Vailshire Capital Management – April 2022 Update


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April is here and spring is in the air here in Colorado!

I hope each of you is doing well.

Current market conditions

My research continues to suggest that there are problems under the economic hood, both here in the United States and abroad. US GDP growth peaked in the 4th quarter of 2021 and has been declining ever since.

Inflation, meanwhile, remains very high and has not yet officially peaked. My updated expectation is that inflation will not go much higher than February’s CPI print of 7.9%, and should remain elevated, but at a slower pace (disinflation) throughout. throughout the year 2022.

Year-over-year earnings growth for corporate America is also expected to decline significantly in 2Q 2022. Those numbers won’t be officially released for several months, but we can glean supporting evidence from the conference calls on the results for the 1st quarter of 2022 in the short term.

Not to be outdone on disappointing measures, the Federal Reserve is tightening monetary policy about 6-9 months too late. Their historical economic data is solid, as we know, but what lies ahead is worrying. The tightening of monetary policy (aka “quantitative tightening”) in an economic downturn usually produces anxiety in the markets sooner or later.

Finally, sections of the yield curve have just been officially inverted. This is a very reliable harbinger of a coming economic recession. Although not necessarily imminent, such a reversal suggests that a recession is almost inevitable in the United States within the next 24 months. Vailshire’s accounts will certainly prepare for the possibilities, whether bullish or (unfortunately) bearish for the majority of market participants.

Stocks, bitcoin and related #RiskOn assets have made a small comeback in recent weeks after an abysmal performance since Q4 2021. It’s possible they officially bottomed in March 2022, but I remain skeptical about the fact that we have already seen the worst.

Time will tell us.

Strategies for Vailshire Separately Managed Accounts

Despite the poor performance in the first quarter of 2022, I was very pleased to add full positions to all of our ‘hold forever’, capital efficient and/or inflation resistant assets over the past month. . Some of our entry positions are 5-40% below recent highs for these assets. I expect these holdings to be the foundation of our Vailshire portfolios for years to come and hopefully decades to come, with strong returns even if we get several years of stagflation, which I suspect. hold on.

The other third to half of our portfolios consist of “dynamic trades”. These assets typically belong to the growth and innovation sector – including bitcoin infrastructure, crypto exchanges and smaller tech stocks – and tend to be much more volatile than our mentioned “hold forever” assets. above. Going forward, due to this volatility, we will only hold these assets when they are in a confirmed uptrend. If and when the bullish momentum has been broken, we will sell the asset to preserve our gains.

It should be noted that a few of our “momentum trade” assets include inverse exchange-traded products that are used to hedge (or sell) the market during bearish macroeconomic conditions (like today). Typically, when the stock market goes down, these assets actually go up in value, and vice versa.

Although this dynamic trading strategy has significant tax implications in Vailshire’s non-tax-sheltered accounts, I would rather pay capital gains tax on profits than pay no tax on losses. from -40 to -80%. Hope this makes sense and works for you as well.

Depending on your financial goals and the investment privileges of your individual account, Vailshire separately managed accounts are currently broken down as follows:

  • 60% select capital efficient and/or inflation resistant stocks
  • 4% momentum trade assets
  • 24-36% in cash
  • 2% bitcoin, bitcoin infrastructure and associated digital assets
  • S&P 500 ETF short 0-4%
  • NASDAQ 0-4% Short/Double Short ETFs
  • 0-4% Short-Term U.S. Small Cap Equity ETF
  • 4% short ETF innovation stocks

If you are a Vailshire customer, 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.)

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