Love Conquers All: Our Real Market Expectations For The Next Year


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The Jelly Bean Chart

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Strategic Versus Tactical Asset Allocation

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  Source : FRED Data, JQR Capital The Market Portfolio A few weeks ago we introduced a cash asset to augment our efficient frontier set of bond plus stock portfolios.The cash asset allowed us to combine cash with the one portfolio along the efficient frontier that had the highest return versus risk (AKA the Sharpe Ratio). This one portfolio can be thought of as the tangency portfolio or - more commonly - the market portfolio (MP). The mix of bonds versus stocks in the MP will change over time with changes in interest rates and changes in expected returns for our bond and stock indices. The chart below is a quick snapshot of how the risk free rate of cash interest (Rf) interacts with the efficient frontier to create the market portfolio (MP) at only one point in time. This snapshot was taken a few weeks ago. Source : FRED Data, JQR Capital Introducing Naive Forecasting  The chart shown above was generated using average return and risk data over the 1973 to 2022 time period. The...
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  Source : Shiller Data, JQR Capital Earnings Drive Prices Last week we introduced data from Yale University Professor Robert J. Shiller that went all the way back to 1871 - a whopping 148 years. One of the important ingredients of this data set is the inclusion of corporate earnings to augment the price history. This allows us to begin forming return expectations models using something (anything, please!) other than past performance. The general conclusion from the chart shown below is that corporate earnings may drive future stock prices. Source : Shiller Data, JQR Capital Our First Crystal Ball  We now turn the tables back to the bond side of our asset allocation pie to see if we can have any chance at predicting the future. The bond data from Professor Shiller is the 10-year US Treasury bond. He provides current (from 1871) bond interest rates (yields) and future bond returns. Our expectation is that the former of these two should provide predictive power for the latter of...
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