A Great Article on Asset Allocation

Carl from Chicago
Chicago Boyz

In today’s Barron’s magazine there is an interview with Dennis Stattman of BlackRock Global Allocation called “Mixing It Up in an Uncertain World”. In this article he discusses his world view and his views on asset allocation. It is a great article and highly recommended.

Dennis starts by explaining that our current situation is odd.

The first thing you have to realize… is that it is an artificial environment because of extraordinary government measures, both on the fiscal and monetary side… but our portfolio strategy has to take into account with what is going on with our unit of account, the US dollar.

How much time do people spend thinking about how their equities and assets (home values) are going to change when the government can no longer prop up the economy, and what the impact on the US dollar will be at that time? And when we have to start paying back that debt we incurred during these extraordinary days? And if they have thought about it, what have they DONE about it?

In the US with the ups and down in equity prices from the 2008-9 debacle to where we are today it is easy to forget that much of this recovery in stock prices is due to the fact that the government bailed out many institutions that would have otherwise failed, loaded the country up with debt that has to be repaid in the future, and taken our interest rates down to zero which has enormous benefits to many types of US companies.

So we have to realize we are in an artificial environment, characterized by temporary and extreme governmental measures. We don’t know when those will end. But we do know that they can have a profound impact on asset prices and profits…

Read the entire article at Chicago Boyz.

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