Diversifying Across Asset Classes

February 4, 2012 7:39 pm 5 comments

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It was said that Nero played the lyre while Rome burned. Well our leaders are doing the same thing; we should have emergency meetings every single day about the debt crisis, but we’re not. It’s the same old BS, and you can be sure that no change will occur unless it is forced upon us.

Does anyone out there really believe Obama, if reelected, is going to do a 180 and start being fiscally responsible? Does anyone actually believe that Romney is going to cut spending?  Like it or not, Ron Paul is our best shot at getting out of this crisis alive. If you don’t support him because you “heard” he was a racist, or you “think” eliminating the income tax wouldn’t work, or you “think” his support of gold is a little loony because Warren Buffett said so, then quite honestly, you’re a moron.

This is just one of those things you either believe or don’t believe. News that our debt-to-GDP ratio rose from 94% to 100% isn’t going to convince nonbelievers that a massive crisis is coming. No alarm bells will be rung when short-term rates rise to historically “normal” levels, even though this will bring annual interest payments on our debt closer to $1 trillion.  Most people will look for something like a stock market collapse to augur that a crisis is coming, but this is truly foolish.

The stock market collapse is behind us; in all likelihood Helicopter Ben will make sure equity markets are elevated. I am still waiting for the 90% decline in stocks that “has to” occur because that’s what happened during the Great Depression. But anyway, the bond market collapse is inevitable; there will come a day when there is no bid on our debt. This is going to send a lot of assets flying, including stocks.

In bull markets, the only question is: “what stocks should I buy”? However, this is a dangerous game, as people found out in 2008 when pretty much every stock fell. When the recession came, all the experts said you should get out of financials and into consumer staples. My whole thinking was, “why”? Yea you may have avoided the worst of the crash, but are you really going to pound your chest over losing less money than the next guy? I thought investing was about making money?

The somewhat more sophisticated investors split their options between stocks and bonds. This is an OK approach, but not the best approach for the years ahead. What you need to do is diversify, not within an asset class, but across asset classes.

Here’s a basic example of what I’m talking about, taken from the Financial Times wealth index for October. Behind the scenes, there is a major bull market developing in tangible assets. Does this mean that people are suddenly a lot richer than they were 3 years ago? No. It means the wealthy see what’s coming, and they are hedging accordingly. Top-shelf artwork serves more or less the same purpose as gold with less risk of confiscation. It is a very wise move as far as I’m concerned.

Diversify as much as humanly possible in preparation for the fireworks that are coming. It is not a matter of if, but when.

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  • Esko

    Good post Moses. I am myself a finn but I still follow already several years what Ron Paul is doing and have even donated to campaign of liberty and bought Ron Pauls books to support him. He is not only savior of USA but he would be REAL hope for the whole world. Nothing is going to change with Obama or Romney. Just look at their campaign contributors to get confirmation to this. They are in the backpocket of big banks and the  global oligarchy and offer just more of the same.

    Wish you all the best and thanks for the great blog.
    -Esko

    • http://www.expectedreturnsblog.com Moses

      Glad to know that there are foreigners who support Ron Paul!

  • Equity1st

    Moses…generally agree with your assessment…especially the ‘endgame’. But, don’t you think there’s likely to be one more significant ‘swoon’ (maybe 20% down) when Greece finally gives up the ghost and abandons the EU? I know the ECB thinks they’re giving the banks enough capital, but don’t you think there’s enough derivatives out there to cause some real sleepless nites for some folks? After all, Goldman put  all this stuff in motion for them (off the balance sheet). If we just knew what way Goldman was betting on all this, then we’d know the future, right?

  • Equity1st

    Moses…generally agree with your assessment…especially the ‘endgame’. But, don’t you think there’s likely to be one more significant ‘swoon’ (maybe 20% down) when Greece finally gives up the ghost and abandons the EU? I know the ECB thinks they’re giving the banks enough capital, but don’t you think there’s enough derivatives out there to cause some real sleepless nites for some folks? After all, Goldman put  all this stuff in motion for them (off the balance sheet). If we just knew what way Goldman was betting on all this, then we’d know the future, right?

  • Anonymous

     Using the fact that the raw Gigahertz (GHz) speed of the Pentium 4 was faster than AMD’s Athlon XP microprocessor, Intel advertised the Pentium 4 using clock speed to distinguish between the performances of their different processor models.

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