New Global Macro Evidence and Forecasts
"Each [failed forecast] involved historical discontinuity, and, in the early stages…unlikely outcomes. The basic problem was…situations in which trend continuity and precedent were of marginal, if not counterproductive value." – 1983 CIA Study of Significant Historical Forecasting Failures
New Evidence This Week
Technology
In Observing Many Researchers Using The Same Data And Hypothesis Reveals A Hidden Universe Of Uncertainty, Douglas Massey explores how researchers’ analytical choices affect the reliability of scientific findings. He notes that, “most discussions of reliability problems in science focus on systematic biases.” In this paper, he “broadens the lens to emphasize the idiosyncrasy of conscious and unconscious decisions that researchers make during data analysis.” He “coordinated 161 researchers in 73 research teams and observed their research decisions as they used the same data to independently test the same prominent social science hypothesis: that greater immigration reduces support for social policies among the public.”
The results of his analysis are sobering: “Research teams reported both widely diverging numerical findings and substantive conclusions despite identical start conditions. Researchers’ expertise, prior beliefs, and expectations barely predict the wide variation in research outcomes. More than 95% of the total variance in numerical results remains unexplained even after qualitative coding of all identifiable decisions in each team’s workflow. This reveals a universe of uncertainty that remains hidden when considering a single study in isolation. The idiosyncratic nature of how researchers’ results and conclusions varied is a previously underappreciated explanation for why many scientific hypotheses remain contested.”
In fact, theses findings have very serious implications far beyond the testing of scientific hypotheses, and extend to many other areas as well, such as forecast probabilities and the formation of political beliefs.
We live in a world where our understanding of situations, forecasts for how they’ll evolve, and identification of leverage points and policies to changing their trajectories are all far more uncertain than we recognize – and our overconfidence is more dangerous.
Energy and the Environment
Behind some calls for rapid expansion of wind and solar electricity generation and drastic reduction in the use of fossil fuels lies the usually unspoken and sometimes unrecognized assumption that electrification of the economy will be easy. Two recent papers should dispel that notion.
In The Electric Ceiling: Limits And Costs Of Full Electrification, Rapson and Bushnell note that “research is beginning to acknowledge the idea that, absent significant technological advancement, the complete decarbonization of electricity production may be extremely costly in terms of material costs or quality of service. One need only observe the evolving energy crisis in Europe to confirm both the continued centrality of natural gas to the electricity system, and the profound economic impacts of unreliable energy supply.” They also note that, “given that one of the points of decarbonizing electricity is to make it an attractive alternative to fossil fuels, rising electricity costs are an increasing concern.” They conclude that, “even with all of its promise, the degree of electrification may ultimately reach a limit.
Our electrical grid is a critical piece of national infrastructure. In The Rise and Fall of the American Electrical Grid, Emmet Penney observes that, “the American electrical grid can no longer be relied upon to supply the public with the power it needs to get through the day.” He then notes that, “the reasons for [this] involve complex interactions between policy, physical infrastructure, politics, and culture.” After an excellent summary of this history, he highlights the essence of the problem we face today: Our grid was never designed to support variable generation sources (i.e., wind and solar) spread across a wide range of sites. Yet recent regulatory changes have subsidized the expansion of variable renewable generation, while forcing the exit of coal and nuclear generating capacity and blocking the construction of new transmission lines. As a result, grid stability has become heavily dependent on gas-fired generation.
Our electrical system has thus become much more complex (with many more potential failure pathways), as the electrical and natural gas systems (another critical piece of national infrastructure) have become more integrated and their control has become more dependent on digital technologies that expose the system to rapidly multiplying cybersecurity risks.
With the UN’s latest climate change conference about to begin in Egypt, the UN’s latest Emissions Gap Report concluded that “there is no credible pathway” to limiting the increase in average global temperatures to 1.5 degrees Centigrade. According to the UN, “this lack of progress leaves the world on a path towards a temperature rise far above the Paris Agreement goal of well below 2°C.” This lack of progress raises a critical question that environmental advocates have thus far avoided: Given limited resources, how should they be divided between actions to reduce greenhouse gas emissions to limit global warming, and actions to adapt to a hotter planet and more volatile weather patterns? Our failure thus far to overcome the obstacles to substantially reducing global greenhouse gas emissions (e.g., China has continued to build very large amounts of coal-fired electric generating capacity), increasing the share of spending on consequence mitigation seems prudent. But can the political system deliver such a shift?
