On New Year’s Eve, we announced our intention, by the end of this quarter, to introduce the world’s first optimized capital-markets index. None of the major index providers have gotten around to this: neither Dow Jones nor Barclays, FTSE nor Standard & Poor’s, and certainly not MSCI — which even discontinued its fixed-income family of products last summer.

None of these index giants offers investors a way:

• to measure the performance
• of multiple asset categories
• on a global basis
• in a single index.

The Stracia™ Globally Optimized™ Capital Markets Index™ (GOCMX) will not only publish and support the quantification of an optimally allocated basket of global assets (stocks, bonds, commodities, real estate, and currencies), but allow investors to track changes in the weights assigned to each category over time. Of course, it will also provide a “snapshot” of the multi-category allocation resulting in the most attractive reward-per-unit of risk metric on a dynamic (rolling) basis, including the current allocation. (Once we begin to publish it, we will update the index daily.)

We believe we are on schedule for a Q1 rollout, as originally announced. We have been crunching the numbers since several weeks before our New Year’s Eve announcement, and are happy to report that, with less then a third of the quarter behind us, we have backfilled almost 45% of the GOCMX series. That said, people do tend to be wonderfully optimistic in their projections.

Split Second is a classic sci-fi B-movie from 1992, starring Rutger Hauer. It’s Blade Runner-meets-Predator — with just a dash of 48 Hours and a plot device involving DNA that will make you glad you’re not watching Species 3. It is set in the distant future: London is sinking in floodwaters, a murderous alien walks among us… The year is 2008!

Estimations of “how long” something will take are chronically inaccurate and optimistic (or, in the case of sci-fi dystopias, pessimistic). And that’s true whether we are talking about the time required to repeat an action for the umpteenth time and with which we should be familiar — like getting from the office to the subway — or more novel projections, like the introduction of flying automobiles or crafting the world’s first optimized index. (Blade Runner, with its “spinners,” off-world colonies and faux human machines or “replicants” — of which Rutger Hauer was one — is set a scant eleven years from now. We wonder if MSCI will have figured out how to track bonds profitably by then.)

That riff on the common fallacies of forecasting aside, we completed the data-gathering phase of the GOCMX early last month, and nothing in our computations to date appears to impugn our choice of inputs. That is more than a relief — it means that we can expect to extend the usability of and applications for the index to sector-specific investing models and sub-indices in a timely fashion, as well as roll out the initial product on schedule. But like Rutger Hauer’s Harley Stone and his sidekick Dick Durkin, “We need to get bigger guns.”

Long-series optimizations take longer than a split second, and our specifications are appropriately grueling. The statistical analysis has already fried some of our equipment — overloading a processor and a cooling system; an old Acer melted down. That machine never ran right anyway. We rewrote our optimizer software to make better use of CPU resources (no midstream tweaks to the algorithm itself) and replaced the hardware — our “bigger guns.” The optimizer now runs cool and quiet day and night, backfilling our index even as Stone and Durkin keep the streets of a not so futuristic London safe, subsisting on chocolate and cheap cigars. We plan to backfill the GOCMX to year-end 1999 — a full eight years of historical data.

We are looking forward to having a complete data series to play with, probably by the end of February. We wonder what insights and ideas the GOCMX and its sub-indices will provide the global macro investor, and may make some initial behind-the-scenes observations in the weeks and months ahead.

If you have not already done so, please take our survey. It takes only about a minute to complete, is totally anonymous, and can help us design the best possible GOCMX. ♦