Thanksgiving has come and gone and already Christmas carols are playing 24/7 on most radio stations! The holiday season is upon us.
I hope each of you is doing well.
Current Market Conditions
After approximately 18 months of accelerating inflation, my data suggests that the United States may have peaked in this 4th quarter of 2021. Going forward, I expect high but decelerating inflation (a.k.a. “disinflation”) year-over-year as we head into 2022.
The US economy has performed admirably, given the endemic and intermittently resurgent Covid conditions with which we are faced. I expect minimal or no GDP acceleration in 1Q 2022 in year-over-year terms.
Jerome Powell, for his part, is currently spooking the markets with his increasingly hawkish tone. To his credit, he is in a pickle… the economy and markets have performed well with copious monetary stimulus, but inflation has reared its ugly head and increasingly worried Americans are facing higher prices everywhere they turn.
The markets may absorb some tapering of bond purchases by the Federal Reserve, but they are less likely to applaud future rate hikes if Covid-related economic shutdowns continually hamper economic recovery and growth.
My favorite nascent asset, Bitcoin, started November strong before finishing with a whimper. At the time of this writing, it is down -6% at a price of approximately $57,000. While it will likely remain volatile for many years to come, it is simply better money. And the benefits of our early adoption will likely pay exponential dividends throughout the 2020s.
Strategies for Vailshire’s Separately Managed Accounts
With the above-described regime change in inflationary, economic, and Federal Reserve metrics, we are accordingly altering our forward-looking investment strategy. Assets that have been big winners for us over the past several quarters may begin to underperform in the coming months, and vice versa.
Financial, energy, and commodity-based equities have been removed from our portfolios. In their place are the likes of consumer discretionary, momentum-based, industrial, and technology stocks, among others. After a weak November for our Bitcoin and related digital assets, I am even more optimistic for their performance in the ensuing months.
Depending on your financial objectives and individual account investment privileges, Vailshire’s separately managed accounts are currently allocated in the following manner:
- 45-65% select US stocks (as described above)
- 5% cash
- 30-50% bitcoin, Bitcoin infrastructure, and related digital assets (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 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
Economies and markets have been, and always will be, cyclical. After several quarters of accelerating inflation and GDP data, 2022 will likely provide a different backdrop from which to invest.
Accordingly, Vailshire’s systematic investment process is leading us to “front run” the coming economic regime change with a new portfolio allocation that should (historically speaking) outperform the underlying indices.
Based on my research and assessment of where we are headed, I am optimistic. I hope you are, as well.
Note: If you are happy with your Vailshire portfolio returns to date and know of any friends or family members who may benefit from our services, I would be greatly honored by a referral.