The Sucking Sound of Capital Flows
March 10th, 2025. Weekly update for the 🐿️'s BUSHY™ Multi Asset ETF Portfolio and live Acorn trade ideas. 2025, Week 10.
Due to the very sad and sudden passing of a (four-legged) family member, this week’s ‘Monday’ note, covering the 🐿️’s concerns about ‘big ticket’ discretionary spending, will be published mid-week. Thank you all for your understanding and for the kind messages we have received.
There will not be a podcast this week, but please check out my interview with Chesapeake Capital’s trend-following purist Jerry Parker if you missed it (link below - audio version also available on all the podcast apps).
The CTAs have generally had a pretty challenging start to the year. This is unsurprising as many markets would appear to be experiencing the chop often associated ahead of a major regime shift. The🐿️ has a hunch that they may soon be profiting from some major new trends in 2025.
The BUSHY™ Portfolio - Week 10
Plenty going on this week besides the usual BUSHY™ update (which includes a couple of significant asset allocation changes). Acorn updates this week include coverage of agribusiness, space, luxury, private equity (Team Saddlebags!) and European defense.
Observant readers will notice the subtle change to the cover art for this week’s portfolio section. Last week, we executed the first major rebalancing of the BUSHY™ portfolio for the year. More on that later.
After, a drawdown of 0.62% in February, BUSHY™ started March strong and has now extended a lead over its Vanguard 2035 Target Date Fund benchmark to 107 basis points as of the end of last week.
It turns out that BUSHY™ was well prepared for what appears now to be a major reordering of positioning in global capital markets.
Next month, we will find out just how much more foreign capital flowed into US shares during the AI mania of 2024 (we know anecdotally that it was a big number). What we do already know is that in the previous decade to June 2023, foreign holdings of US equities increased by $8.65 trillion to a vast $13.7 trillion!
The relative performance of US equities versus the rest of the world so far in 2025 suggests that some of this capital is starting to be reallocated elsewhere.
Some of last week’s acceleration in the move can obviously be attributed to the steep selloff in the US dollar versus the Euro (55% of the DXY index) in response to fiscal developments in Germany (and elsewhere in Europe). It is not clear whether incoming Chancellor Merz yet has the votes to push through a comprehensive reform of Germany’s once sacrosanct ‘debt brake’.
As such, much of this move must be largely attributed to an aggressive unwind of ‘long dollar’ speculative positions as opposed to a firm re-pricing of a new fiscal reality in Germany. We can expect a violent reversal of recent Euro strength if it turns out that Merz does not have the votes after all.