Synthetic Systems is a computer forecasting model covering five asset classes: Treasury bills, Treasury bonds, stocks, copper & gold. The plots are all on the same basis so as to be directly comparable – total return. So the slope of one asset rising more than another indicates outperformance, and vice versa. Plots are in natural log space so that the same vertical increment means the same proportional (percentage) increase regardless of vertical position. The total returns are not denominated in dollars or any other currency, but are relative to each other.
Bills refers to US Treasury securities of effectively zero maturity and duration, similar to a Treasury money market or ultrashort bond fund. Bonds refers to US Treasury securities of effectively infinite maturity (duration reciprocal of yield), but approximates the returns of real world extended duration Treasury funds like EDV, and to lesser extent VGLT and TLT. A broad UST fund like GOVT is around midway between Bills and Bonds. Stocks refers to the entire asset class (not just US or any one country). Copper and Gold represent the respective elementary commodities, except to note that copper is broadly indicative of physical commodities as a class and suggestive of trends in goods and services price inflation.
The charts are best considered together. Annual and quarterly charts are respectively grouped together on dedicated pages under Market Analysis to facilitate this. The forecasting accuracy of Synthetic Systems is best evaluated by comparing successive charts, as the “Projected” time frame of an earlier chart slides to the left into the “Actual” time frame of later charts. Moreover, similarities between the latest update and earlier updates indicate areas of greater confidence in contrast to differences which indicate greater uncertainty.
Readers should bear in mind that Synthetic Systems forecasts comprehensively reflect financial and economic forces (e.g inflation, interest rates, monetary policy, money flows, seasonality, natural resources, technology, demographics, the business cycle, global economic trends, consumer sentiment, investor psychology, momentum, mean reversion, etcetera), but do not reflect external noneconomic factors (e.g. natural disasters, pandemics, unexpected geopolitical disruptions) until they are incorporated into the financial and economic sphere. It’s most applicable over time frames from one quarter year to four years … its accuracy is limited by noise and news flow on the shorter time frames and it also does not attempt to model drivers of longer term returns such as valuations.
Readers are encouraged to consider Synthetic Systems forecasts in conjunction with fundamentals and valuations. Synthetic Systems however often forecasts trends long before the fundamentals fall into place; for this reason it’s useful as a medium term planning guide, with the appearance of fundamentals consistent with a Synthetic Systems forecast serving as confirmation, the lack thereof nonconfirmation. Final confirmation occurs when the trend is actually in evidence.