Not your typical portfolio-optimization post

I am presently in Placencia Belize.  I love to learn about how the economy and culture of a country and how  regions within a country contribute to its place in the world.

My high-school education in history went deeper than most.  I studied AP history and my score exempted me from university history requirements.  The approach to history was, in part, a story of wars, victories, and defeats.  Differentials in leadership, technology, and manpower were used to explain, ex post, how wars were won and lost.

I  have learned that these are only part of the story.  The parallel, kindred theme is economic.  Superior economies provide great advantage.  This advantage is reflected in both income and the interest rate paid on bonds.  If a side loses the confidence of the bond market, the outcome of the conflict becomes largely predetermined.

I have a working theory about how people and governments respond to events.  At the core  of my working theory is positive feedback.  Despite the name “positive” feedback is not necessarily positive in the emotional sense.  “Positive” feedback simply means self-reinforcing.  Virtuous cycles and vicious cycles are both examples of self-reinforcing positive feedback.

Strangely, mindset is crucial.  There are two mindsets that favor positive outcomes: 1) economic self-confidence, 2)  patient self-development and willingness to defer economic self-gratification (spending).  The United States seems to be losing both of these factors.  The key word is “self”, as in individual.

US growth, anemic  as it is, is based largely on government leverage.  As long as this leverage can be financed at historically-low rates, this largely superficial growth can occur… until real, organic growth resumes, or the debt bubble bursts or begins deflating (signaled by erosion of the value of the USD).

Simply put, I have become bearish on the USD and am looking for safer harbors for my “non-risk” capital.  Alternatives include CAD, AUD, and NOK (kr) government bonds.  TIPs provide a degree of protection, if you believe CPI-U stats accurately reflect US inflation.  CASH in USD is suspect.

Back to Belize.  Belizean currency is pegged to the USD on 2:1 basis.  Belize’s unemployment rate is approximately 14.4%, and the trend is upward.  With the shear beauty and wonder of the country, reasonable English-proficiency, and a tiny 360,000 population, tourism should translate more effectively to income/capita, GDP/capita, and overall economic growth.

I am studying dissonant economic stagnation first hand.  Beauty surrounded by poverty.  Economic stagnation.  Hope concentrated outward on government, on divine intervention, on anything but self.

I study with objectivity laced with sadness.   These people could be much more, but they will likely not be any time soon.

This is a lesson for the US.  The US government’s fiscal situation is unsustainable.  The general outlook is looking outward for hope rather than inward (to oneself) for strength and betterment.   Until this attitude changes I see anemic US growth as the future.  This is likely to manifest in US inflation and USD devaluation.  Federal Reserve policy seems to concur.

My macro outlook can be reflected in the numbers I put into expected-return data for global market ETFs.  Sigma1 HAL0 software uses these projections and variance and semivariance optimization (or other metrics)  to help me revise my personal portfolio.

Feel free to disagree with my outlook.  Sigma1 HAL0 optimization will incorporate your projections, and build an optimized portfolio based upon them.  HAL0  portfolio optimization is algorithmic and objective.  Individual security expected-returns are typically based on user inputs.  HAL0 software optimizes within the provided framework.  User predictions matter, as does human discretion in using the HAL0 results.

Because my projections for expected-return may vary widely from yours, your company’s, and your analysts, the resulting portfolios will vary widely.

The bottom line is that Sigma1 portfolio-optimization software uses your hard-won security analysis and projections to build an accordingly-optimized investment portfolio. If you believe in your analysis, so will Sigma1.  Keep that in mind.  Your analysis matters.


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