The Economy
Given the negative implications of continued high inflation for consumer spending, debt service, and government deficits, “how high will it go?” and “how long will it last?” are the questions of the day.
In “Understanding US Inflation During the COVID Era”, Ball et al from the IMF conclude that the increase in inflation we have experienced has resulted from a complex mix of (1) reduced supply due to various COVID shocks; (2) the interaction of this supply shock with fiscal and monetary stimulus during COVID to avoid a sharp recession; (3) the interaction of shifts in consumer spending during COVID (away from services and toward goods) with supply shocks; (4) the shocks to energy and food prices resulting from Russia’s invasion of the Ukraine; (5) continued tightness in labor markets (e.g., due to more early retirements and COVID’s long-term negative effect on some people’s willingness to work that has pushed up nominal wages (even as rising inflation has resulted in a decline in many people’s real wages) and fed through to prices even as labor productivity has remained stagnant; and (6) in most nations, a significant increase in import prices caused by the sharp appreciation of the US Dollar against their currencies.
In addition, there are longer term inflationary forces at work whose impact remains uncertain, such as declining birthrates and “deglobalization” as companies move to reconfigure supply chains to make them more reliable, but also more costly.
In sum, the inflation we face today has resulted from a complex and unprecedented mix of interacting shocks, which has posed an equally unprecedented challenge to policymakers.
In the short term, central banks have raised interest rates in an attempt to reduce demand to a level consistent with the aggregate supply potential of the economy. As evidenced by a sharp decline in the Federal Reserve Bank of New York’s Global Supply Chain Pressure Index, this is clearly happening (due to both weakening demand and increasing supply potential as recovery from the COVID shock has continued). On the energy front, both oil and natural gas prices have come down from their highs at the beginning of the Northern Hemisphere summer, as has the global price of wheat. That said, energy and grain prices are still well above their pre-COVID levels.
All of these are having an impact on inflation that many investors may be underestimating. As Megan Greene pointed out in her recent Financial Times column, There’s One Inflation Gauge that Bucks the Trend, the Federal Reserve Bank of New York’s comprehensive yet little watched “Underlying Inflation Gauge” (UIG) has been declining since March, and is now at only half the level of the more widely followed Consumer Price Index (CPI).
The critical uncertainty today is whether continuing central bank interest rate increases will overshoot the level that is required to reduce inflation, and thereby trigger a series of financial crises (e.g., the affordability of mortgages and very high house price valuations in many markets, highly leveraged private equity and debt funds, and highly indebted corporate balance sheets) that will lead to a deep and prolonged recession (e.g., see this new report from SwissRE: Rising Defaults: Zombie Defaults Will Be the First to Fall). Rising interest rates will also interact with deflationary structural trends in some sectors, like the the impact of more working from home on the commercial real estate market and local government’s tax revenues (e.g., see Work from Home and the Office Real Estate Apocalypse)
A recent Federal Reserve Bank of New York Staff Report noted this risk, finding that, “in 2022, even as inflation continued to climb, medium-and longer term inflation expectations unexpectedly fell and medium- and longer-term deflation expectations increased” (The Curious Case of the Rise in Deflation Expectations, by Armantier et al).
If this hasn’t made you worried enough, consider the shocking findings in a new paper by David McDonald and Cosma Shalizi (Empirical Macroeconomics and DSGE Modeling in Statistical Perspective). They note that, “Since the 1980s, academic macroeconomics has been dominated by [relatively complex] dynamic stochastic general equilibrium (DSGE) models, and economists have devoted a much attention to their specification, elaboration, mathematical manipulation, estimation, and theoretical refinement…Instead of questioning whether DSGEs are good economics, we look at whether they are good models, i.e., whether they meet common, intuitive standards of statistical modeling.” Using centuries of simulated historical data created by using the models themselves, the DGSE models, even when provided with inputs based on the simulated data, proved incapable of accurately forecasting their own simulation. Not good, especially when these models are being used to simulate the effects of different policy options.
Sometimes simpler models (combined with a dose of intuition grounded in experience) really are better when it comes to forecasting the future outputs of complex adaptive systems…
National Security
Shortly after Vladimir Putin had denied having any intentions to use nuclear weapons in Ukraine, Chinese President Xi Jinping and German Chancellor Olaf Scholz met in Beijing, where Xi agreed that both leaders "jointly oppose the use or threat of use of nuclear weapons" over Ukraine, according to the state-run Xinhua news agency. However, that was followed by a report in the New York Times that, “according to multiple senior American officials, senior Russian military leaders recently had conversations to discuss when and how Moscow might use a tactical nuclear weapon in Ukraine” – though Putin was apparently not party to these discussions. So while the probability of Russian use of a low yield nuclear device seems to have declined, significant uncertainty still remains.
