Dec
27
A Simulation of Current Market Conditions, from Alex Good
December 27, 2018 |
Looking at six different factors, Quarterly Changes (rolling) in
- inflation (TIP vs IEF)
- risk (SPY)
- stimulus (IEF)
- leverage (HYG)
- dollar (UUP)
- Oil (USO)
Our current market condition is:
Negative Inflation, Negative Risk, Positive Stimulus, Negative Leverage, Negative Oil
Notably, this happened in the financial crisis, but also happened in other periods: These are the number of market days in each year where we saw an environment like this one
2007-12-31 0.0 2008-12-31 103.0 2009-12-31 2.0 2010-12-31 28.0 2011-12-31 69.0 2012-12-31 19.0 2013-12-31 0.0 2014-12-31 16.0 2015-12-31 60.0 2016-12-31 39.0 2017-12-31 0.0 2018-12-31 15.0
Expectancy for major assets in this environment since 2007:
- S&P (SPY): .02 Sharpe, +1%
- Utilities (XLU): .66 Sharpe, +31%
- EM Equities (EEM): .42 Sharpe, +36%
- China (FXI): .4 Sharpe, +35%
- Volatility (VXX): .22 Sharpe, +19%
- 7-10 Treasuries (IEF): 1.29 sharpe, +16%
- 2 Y Treasuries (SHY): 1.69 sharpe
- Euro (FXE): -.27 sharpe, -5%
- Sterling (FXB): -1.1 sharpe, -21%
- Yen (FXY): 1.24 sharpe, +23%
- Gold (GLD): .89 sharpe,+35%
- Gold Miners (GDX): 1.2 Sharpe, +117%
- Oil (USO): -.87 sharpe, -64%
- Natural Gas (UNG): -1.92 sharpe. -124%
I personally like the long yen and gold positions versus sterling currently as the most sensible given global politics.
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