Via SeekingAlpha.com

Dear client or friend of Vailshire Capital Management,

I hope that you survived an eventful month of May, and that June will be less tumultuous for you and for our country!

Let’s get right to the monthly update.

Current Market Conditions

Despite the massive (Depression-esque) levels of unemployment and deep recessionary drops in the manufacturing and service sectors, the stock market continues to be surprisingly resilient. Persistent strength in the US dollar and stable Treasury yields near historic lows suggest less optimism is these markets compared to what is seen in the (much smaller) stock market. Only time will tell who is correct.

Giving credit where credit is due, the S&P 500 has rallied approximately 40% off of its March lows and is now down about -5% in 2020.

The million dollar question is whether or not the Federal Reserve and government stimuli, along with optimism about a quick post-COVID-19 recovery, can continue to propel stocks higher while underlying fundamentals look atrocious.

We’ll see. And, as always, we will keep investing in asset classes that perform the best in whatever economic and inflationary conditions are present. This statistical, evidence-based approach can be boring at times, but boring is good when the people are panicked and markets are crashing!

Strategies for Vailshire’s Separately Managed Accounts

With inflation and GDP decelerating as they currently are in 2Q, and with volatility at high (but not extreme) levels, the following assets historically outperform the broader market:

  • US Treasurys (short and long duration)
  • Cash (the US dollar)
  • Gold
  • Gold miners and royalty companies
  • Consumer staples
  • Healthcare
  • Utilities
  • Real estate
  • Bitcoin
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Our plan

We have maintained relatively small positions in many of the above-mentioned defensive stocks, as well as US Treasurys, cash, gold, gold miners/streamers, and bitcoin. In addition, we have added technology stocks to our portfolios, which have been beneficiaries of the recent mass quarantine/work-from-home movement. I continue to believe that gold and (especially) bitcoin will significantly outperform traditional stocks and bonds over the coming 3-5 years… and we are positioning ourselves accordingly.

Currently, our separately managed accounts are allocated in the following moderately defensive manner:

  • 20% US Stocks
  • 20% US Bonds
  • 5% Real Estate
  • 15-35% Cash (earning interest)
  • 20% Gold and Gold Streamers/Miners
  • 0-20% Bitcoin (based on personal preference and trading permissions)

Recent podcast appearance

If you have 42 minutes to spare, you may enjoy listening to this podcast. I was invited to be a guest on the “Physician’s Guide to Doctoring” show, which is hosted by Dr. Bradley Block.

Dr. Block is a great interviewer and we discussed a wide range of topics. Here is a brief description of the podcast from the website:

We start out by defining terms like mutual fund, hedge fund, venture capital, angel investing, and private equity. He teaches us the importance of diversifying beyond the market and investing in what we know, which is why many of his investments are in the healthcare and healthtech space. He retired from being an interventional radiologist, but after a year and a half away, he is back to teleradiology. After being away from medicine, even for a little while, gave him some perspective he was able to share with us.

I would love to hear your feedback if you are able to give it a listen!

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In conclusion

Underlying economic fundamentals are shockingly abysmal, but the US Government and Federal Reserve are doing everything in their power to maintain credit market stability and artificially prop-up stock prices…. So far, it has worked.

My biggest concern is that equity prices will quickly crumble to new lows once they take their foot off the gas regarding their unprecedented stimulus measures.

In the meantime, we will stay invested in a moderately defensive manner and hope that happier times are not too far off in the future!

As always, if you have any questions or comments, feel free to reach out to me.

Original Post

Editor’s Note: The summary bullets for this article were chosen by Seeking Alpha editors.