Gold Schizo and the Defense of 60/40 (FT/Goldman, Toby Nangle) \ stacker news ~econ

This was an excellent read.

Goldman is out with a new returns report, looking at various timelines (1950-1990-2010-2020) until today and trying to construct a PERFECT WORLD PORTFOLIO.

One idea that's been around the finance block a lot is that "Global Index" or broad portfolios available in no way approximate the academic finance idea of "the market." (think CAPM, Sharpe, risk-free rates etc).

can't own people's homes (though BlackRock is trying)
can't own private businesses (though private equity funds are trying)
can't own/capture the other hundreds of trillions of unlisted assets out there

Still, they did their best, working with what they've got, weighing this wider/broader portfolio (yearly rebalancing, I presume?) with their total market cap:

Nice, real return. Looks something like this:

Results?

"A simple 60/40 portfolio delivered better total returns and risk adjusted returns over all periods. So much for efficient capital markets."

"best asset allocation will depend on the structural macro regime"

Some specific regime characteristics:

strong GDP growth coupled with low and stable inflation was great for the 60/40 portfolio. US asset dominance has been a tailwind in a world of king dollar, tech exceptionalism, falling interest costs, and declining corporate tax rates that boosted margins. And **buying crypto in 2014 **would’ve been a very effective get-rich-quick scheme.

Gold is a drag on performance in every time period... except the 2020-2025 (duh! #1257876):

Because of it, the GS authors say

"gold wasn't a good investment in most of our time periods"
"buy gold going forward."

The entire exercise is a little backward-looking (buying good stuff is better than buying bad... but we only know which is which in hindsight), but still.

Very interesting, very nice read.

Archive: https://archive.fo/4Gcbj

0 sats \ 0 replies \ @Solomonsatoshi 2h

'“We are running pretty massive structural deficits through a bull economy,” says Dan Taylor, chief investment officer at Man Numeric, an investment manager. “I actually think what people are doing is appropriately trying to protect capital and owning assets that are not paper assets.” Debts are so high in the US that it has “really only one half decent way out”, he adds, which is a “more inflationary regime than all of us are used to in our lives”, pushing investors to buy things “with a more limited supply” such as gold, or even bitcoin.'

How long will gold mania last? FT

https://archive.fo/up3qq#selection-2981.0-2985.258

The big engine underlying the rally since 2022 has been record purchases by central banks, mainly in developing countries, who want to diversify their reserve assets away from the US dollar.

0 sats \ 1 reply \ @Undisciplined 3h

Yeah, to that final point, it seems odd to recommend buying gold based purely on it's recent aberrational performance.

Is there some notion that these patterns run for longer than five years, so we're likely in a new paradigm?

You haven't been reading the news lately? 50 years of trade and fiscal deficits. 37T debt. USA is fucked without the rare earths China now controls. Trump is begging for supply to resume. Good luck with that. Yes the world has changed since 1950.