Recently the Dallas federal reserve chair said that the fed had created an artificial equity bubble in the u.s.with qe and low interest rates.......Hard to believe one of their own admitted this. since all the important indicators- q ratio, cape ratio, buffett's market cap to gdp are all pointing towards the us market being overvalued and poor market returns in our future likely, I have decided on an experimental strategy with one third of my assets and new money invested based on a combination of the works of Gary Antonacci, Mebane Faber, and folks at the Cass Business school in London....you can download their white papers for free on papers.ssrn.com. Meb's book on global value is a free download from his website. I suggest reading their works before discounting my strategy, besides it is interesting work.
Conditions below for a global momentum strategy w/low CAPE ratio bias that I will review/rebalance at the end of the month-
- buy assets with the superior momentum (1,3,6,9, 12 mo mean). If the asset is an equity, the country must have a CAPE ratio below 18 to be considered.
- sell if another asset has superior momentum or if the asset's momentum turns negative go to cash or a 1-3, 10 or 30 year gov bond fund (the bond fund with the highest momentum) and gold evenly if gold has positive momentum. I will only hold one of these bond funds based on this criteria as more than one is not necessary to be rewarded for their negative correlation to equities in a bear market/correction.
- 15-20 positions in asset sub-components per the Cass Business schools study out of London shows the optimal results. The components will by single country funds, individual commodities, bond funds and for the us style or sector funds.
- U.S. broad market must meet buy conditions before taking positions in u.s. sub-components.
I am not following Meb's sma 200 buy/sell signals as described in his work on GTAA as Paul Novell has done a nice job showing how this extra filter is not adding much value-
http://investingforaliving.us/?s=gtaa Also, I believe Meb's GVAL etf has had inferior results since inception because it has been stuck in a value trap (been there done that) but momentum should help prevent this strategy from making that mistake.
I have 100 free trades per account per year (5 accounts- trad/roth IRA's for my wife and I and a brokerage) with Wells Fargo (no longer available), but I do not believe this strategy will require heavy trading after the initial phase in regards to costs.
I will update here periodically with results on this experiment.
p.s. go Trump......just kidding......not really