Comments on: Asset Allocation vs. Interest Rates

By: dbray

dbray — Thu, 08 Oct 2009 17:47:11 +0000

Did you ever get around to running some numbers on this strategy? Could come in handy in the years ahead. Thank you.

By: dbray

dbray — Thu, 08 Oct 2009 12:47:11 +0000

Did you ever get around to running some numbers on this strategy? Could come in handy in the years ahead. Thank you.

By: SimpleLight

SimpleLight — Tue, 01 Jul 2008 01:55:00 +0000

Interesting. I’ve also noticed that in Q1 2008 all the asset classes, including commodities, exhibited a far higher degree of correlation. Things seem to have returned to a more normal coupling. You can track recent asset class correlations at http://www.assetcorrelation.com

By: Carson

Carson — Sat, 28 Jun 2008 02:37:00 +0000

If you’re looking for some insight into the rates/commodities/stock market intermarket analysis there’s a great paper by Charles Kirkpatrick, CMT at his website on Long Wave Dow long bull/bear cycles and how tagged to interest rate trends.

He notes that the rates will sometimes trend opposite and at times together with the market, due to the fact that the stock market has growth component/corp profit and an interest rate component/alternative investment.
http://www.charleskirkpatrick.com/
FYI -

By: David Merkel

David Merkel — Mon, 09 Jun 2008 14:37:00 +0000

Thanks for including my blog in your search engine, Mebane.

David

By: GS751

GS751 — Mon, 09 Jun 2008 03:16:00 +0000

commodities is very broad and do not necessarily have correlations, hence look at base metals and crude oil for the past week. Maybe reverse correlation…..

By: DougM

DougM — Sun, 08 Jun 2008 22:46:00 +0000

Damian:

The way I see it, the tightening usually occurs in response to current inflation, which helps commodity returns, while loosening combats current [disin/de]flation, which hurts commodity prices.

I could see, however, where commodity prices would crack right near the top of a tightening cycle (think oil in the early 80's), so returns may vary during early/late parts of the cycle.

Anon: The numbers on the graph show the performance of the asset classes, NOT interest rates.

By: Anonymous

Anonymous — Sun, 08 Jun 2008 16:33:00 +0000

Can you explain your x-axis? It’s labelled “volatility,” but that isn’t a measure of Fed policy. Your text states you measured changes in interest rates, but those are occasionally negative, and your x-axis is only positive. Many thanks for a bit of clarification.

By: Kirzner Fervor

Kirzner Fervor — Sun, 08 Jun 2008 15:52:00 +0000

All things considered, I would agree with you damian that I would expect gold to perform better during an easing; however, you might want to look at John Murphy’s book on Intermarket Analysis. He notes that commodities tend to move slowest in an economic cycles. However, you should note that GSCI is mostly oil. So try to think about what oil would do in a tightening and easing. In an easing that means that there is less economic activity and less need for oil (also note that industrial minerals should be off significantly in this case), vice versa for a tightening. In the case of bonds and stocks, a 50 basis point change in the interest rate is coming to change valuations very significantly compared to how the cash flows should be adjusted (well just the stock’s cash flows should be). It makes sense, but I would be interested in how much it can improve on the taa model. You would think that some of the trends are already included. Might help you get in early or out early.

I might do some work on this on Monday if Mebane hasn’t posted anything by then.

By: Damian

Damian — Sat, 07 Jun 2008 03:10:00 +0000

Once again I hear a lot about risk-parity portfolios – now if I only knew how to generate one.