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.

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?

This letter presents visual analogies between quantum physics and market behaviour with regards to risk memory. As shown in the previous publication, market risk memory exists, which is inconsistent with the theoretical picture proposed by traditional financial mathematics. Such an inconsistency, between theory and reality, is at the heart of quantum physics, known as the wave-particle duality. As for particles, represented by wave functions, market distribution of returns are distorted by intercations, i.e. transactions. Such distortions can be measured, and affect all common financial risk measures, such as Value-at-Risk.

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.

As professor Eugene Fama stated in 1991, “the literature (on potential market memory) is now so large that a full review is impossible”. In this letter, we show empirical evidence of market memory, in a side manner with crucial consequences for fragile assets.

In this publication, we analyse the competition between major economic zones on risk remuneration. Risk remuneration is the excess return of risk assets above cash rates. Similarly to cash remuneration, presented in Part II, flexible investors can generate significant alpha by dynamically allocating risks to the leading zones. Part III shows evidence of risk allocation opportunities on equity indices, thereby confirming the arbitrage principle. It temporarily closes a first series of three letters on the global competition across zones to attract world savings, and the benefit that a global and flexible investor can take from it.

Monetary zones compete to attract and safeguard excess savings denominated in their own currency. From an investor’s standpoint, the attractiveness of a currency resides in the total remuneration proposed by its monetary zone, i.e. the interest payments on cash deposits and the appreciation or depreciation of the currency vis-à-vis other competitors. We analyse below this competition over time and show that currency remunerations, or ranking across zones, reveal the ‘Best of Breed’. A simple rule to allocate cash, based on trusting currency leaders over currency losers, generates significant alpha over time.

There exists a theoretical trade-off between two types of remuneration: cash and risk. An economic and monetary zone cannot simultaneously favour both ‘the rentier’ and ‘the entrepreneur’. However, we believe that a flexible investor can in fact benefit from such a situation. By investing their cash into the best cash-remunerating zone and their risk into the best risk-remunerating zone, the investor can do what has rarely been done before; reap the benefits of both. The presentation of our model is split into three parts: (I) Arbitrage Principle, (II) Cash Remuneration, (III) Risk Remuneration. Through our new method of analysing global investment portfolios, our model devises a simple rule that leads to the generation of significant long-term alpha