Comments on: LinkFest

By: Matthew

Matthew — Wed, 25 Jun 2008 15:04:00 +0000

The new forever stamp would seem to open up a new asset class: US postage. The one ounce first class postage stamp has returned about 4.4% nominal since 1975. This would be a bet against the government getting more efficient or lowering prices…

By: Anonymous

Anonymous — Wed, 25 Jun 2008 02:49:00 +0000

Is using TIPS instead of cash, when the assets are below the 10 mo. MA, making any sense? How do you look up at this issue(links appreciated), because some recent articles point that’s not the time to buy TIPS.

By: Mebane Faber

Mebane Faber — Tue, 24 Jun 2008 16:42:00 +0000

Shrink rap – The paper actually uses the 10-Year Treasury. . .And yes, I think the more you divide up the asset classes the better it will perform.

By: Guy

Guy — Tue, 24 Jun 2008 14:15:00 +0000

Thanks for sharing the information regarding exclusion of bonds; after a 20 plus year bull market this is something that I am hesitant about as well

By: Dennis Mangan

Dennis Mangan — Tue, 24 Jun 2008 13:44:00 +0000

Mebane: yes, I’m reading something interesting: “The Diversity Recession”.

http://www.takimag.com/site/article/the_diversity_recession_or_how_affirmative_action_helped_cause_the_housing/

By: Shrink Rap

Shrink Rap — Tue, 24 Jun 2008 03:26:00 +0000

Hi Meb, do you have any data on using the 10 year Treasury (IEF) for the bond component vs the total bond market (BND, AGG)?

Finally, any back testing evidence as to whether splitting up foreign developed vs emerging improves return? In other words 10% EFA or VEA and 10% VWO or EEM?

Thanks

By: Mebane Faber

Mebane Faber — Mon, 23 Jun 2008 21:05:00 +0000

Since the timing model is 70% long, on average, the bond/cash allocation is really closer to 50% so yes there is an argument for excluding bonds.

For the timing model without bonds return increases about 60 bps with vol increasing about 130 bps. MaxDD increases from ~10% to -12%. Sharpe only decreases about .05. But then again, 1973-2007 has been a pretty good period for bonds.

An investor could use other bonds like emerging market or junk - just depends what they are looking for.

By: steve

steve — Mon, 23 Jun 2008 20:35:00 +0000

meb, my sole misgiving about your model is your allocation to tbonds. given a 4% handle I see liitle to no upside and plenty down. without bonds, what’s the vol?