As Ukrainian forces liberated more territory as they drove towards Kherson, more extremely disturbing evidence emerged of Russian troops torturing and killing civilians. I write this as the son of a US soldier who liberated concentration camps in Europe in World War 2 and never got over it. I also lived in London as Europe went from the elation of the Berlin Wall coming down in November 198 and the dissolution of the Soviet Union in December 1991, to the immense psychological shock of the violent break up of Yugoslavia and the brutal war crimes at Srebrenica and elsewhere. The war crimes being committed today in Ukraine seem far worse, because they appear to be on a larger scale, more systematic (i.e., more like what my father saw), and are being committed by the military of a major world power. In the absence of war crimes trials (which, absent a new Russian government, seem highly unlikely), it will take years for Russia’s reputation to recover, and for Russian citizens regain respect. And this will likely have negative consequences we cannot foresee today.
The US-China Economic and Security Review Commission released a timely new report, Personnel of the People’s Liberation Army. It’s key findings include:
“Xi Jinping has had continued doubts about personnel competence and loyalty since becoming the Chairman of the Central Military Commission in 2012, and thus has focused on both force modernization and Party loyalty. Despite this emphasis, many commanders are still judged as incapable of properly assessing situations, making operational decisions, deploying forces, or leading forces in a modern, joint, informationized war.
“The PLA remains concerned about improving political officers’ operational knowledge, seeking to make political officers an asset rather than a liability in the command tent. Political officers and Party Committees within the PLA are emphasized as the key conduit for ensuring Party control and often play a key role in unit affairs, including in personnel issues and day-to-day training and operations. They often struggle to play a productive role in the latter, however.
“The PLA has emphasized recruitment of college-educated and more technically proficient personnel at all levels since 2009. It has succeeded in recruiting more educated personnel, though it continues to face serious challenges with retention and proper utilization of talent.
“Significant changes have been made to improve training and standardize bases and academic institutions, while basic training times have nearly doubled. Most significantly, in 2020 the PLA shifted from a single conscription cycle per year to two cycles per year, with the aim of eliminating uneven levels of unit combat-readiness at certain times of the year.
“While progress has been uneven, the sum of these initiatives is likely to produce a PLA that is more educated, professionalized, and technically proficient in the coming years.
A critical uncertainty is the extent to which these improvements have increased Xi Jinping’s confidence in the military to the point that he would be willing to invade Taiwan.
In this regard, Noah Smith published a very sobering game theory-based analysis, Why I Think an Invasion of Taiwan Probably Means WW3. To simplify his argument, if China invades Taiwan, but doesn’t pre-emptively attack US bases in the Pacific, then its chance of winning go way down. But if it preemptively attacks, then the US will almost certainly respond, setting off World War 3. And as Niall Ferguson explains in another article (How Cold War 2 Could Turn Into World War 3), the consequences of such a war (across multiple dimensions, from technological to energy to the national security, economy, society, and politics) are far beyond those that most people have (or even want to) contemplate.
Not unrelated to this, the US announced plans to deploy six B-52 bombers to RAAF Tindal airbase in Northern Australia. This is significant, because unlike US facilities on Guam, RAAF Tindal is outside the range of China’s intermediate range ballistic missiles. Each B-52 can carry up to 20 air-launched cruise missiles (ALCMs) which can carry nuclear warheads and have a range of 1,5000 miles. The B-52’s range without refueling is 8,800 miles, while the round trip flight to Taiwan from Tindal is only 5,000 miles. Clearly, the United States is sending a very clear signal to China in an attempt to deter it from attacking Taiwan, and, if it does, considering escalation to the use of nuclear weapons.
The Special Competitive Studies Project released a new report on Defense, and the changing nature of war. It concludes that, “a modern great power war could be unlike anything Americans have ever experienced.”
“For many contemporary Americans, war has been something that happens elsewhere – IEDs and ambushes on a desert road in the Middle East, warfare in eastern European cities and fields, and firefights in jungles an ocean away. When U.S. forces are involved, the expectations have grown that there will be fewer and fewer casualties than in past conflicts.
