be found in the stock, bond, commodity, and real estate sectors.

I am excited for what lies ahead in 2021… I hope you are, as well!

Living well and investing wisely with you,

Jeff Ross, MD, MBA