[FREE] fx:macro Lite / 29.10.23
"Not dead, just different"
Hi there! It's already Sunday, so it's time for another edition of fx:macro Lite! Great to have you here!
The cover picture is what MidJourney imagines Wall Street bankers look like as they wonder whether the 60/40 portfolio is dead. I don’t have anything useful to add to that debate but I’ll show you a great (and free) tool to analyze different portfolios below.
Let's get started…
In case you missed the usual deep-dive yesterday, you can still sign up for that here and get access to the premium content:
💎 FOMC Prep for next week
This week, we have three central bank meetings on the calendar: the BOJ, the Fed and the BoE. Below you find the meeting prep for the FOMC on Wednesday. It includes a recap of the previous statement and minutes, economic data that was released since then as well as every comment from Fed speakers.
Pricing and expectations are for an unchanged fed funds rate, and the market has already been looking towards the December meeting for a while. The devil will be in the details, so knowing them makes sense…
Meeting preps are included in fx:macro Premium for every G8 central bank before their meetings. Sign up by clicking on the button if you’re interested in that!
💡 Stocks, bonds and 60/40
We’re once again in a situation where stocks are selling off and bonds are not helping as they “should.” That correlation is the basis for the 60/40 portfolio. And that’s been “in the news” for a while now. Google Trends isn’t all that impressive but there’s clearly more search interest now than there was before 2022 or so:
I’m certainly not going to weigh in on whether the 60/40 portfolio is dead because smarter minds have done that already:
Goldman Sachs: “60/40 might be dead.”
Blackrock: “60/40: Not dead, just different.”
JP Morgan: “60/40 Portfolio Far From Dead”
Imagine that conversation if you switch out “60/40” for “Uncle John”…
Anyway, you can probably guess what this means: nobody in this whole world has a clue about what’s going on. And I mean that in the most non-cynical way possible.
So, if nobody can look into the future, why not have a look at the past? Portfolio Visualizer allows you to do that for free (no affiliation, I just like their site).
The stuff you can do there is endless: you can test portfolios, static and dynamic allocations, core/satellite portfolios, factor allocations, volatility targets and so on. Here’s just one part of their website, and the amount of historical data they have for different asset classes is pretty good:
You can specify things like how and when you rebalance the portfolios, whether you want to use leverage and so on.
Here’s a simple equity chart for the three allocations from the screenshot above:
Portfolio 1 (100% stocks) has clearly outperformed, the 60/40 allocation comes in a distant second, and the gold/commodity addition lowers the returns further. One of the best things about Portfolio Visualizer is that it gives you the relevant stats:
So, while stocks outperform everyone, the Sharpe Ratio of the 60/40 portfolio has beaten them all. And: gold and commodities haven’t provided any additional safety in terms of lower drawdowns or higher Sharpe/Sortino ratios.
That’s not advice or a recommendation. But this tool is probably the easiest way to test questions like:
Is gold a good hedge in a market crash?
Can I get protection from TIPS?
How does the relationship between returns and drawdowns change if I start using leverage?
Check it out and feel free to leave a comment below…
Until next weekend
FXMG
It's as if what the addition of Gold hedges against is volatility/peace of mind and you pay a price in performance. :-)