“Today’s technology, operational concepts, and strategic rivalries risk changing that. A war between two or more great powers could take place at a much greater scale and higher level of intensity than any previous wars. The national resources available on both sides would be unprecedented. The facets of society that such a war would touch could be all-encompassing. Unlike in recent wars, the United States would face the threat of large-scale cyber-attacks on the homeland that could paralyze society, the disablement or destruction of space-based assets that underpin the economy and military operations, and even missile strikes on U.S. soil that could destroy civilian and military headquarters.
“Great power wars have the potential to devolve into prolonged contests that place a high premium on the strength of the industrial base, innovation ecosystem, and political will. Knockout blows, decapitation strikes, and decisive battles are often aspired to, but rarely materialize in wars between great powers. Instead, great powers are able to mobilize populations and resources in ways that cause wars to descend into long, grinding contests, in which political will and national resources play as large (or larger) a role as brilliant operational maneuver and deception. However, most Western economies – the United States included – lack the indigenous industrial capacity to rapidly replenish and sustain their forces. This includes the production of the necessary munitions, sensors, vessels, vehicles, and aircraft, possibly for months or even years into a conflict, as well as skilled personnel to produce and operate them. The brittleness of the defense industrial base can become a serious strategic liability for the United States in a great power war, presenting U.S. decision-makers with a tough dilemma of potentially having to escalate vertically.
“In addition to the resilience of the industrial base, the vibrancy and responsiveness of the innovation ecosystem to conflict requirements will also be key in prolonged war scenarios. Quickly identifying the requirements, and then repurposing or developing new technologies and platforms could shift the tactical tide of war and prove to be of strategic importance.
“Finally, the industrial base and the innovation ecosystem, while necessary, are not sufficient. They are no substitute for political will to endure and persevere in a high-intensity and prolonged conflict.” We’ll come back to this critical point in our politics section below.
Social
You’ve been right all along.
A new paper finds that media headlines have been getting more and more negative since 2000. In Longitudinal Analysis Of Sentiment And Emotion In News Media Headlines Using Automated Labelling With Transformer Language Models, Rozado et all observe that, “Headlines from written news media constitute an important source of information about current affairs. News and opinion articles headlines often establish the first point of contact between an article and potential readers, with the reader often deciding whether to engage more in-depth with an article’s content after evaluating its headline. In doing so, headlines also set the tone about the main text body of the article and affect readers’ processing of articles’ content to the point of constraining further information processing and biasing readers towards specific interpretations of the article. The sentiment and emotionality of text has also been shown to influence its virality. Textual content that evokes high arousal, such as text conveying an emotion of anger, diffuses more profusely through online platforms.”
The authors analyze sentiment and emotion in 23 million headlines from 47 news media outlets popular in the United States from 2000 to 2019, and “use language models fine-tuned for detection of sentiment (positive, negative) and Ekman’s six basic emotions (anger, disgust, fear, joy, sadness, surprise) plus neutral to automatically label the headlines.”
Results show “an increase of sentiment negativity in headlines across written news media since the year 2000. Headlines from right-leaning news media have been, on average, consistently more negative and angry than headlines from left-leaning outlets over the entire studied time period. The chronological analysis of headlines emotionality shows a growing proportion of headlines denoting anger, fear, disgust and sadness and a decrease in the prevalence of emotionally neutral headlines.”
These findings are well-aligned with the party realignment underway in the United States, where Republicans are increasingly the voice of angry mass populism while Democratic Party positions and messages reflect the views of coastal, urban, and increasingly progressive elites.
Unfortunately, as Martin Gurri, Joel Kotkin, and other commentators repeatedly point out, said elites have displayed neither the willingness nor the ability to design and implement policies that address the root causes of rising populist anger, which has created a ready audience for increasingly angry headlines.
Here’s a recent example.
The US Congressional Budget Office released a new analysis of Trends in the Distribution of Family Wealth, 1989 to 2019. It’s findings starkly highlight the socially and politically corrosive effects of rising inequality.
“The total real wealth (that is, wealth adjusted to remove the effects of inflation) held by families in the United States tripled from 1989 to 2019—from $38 trillion in 2019 dollars (roughly four times the nation’s gross domestic product, or GDP) to $115 trillion (about five times GDP).”
“The growth of real wealth over the past three decades was not uniform: Family wealth increased more in the top half of the distribution than in the bottom half. Families in the top 10 percent and in the top 1 percent of the distribution, in particular, saw their share of total wealth rise over the period.
