March 1, 2013
By Steve Blumenthal
While the Fed pumps the system with its super steroid mix, beneath the surface the risks mount. Two links today: First, Stan Druckenmiller (famed hedge fund manager and former chief strategist for George Soros) and second, a research piece from Research Affiliates, Christopher Brightman, predicting just 1% GDP growth.
Druckenmiller Sees Storm Worse Than ’08 as Retirees Steal – Bloomberg
Stan Druckenmiller, one of the best-performing hedge fund managers of the past three decades, has a warning for the youth of America: Don’t let your grandparents steal your money.
Druckenmiller said unsustainable spending will eventually result in a crisis worse than the financial meltdown of 2008 when $29 trillion was erased from global equity markets. What’s particularly troubling, he said, is that government expenditures related to programs for the elderly rocketed in the past two decades, even before the first baby boomers, those born in 1946, started turning 65.
1%… The New Normal Growth Rate? Christopher Brightman, CFA
The government is hoping for a 3% growth rate. We’ve had just under 2% for the last decade and while estimates from some Wall Street “sell side” analysts exceed 3%, the research from those with significant money in the game (Grantham, Pimco, Dalio, CMG and more) are targeting 1.5% to 2% growth.
Brightman argues for 1% and details his thinking in this very clear and readable research piece.
A Shiller PE over 23 can’t be sustained in a 1 to 2% growth world. Valuations remain rich.
The Street – Blumenthal on Why 60/40 Won’t Work
I was in New York last week and was interviewed by The Street’s, Gregg Greenberg. I spoke of the need for a broader portfolio construction (33/33/34). In next week’s Blumenthal Viewpoint, I’ll update the progress on the portfolio I suggested last November.
Have an outstanding weekend. I’ll be in Beverly Hills at the Milken Institute Global Conference on April 28 – May 1 and in San Diego at the SSG Advisor Conference May 1-3. I hope to see you if you are in the area.
With warm regards,
Steve
Stephen B. Blumenthal
Founder & CEO
CMG Capital Management Group, Inc.
steve@cmgwealth.com
610-989-9090 Phone
PS: When I look at the world, I try my best to view it from a probability perspective. I read endlessly and have access to some outstanding hedge fund and independent investment research. Fortunately, if you dig deep enough, you have access to a great deal of information on the internet. This certainly wasn’t the way it was in 1984 when I started in the business.
I believe we are in a challenging low return environment and that most individual investors hold higher return expectations; those expectations will not be met and investors will seek a better solution. In this, I see an unprecedented opportunity for you to grow your advisory business.
With this piece I try to share some information that I have found to be important. To me the evidence is clear, but I most certainly could be wrong.
Whether I am correct or incorrect in my thinking, my overriding belief is that you can create and manage successful portfolios for the period ahead. This environment requires more work (mixing a diverse set of risk drivers and more active beta hedging) than exists in a secular bull market cycle, but also offers you the ability to separate yourself from the 98+% of your competition that is heavily weighted in the old 60/40 stock/bond construction model.
The good news is that the investment opportunity has been greatly expanded and solutions exist. While risk is an inescapable companion in the investment process, I believe it can be quantified and minimized by expanding the asset classes you include in your portfolios.
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