As for any economic indicator, monetary polices can be viewed from two interdependent yet different angles:

A major “price” signal took place two years ago, announcing the debasement of major fiat currencies and the awakening of gold. Since then, gold has spiked 40%. A “volume” signal took place just one week ago, announcing a second wave of world liquidity in USD intimately correlated with the second wave of the COVID pandemic.

The consequences of the “volume” signal on asset allocation (if it lasts) could be as significant as the one on “price” some two years ago.

Gavekal-IS is excited to announce the launch of its new TrackMacro 3.0 application! The app is downloadable on the website with free access for one month. TrackMacro 3.0 is a major technical step concentrating years of financial research in portfolio construction.

So, how does it work?

Gavekal-IS proposes a 3-dimensional perspective on portfolio construction: macroeconomic, monetary, and behavioral. In each dimension, we straightforwardly consider which of two opposing economic theories is in the ascendancy:

Today, the world votes for Smith, Keynes, and Markowitz.

Roulette players place bets on a number, from 0 to 36. They are deemed winners when the ball lands on the said number. A fair gamble? Not really. Roulette has a trick.

In the Covid-19 crisis, Charles’s “Jeep” portfolio, introduced at the end of 2017 and expounded on in mid-2019, has amply demonstrated its worth, outperforming a pure equity portfolio, but with much lower volatility. In this paper, Charles reviews the Jeep portfolio once again, upgrading its components to navigate a post-Covid world.

Unconventional monetary policy has led to the largest bond bubble in history; some 15 trillion dollars’ worth of debt globally, now providing negative yields. Bond holders from developed economies may have reason to worry about the future of their savings. History tells us, however, that perhaps they should simply put their feet up, and take a look at less crowded bond markets for inspiration.

Science and philosophy have debated the significance (and even the existence) of ‘Time’ since ancient Greece. Finance, however, is the only discipline providing a market price for the uncertainty of the future, which means ‘Time’. Resultingly, it deserves a seat in the debating chamber. There are two ‘clocks’ in Finance, turning at different speeds. The first one synchronizes market trading and option values. It provides the tempo of the inherent random variability of asset prices. Only the second clock controls the directionality in ‘Space’, i.e. the expected drift of an asset. The Theory of Fragility provides the missing link between the two clocks, which reconciles most of the scientific interpretations of ‘Time’. Unlike ‘Traders’, ‘Investors’ should ignore the first clock and focus on the second

We cannot fill our car tanks with letters of credit, and we can’t have banknotes for dinner. This is because ‘Wealth’, and ‘Money’, are fundamentally different. This is an issue we have considered in many of our papers, defining asset value and wealth out of free energy, not money. Today, we argue that cash rates set at artificially low levels by major Central Banks for too long deeply affect developed economies’ wealth creation.

Gold is the ultimate antifragile asset. Unlike fragile assets such as equity indices, antifragile assets react positively to stress. Does it make sense to constantly hold gold in a diversified investment portfolio? ‘No’, is the answer. 50% of the time, when currencies act as stores of value, gold is a useless asset. However, the other 50% of the time, when currencies are debased, gold is a vital asset, insofar as it is the centre of pricing of all other financial assets. This paper will take the former 50% of the time to be ‘Wicksellian times’, while the latter 50% to be ‘Keynesian times’. World economies re-entered ‘Keynesian times’ on January 31st, 2019, following the monetary policy reversal of the FED. Statistics on portfolio allocation advocate a switch in these periods: from bonds to gold, from developed economy equities to emerging equities, and from cash to real estate. Gold, however, is not antifragile by nature; it has only turned antifragile since the end of the Gold Standard in 1971 because of its pricing in currencies. And currencies are fragile assets

One of the notable financial events of 2019 was the switch by major central banks to a ‘Keynesian-type’ global monetary policy. Keynesian polices target the ‘euthanasia of the rentier’, so we know quite well who is likely to suffer from them. The question is, however: who benefits from the crime?

What is excess weight in an equity book? It’s the few poorly performing exposures that continuously drag down global performance. TrackMacro is celebrating its 4th year of existence by offering an extended, 2.0 version. The AI, equity-risk application now benefits from additional software, tracking likely dead weight in long-only equity books. TrackMacro 2.0 is not a black box, but a real-time competition tracker to eliminate unfavorable bets. Its “cleaning process” can save up to 10% negative alpha per year on such positions.

A new version of TrackMacro will be launched in the coming weeks. The extended version includes a cash and equity tracker to dynamically select the best remunerating economic zones. For the first time since launch on June 30, 2015, TrackMacro is now able to provide full equity/bond model portfolios with dynamic allocations across countries and between equities and bonds. All risk parameters are at the discretion of the user to run extended simulations.

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