ALL THINGS BIG AND SMALL 2.0

  Folk music icon Bob Dylan’s song “The times they are a-changin” has never been more true. We are living in a period of unprecedented geopolitical and economic upheaval-the final consequences of which we are not yet able to discern. Uncertainty is the silent killer of financial markets. But while Uncertainty by itself is bad for the financial markets, the events that unfold during the period of uncertainty can be either good or bad. More US tariffs? Bad. Fed rate cuts? Good. Powell’s term ends in May 2026 and new Trump-appointed Fed Chair leads to even more rate cuts in 2026? Good in the short-term. This leads to heightened inflation and asset bubbles in the long-term? Ultimately bad.   So, today we design a portfolio in which the main objective is to be low risk and yet yield a return that is above the rate of inflation. And we will do an analysis and 1-year ahead forecast for the Portfolio, and use the SPY ETF as a reference benchmark.   We   are not att...

  This post discusses and suggests the use of suitable models based on the shape and properties of a Probability Density Function (PDF).  Data on the following ETFS (SPDR=SP500, IEF=10yr Treasury Yield, DBC=Commodities, DXY=USD, GLD=Gold) as at 4 June 2025. The chart above shows the shape of the PDF of each asset class.  A summary of the properties and/or implications of each asset class’  PDF from the perspective of constructing predictive models.  DXY The DXY distribution is relatively symmetric and centered, with moderate tails. This suggests that standard linear models and time series models assuming normality may perform adequately. Outliers are less likely, so models will be less sensitive to extreme values, and regularization may not be as critical. SP500 The SP500 distribution is sharply peaked and slightly left-skewed, indicating frequent small changes and occasional larger negative moves. Predictive models should account for potential negative out...