Posts filed under “Asset Allocation”

Equity Exposure as Percentage of Portfolios

click for larger chart

Source: Federal Reserve



Given yesterday’s Bonds beat Stocks discussion, I thought this chart might be worth reviewing. Its from the most recent Federal Reserve Flow of Funds Accounts of the United States (Q1 2012).

My thesis continues to be that the death of equity type attitudes are cyclical; When there is widespread equity exposure (“enthusiasm”) valuations tend to be higher and risk levels elevated.

Here we are, 12 years after the dot com crash, 5 years after the financial crisis, and equity exposure remains higher than any period before 1997 — but appreciably lower than the dot com years; exposure to equities is modestly lower than the housing boom period as well.

Note that 1974 was when ERISA laws created the 401k industry, and that could account for some of the 1974 to 2000 increase.

This metric is not a precise timing tool. The absolute level seems to matter less than sudden drops (1969, 1973, 2003, 2009) do. In that way, this operates like a psychology/sentiment gauge.

Category: Asset Allocation, Cycles, Investing, Psychology

July ETF Performance Recap

From Econompic Data, comes this look at July’s ETF performance by asset class: > click for larger chart Source: Econompic Data

Category: Asset Allocation, Investing

Why Are We Surprised When Artist’s Values Fluctuate?

One of the biggest problems caused by the Contemporary Art market boom of the last 13 years is the ways in which it has confused the world about how the art market works and what determines value. The issue isn’t trivial. The art market is generally believed to have $50-60 billion dollars a year in…Read More

Category: Asset Allocation, Markets

Europe Settlement Pressuring Futures

> European governments are preparing to borrow at least $43 billion this week, reflecting deterioration in the sovereign debt story. This loan/bailout is  pressuring markets around the world; the MSCI World Index lost half a percent, and US Futures, especially SPX futes, are showing modest pressure. Bloomberg reports that the Stoxx Europe 600 Index fell…Read More

Category: Asset Allocation, Fixed Income/Interest Rates, Markets

The recession is over but the depression has just begun

Edward Harrison here. This is an updated version of a post I wrote about two-and-a-half months ago over at Credit Writedowns.  When I wrote it, I had been looking for bullish data points as counterfactuals to my bearish long-term outlook. I found some, but not nearly enough.

Early this year, I wrote a post “We are in depression”, which called the ongoing downturn a depression with a small ‘d.’ I was optimistic that policymakers could engineer a fake recovery predicated on stimulus and asset price reflation – and this was bullish for financial shares if not the broader stock market. But, we are witnessing temporary salves for a deeper structural problem.

So my goal was to find data which disproved my original thesis. But, I came away more convinced that we are in a tenuous cyclical upturn. This post will discuss why we are in a depression, not a recession and what this means about likely future economic and investing paths. I pull together a number of threads from previous posts, so it is pretty long.  I have shortened it in order to pull all of the ideas into one post. So, please read the linked posts for background as I left out a lot of the detail in order to create this narrative.

Let’s start here then with the crux of the issue: debt.

Deep recession rooted in structural issues

Back in my first post at Credit Writedowns in March 2008, I said that the U.S. was already in a recession, the only question being how deep and how long. The issue was and still is overconsumption i.e. levels of consumption supported only by increase in debt levels and not by future earnings. This is the core of our problem – debt.

I see the debt problem as an outgrowth of pro-growth, anti-recession macroeconomic policy which developed as a reaction to the 1970s lost decade trauma in the U.S. and the U.K.. The 70s was a low growth, high inflation ride that generated poor market returns.  The U.K. became the sick man of Europe and labor strife brought the economy to its knees.  For the U.S., we saw the resignation of an American President and the humiliation of the Iran Hostage Crisis.

In essence, after the inflationary outcome that many saw as an outgrowth of the Samuelson-Keynesianism of the 1960s and 1970s, the Reagan-Thatcher era of the 1990s ushered in a more ‘free-market’ orientation in macroeconomic policy. The key issue was government intervention. Policy makers following Samuelson (more so than Keynes himself) have stressed the positive effect of government intervention, pointing to the Great Depression as animus, and the New Deal, and World War II as proof. Other economists (notably Milton Friedman, and later Robert Lucas) have stressed the primacy of markets, pointing to the end of Bretton Woods, the Nixon Shock and stagflation as counterfactuals. They point to the Great Moderation and secular bull market of 1982-2000 as proof. This is a divisive and extremely political issue, in which the two sides have been labeled Freshwater and Saltwater economists (see my post “Freshwater versus saltwater circa 1988”).

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Category: Asset Allocation, Credit, Cycles, Taxes and Policy

Next Week in Florida . . .

We have a few slots left to meet with folks next week in south Florida (Mon/Tues/Weds, December 14 -16th). Anyone in the Miami/Fort Lauderdale who would like to sit down one-on-one with us to discuss their current and future financial circumstances investments, retirement accounts, etc. please email Joe Fitzgerald with your contact information to schedule…Read More

Category: Asset Allocation, Investing

A Déjà Vu Moment in Gold?

Those who believe the rally in gold is sending the wrong message on inflation might take comfort from the fact that the price of the yellow metal relative to that of the 30-year Treasury bond is approaching a 30-year high. Perhaps not coincidentally, the earlier run-up marked the peak of hysteria about inflation — and a multi-decade top in…Read More

Category: Asset Allocation, Commodities, Gold & Precious Metals, Investing, Markets

A Cheaper Dow 10,000 ?

Interesting New York Times article about the overall markets’ valuation: “Market valuations are another consideration. By almost every measure, stocks are far cheaper at Dow 10,000 today than at Dow 10,000 in March 1999. Back then, the price-to-earnings ratio for domestic stocks stood at a very high 41.4. That’s based on 10-year average earnings, a…Read More

Category: Asset Allocation, Investing, Markets