Market Signals for Tactical Asset Allocation Decisions
(*Teleconferenced to the Santa Barbara Club)
Thursday, July 14th, 2011
12:00 pm - 1:30 pm
President and Head of Research
H. C. Wainwright & Co. Economics Inc.
Chair: Laurence Brody
Capital migrates from one country to another, one industry to another, and one form of investment to another. It is motivated in large part by economic risk. In the investment universe, two distinct dimensions of risk stand out.
1. Financial risk. When the financial climate is perceived to be shaky, capital flows tend to boost the performance of stable but unproductive investments relative to productive but more volatile asset classes. This is a drag on economic growth. During financial crises and recessions, returns from safe haven investments such as bonds and gold benefit at the expense of economically profitable assets such as stocks and commodities.
2. Currency risk. When central government is perceived to be dangerously indebted, capital flows tend to boost the performance of physical relative to securitized forms of investment. This is a drag on the market value and purchasing power of the national currency. Amid fear of depreciation and inflation, returns from tangible investments such as gold and commodities prosper at the expense of paper securities such as bonds and stocks. These insights point to a systematic approach to tactical asset allocation driven by "market signals" of risk. The paramount market signal of currency risk is the price of gold. So a rise (or a fall) in gold is a warning to tilt away from (or toward) stocks and bonds. The paramount market signal of financial risk is the level of spreads in the corporate bond market. So a widening (or a contraction) of spreads is a warning to tilt away from (or toward) stocks and commodities.
The same logic can guide the allocation of portfolios among stock-market styles, among asset-market sectors, among countries, and among commodity groups. Empirical tests show that, with a time horizon of about one year, portfolio management along these lines can be very profitable.
Mr. Ranson is the president of H.C. Wainwright & Co. Economics Inc., an investment research firm near Boston. Prior to becoming a general partner of Wainwright, he taught economics at the University of Chicago Graduate School of Business. Mr. Ranson was an assistant to then-Treasury Secretary William E. Simon and a member of George P. Shultz‘s personal staff at the Office of Management and Budget. Prior to his service in Washington, he was a member of the Boston Consulting Group. Mr. Ranson has addressed audiences and published articles on a wide range of economic and investment topics, and he has provided testimony to a number of Congressional committees. His work has also appeared in the Wall Street Journal, New York Times, Christian Science Monitor, and other publications. Ranson holds a PhD in business economics and an MBA in finance from the University of Chicago and an MA and a BSc from Queen‘s College, Oxford.
Registration Links :
CFALA Members: $20.00 (place cursor on amount for link)
Time: 12:00 pm - 1:30 pm, Lunch
Location: Omni Los Angeles
251 South Olive Street
Los Angeles, CA 90071
For directions call hotel: (213) 617-3300
Event parking at the Omni $12.00
Dress Code: Business Casual
Santa Barbara Teleconference - Lunch Registration (must register to attend-seating is limited):
Location: Santa Barbara Club
1105 Chapala Street
Santa Barbara, CA 93101
Tel: (805) 965-6547
Methods of payment accepted: Visa/Mastercard, American Express and Discover. If you prefer to pay by check please register online and select "purchase order" as your payment option and enter your last name as the purchase order number. Mail check to: CFA Society of Los Angeles, 520 S. Grand Ave, Suite 370, Los Angeles CA 90071.
*Credit card payments will only be accepted through the secure online registration, and not by phone or email.