“In 2019, families in the top 10 percent of the distribution held 72 percent of total wealth, and families in the top 1 percent of the distribution held more than one-third; families in the bottom half of the distribution held only 2 percent of total wealth.”
As Peter Turchin (author of Ages of Discord) and others have observed, rising inequality is usually associated with declining wellbeing for the masses, weakening social cohesion, and increasing political polarization and conflict.
Politics
The reasons for the predicted Democratic loss of control in the Senate and House in next week’s US election are neatly summarized in Gallup’s recent polling on the issues party identifiers consider extremely important.
For Democrats, the top three are Abortion, Climate Change, and Gun Policy. For Republicans, they are the Economy, Immigration, and Crime. And for Independents they are the Economy, Crime, and Abortion.
Starkly missing from any group’s top three “extremely important” issues is the prospect of the use of nuclear weapons in Ukraine (with all its attendant escalation risks), much less a war with China over Taiwan. If either or both of these were to happen, the shock to the public, and the spike in uncertainty will be immense.
For more analysis of the Democrats’ woes, it is hard to beat the writing of long-time Democratic pollster Ruy Teixeira, who writes on the Subtack newsletter The Liberal Patriot. His recent analysis cover the parties declining popularity with Hispanic and Working Class voters, and how their climate positions have alienated many voters.
For a powerful individual take, read Jennifer Sey’s Substack on why she’s not a Democrat anymore (actually, I think she means she’s not a Progressive). Sey was the former marketing director of Levi’s in San Francisco, who lost her job because she spoke out against prolonged school closures during COVID.
It’s powerful because it is written using raw, angry words you could picture people across the country nodding their heads when they read them, including points like these:
“No debate or dissent on any issue: The Democratic Party leaders and loyal voting acolytes tolerate no dissent or even questions on the official party line. If you step out of line, you’re accused of being a far-right conspiracy theorist (again) with a white hood in your closet. No engaging of the argument. Just ad hominem attacks. I can think of nothing less democratic than total intolerance for free speech and dissenting viewpoints.”
“It’s a cult, Scientology-style “disconnection” required: Democratic voters, of the ilk I encountered in my former hometown of San Francisco, taking their lead from Party leaders, will not even engage with a person who rejects any official Democratic Party policy. No you can’t be friends with people who might think differently. You are evil and undermining all good things in the world therefore you must be shunned and taken down. Do not ask questions. Just vote like we tell you to. And if you don’t, well, it’s because you’re a racist not because you have genuine policy concerns. I now put most of the “mainstream media” in this category. But the Party faithful buy this line of reasoning, even when they know you and the arc of your life, and that’s on them.”
“They deny reality: There’s no such thing as learning loss! Our kids learned resilience! Obesity – Don’t say that word! You’re a fat-phobe! There are no adverse health impacts! Healthy at any size! Biology isn’t real! Men aren’t stronger than women, it’s invented by the Patriarchy! Crime? What crime? John Fetterman isn’t impaired. He’s got auditory processing issues (or something). You’re ableist! How dare you! Inflation? What inflation? It’s a figment of your imagination and a made up thing by Republicans; oh ok, it’s real but it’s going down now because WE raised interest rates; well maybe not down but it’s not going up anymore, so stop complaining, democracy is ending and you’re worried about the price of milk?! How selfish! Sorry we have no chance at survival if we distort truth for the sake of ideology.”
“They’re snobs: They don’t care about regular people. They are the elite pretending to be real. They aren’t. And they have utter disdain for everyday folks. They look down at anyone who: Doesn’t eat grass feed beef or that gross fake meat that’s “good” for the environment but bad for your health. Likes The Olive Garden or Las Vegas. Goes on cruises or to all-inclusive resorts instead of on vacations on private islands with empty beaches. Doesn’t read The New Yorker and/or The Atlantic Shops at Walmart (Target is acceptable though).
“They don’t believe in free speech. Elected government leaders and appointed officials in the Department of Homeland Security have been pressuring private companies to curb speech, a clear violation of the First Amendment. They’ve been working behind the scenes - and sometimes in plain view - to unduly influence social media companies in order to mold public opinion and manufacture consensus through the silencing of dissenters.”
I’m sure there are also Republican versions of this, bemoaning the rise of Trump Republicans or, more recently, National Conservatives. But something tells me they are no longer as anguished as the ones you hear these days on the Democratic side of the divide.
