Pretending he just doesn't see ?
The answer my friend is blowin' in the wind
The answer is blowin' in the wind.
There's clearly something blowin' in the wind, and the answer, my friend, is change. All around the world we are going through unprecedented change in a very short period of time. Technological, demographical, environmental, and political...change. For decades the US sought to promote stability in the Middle East, and in 45 minutes last Thursday, Mr. Obama changed all that. It appears that Americas new goal is to reward those who bring change, not those who provide stability. Israel, Egypt, Tunisia, Libya, Syria, must all embrace change (no mention of Saudi Arabia, yet). As a money manager, when I hear the word change, I think volatility.
Europe has undergone massive change in the last four years. First the banks failed assets were placed on the books of the government, and now the governments are shifting that weight to the backs of the people. Not surprisingly the people are opposed to the added burden.
Here in the US we are faced with a similar story of change. The Fed's zero interest rate policy (ZIRP), has rewarded the debtors at the expense of the savers. The banks were bailed out by the government, and now that burden is being transferred onto the backs of the citizens. Change is a certainty.
The emerging markets of the world, (China, India, Brazil, and Africa) are growing more rapidly than expected, putting further stress on our already tight natural resources.
Environmental change on the third rock from the sun has always been a certainty, some years it just feels a bit more intense. Earthquakes, tsunamis, floods, tornados, and drought are constant sources of change.
What's an investor to do when faced with so much change/volatility? Stay the course in your fixed asset allocation? Or adapt, and change to reflect your ever changing environment. I've never believed in the old adage that when you are 40 you should have a 60/40 stock-bond mix, 50/50 at age 50, and 40/60 at age 60, etc. This is just nonsense. Assets should be widely diversified (US & Int'l Stocks, US & Int'l Bonds, US & Int'l Real Estate, Gold, Commodities, Currencies, and Cash), and actively allocated based on triggers caused by change. As John Maynard Keynes so eloquently stated, "When the facts change, I change my mind. What do you do, Sir?"
For months now we have been nearly fully invested in all risk assets, and underweight in US fixed income. Events of the last few weeks have changed this. We are now seeing the risk trade come off, and our indicators are pointing to a more cautious allocation. We are lowering some of our commodity, and gold exposure to neutral, and increasing our US fixed income exposure to neutral. Nothing too severe, yet, but if trends persist we will continue to get more conservative.
The answer my friend is blowin' in the wind...
Be careful out there, and keep the lights on,
Chris Wiles, CFA
412-260-7917
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This article contains the current opinions of the author but not necessarily those of the Rockhaven Capital Management. The author’s opinions are subject to change without notice. This article is distributed for informational purposes only. Forecasts, estimates, and certain information contained herein are based upon proprietary research and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.
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