A New Credit Based Asset Allocation Model

Yves Lamoureux's picture

Can you imagine successfully navigating the next decade ahead with a great system. We have arrived at a juncture that will require major efforts on the part of investors to reshape their investments. You see, we believe that major forces at work will be to the benefit of credits. We propose a structure that removes any debt based investments.

I am confronted daily by portfolio managers who ask me the same question. Where am I going to invest to create returns? They realize that an income stream is required. The client's goal might not be best answered with more debts. We think that a growing investment gap will slowly force rates higher. We believe that this predicament will last for more than a decade. See my interview with Jeff Macke!

We do not see the majority reaping the benefits of higher assets while in bonds. Stocks see regular massive outflows. You will see the same with bonds. In the future, a trickle will quickly become a tsunami of withdrawals. We observe that most have not captured the recent stock bounce. We do not believe that investors will return to equities en masse. The great rotation out of bonds will be mostly a professional affair.

Retail investors understood the workings of equities or so it seemed. They have given hope after a few trials. They appear, however, to be the new specialists of interest rates.

It is this new found reality that one must confront and engage. Many advisers might find the task at hand to be insurmountable. We don't. Who else do you know that uses behavioral economics tied with macro analysis successfully?

We thought hard about offering a solution. We often think in terms of liability-driven investing. The size of the bond market makes it a hard task.

We propose to use cash and foreign currencies to do the diversification on the bond side. We have come to believe that this time it is different.

The bond side will be a drag on your future returns. It will also, in our opinion, not be a proper diversification tool.

The stage is now set. Portfolio managers are listening and are responsive to our commodity story.

We have been quite happy to see observers call for the end of the gold and commodity bull market. It reflects on a lack of understanding of the size of this cycle.

More money will flow to tangibles. It is one area where there is little reluctance to participate. Advisers will show the way. They are now more inclined to do so.

Gold and other commodities will be part of our solution along with stocks. Historical evidence would suggest to view stocks as tangibles. As most of you realize, it is also a matter of size and practicality.

Lets test drive our sleek model shall we?

We suggested being bullish on the euro on the 10th of December in our newsletter. We use four ETF's to make comparisons. FXE +4.58% cash replacing debt TLT-6.12% HYG -0.02% LQD-2.27%.

We suggested being bullish on the growth side on the 20th December with two indices being CAF +19.10% and EWG +2.06%.

Our work aims to reflect the aphorism attributed to Einstein.” Everything should be made as simple as possible, but not simpler.”

Happy driving!

P.S. We are waiting for the right signal to buy gold. For more read “Finally Why Gold Will Be Rigged Higher”


Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
enloe creek's picture

it seems straight forward that if debt is no longer favored, funds will flow to something else. but what could possibly offer saftey and value something precious and tangible

Go Tribe's picture

An advertorial. I think I'll break for a bowel movement.

Joe moneybags's picture

"Behavioral Economics"...hmmm..

Economics is hardly a science, as evidenced by the wholly contradictory theories that abound.  And now, the author knows how to blend in human behavior in some predictable way?  I don't think so....

FreeMktFisherMN's picture

but, but, but I was told by one of my econ profs just last year that behavior economics is on the 'cutting edge' of economics and has 'exciting possibilties.' /s

Falconsixone's picture

Credit Based Asset Allocation Model ?   is that what hookers are called now ?

savagegoose's picture

if the bankers want the gold they crash the price,. then just hold out their hands and wait for it to rain.

Etsh's picture

Currencies for bonds? Yikes, that'll go over well with the aging retired risk averse Boomers. Not sure now how sleek this is or if your just throwing shit against the wall. The most elegant an enduring asset allocation I have found in my years in the business is the Permanent Portfolio, always long gold, never got caught fading the long treasury, some natural resource stocks for growth.

aerojet's picture

They'll probably cause an even bigger spike in fuel prices, which causes a negative feedback loop in the economy.


Also, asset allocation assumes that you can find investments that are not highly correlated, which 2008 proved to be a complete fallacy.  Asset allocation utterly failed.

eddiebe's picture

I know it can't be helped, but when everyone is waiting for the right time to buy gold, will it ever go up?

One of my guesses is that once the banksters feel they have wrung every scrap of gold from the masses, they will themselves jack up the price.