On his Substack, Andrew Sullivan was also very critical of the Democratic Party’s adoption of may positions supported by their Progressive faction that are well to the left of those held by a majority of American voters. Anticipating Republican takeovers of the Senate and House in next week’s election, he set forth a warning:
“Midterms are always a verdict on incumbents — and if the result next week is a close finish, we can duly see it as a routine, even banal, response to a tough economy, especially inflation. But if it is a real wave, as I suspect it may be, if the Democrats lose even more Latinos and Asians and working-class whites, and if suburban white women — freaked by the cost of living and the education system — flee to the GOP, it will be a clarion call to Democrats to move back to being the party of Obama. And yet I fear they cannot. And their media lackeys and propagandists will reinforce their worst instincts.
“The Weimar dynamic is a simple one. The left and right polarize; the middle collapses; inflation takes off, unnerving everyone and discrediting government; and at some point, as liberal democracy breaks down, voters are asked to choose between the extreme left or the extreme right. What Biden has done, by showing that even an alleged moderate like him is just a vehicle for the extreme left, is accelerate the moment when we are faced with that horrible choice. And if that is the choice, I have little doubt that Americans will pick the far right.”
Finally, when you’re absorbing all of next week’s post-election analysis, keep in mind that the most important question is one the media probably won’t ask: What do these election results say about the probability we will be able to summon the collective will and ability to survive a deep and prolonged economic and financial downturn, and/or an extremely violent and prolonged war with China? Because that is the existential uncertainty that underlies much of the dread people are feeling (and trying to keep at bay) today.
You can improve your own ability to anticipate, accurately assess, and adapt in time to emerging threats by taking our eleven-module course at The Strategic Risk Institute. It costs only $250, and leads to a certificate in Strategic Risk Management and Governance.
You can also sign up for SRI’s free Substack Newsletter, which provides weekly methodology insights to improve your ability to perform these three critical activities in our world of unprecedented complexity, uncertainty, and disruption.
Background
At the Index Investor and Retired Investor, our information collection, analysis, and forecasting process is based on this model of how developments in different issue areas interact in a rough chronological sequence (albeit in a complex manner) to produce different global macro regimes (which we label Normal Times, High Uncertainty, High Inflation, and Persistent Deflation).
In each of these areas we continuously seek new evidence, which classify as significant and highly valuable if either (1) it is an “indicator”, which reduces our uncertainty about the value of a parameter in our mental model for making sense of the dynamic macro system, or (2) it is a “surprise” which increases our uncertainty about either the range of potential values for a parameter or the structure of our model.
Each week in this newsletter we review high value new evidence and its significance in some or all of these areas. Each quarter we summarize these weekly newsletters in new issues of The Index Investor and Retired Investor, as well as updated 12 and 36-month global macro regime probabilities and any changes to our model portfolios.
The Neutral portfolio places 10% weights on nine major asset classes, and 5% each to two active strategies (Equity Market Neutral and Global Macro), which should have low correlations with returns on major asset classes.
The Systematic portfolio changes asset class weights based on the extent of our estimate of their respective degrees of over or undervaluation. This portfolio expands the fixed income asset class to include possible allocations to Investment Grade and High Yield credit products. Allocations to Equity Market Neutral and Global Macro remain constant at 5% each. Finally, when some asset classes are so overvalued that they have a zero weight, but other asset classes are not sufficiently undervalued to absorb reallocations away from the overvalued classes, the excess cash is placed in a mix of Cash (short term Treasury Bills and Notes) and Gold.
The Subjective portfolio is our attempt to outperform the Neutral and Systematic portfolios via active management. More often than not, it underperforms the Systematic portfolio, proving that we find successful active management over the long term just as challenging as everyone else.
Model Portfolio Performance
In the second quarter of 2022, as high valuations retreated across multiple asset classes, the Neutral portfolio was down (10.1%) from the end of March, the Systematic portfolio was down (8.1%), and the Subjective portfolio was down (8.0%). By comparison, a Traditional portfolio of 60% US Equity and 40% US Government Bonds was down (11.4%).
For the first half of 2022, the Neutral portfolio was down (8.0%) from 31 December 2021, the Systematic portfolio was down (4.9%), and the Subjective portfolio was down (5.0%). By comparison, a Traditional portfolio of 60% US Equity and 40% US Government Bonds was down (8.7%).