Showing posts with label political trends. Show all posts
Showing posts with label political trends. Show all posts

Wednesday, October 19, 2011

The Catastrophe Portfolio

Many of the world’s wealthiest families have reportedly been hedging their portfolios from the risks of financial meltdown via a ‘catastrophe portfolio’.

From the Reuters

The world's wealthiest families have embarked on damage limitation rather than seeking to boost their fortunes as financial turmoil erodes their riches, with some so worried they are putting their money in 'catastrophe' portfolios.

"We have to explain to our clients, it's not about making money these days, it's about keeping wealth," said Ivan Adamovich, head of the Geneva operations of Swiss bank Wegelin.

With inflation eating away at people's nest eggs and rock-bottom interest rates making living off capital increasingly difficult, many rich people are taking new risks just to stand still, private bankers said.

"We have already inflation higher than interest rates in many markets ... Unless you take some risk you will not achieve a level of return just maintaining (wealth)," Pierre de Weck, head of Deutsche Bank's private wealth management business, said at the Reuters Wealth Management Summit in Geneva.

Adamovich said a model portfolio designed to protect people's wealth in the face of global catastrophe has attracted more interest as financial turmoil spread in recent months.

The "catastrophe portfolio" allocates one third of money to gold, one third to defensive and internationally diversified blue chip company shares and a third to the debt of ultra safe developed countries.

In my view, there is NO such thing as a catastrophe portfolio or a portfolio designed to weather the proverbial storm. That’s because whether it be cash, bonds, gold or blue chips, all are subject to market or systematic risks which entirely depends on the character of the coming crisis.

Hyperinflation would be good for gold and bad for cash, but a systemic deflation from a major banking system collapse contagion would likely do the opposite. On the other hand, wars may adversely impact blue chips or transnational companies, while ‘ultra safe government debt’ could be a delusion if their welfare system has soaked up on too much debt from having an economy that consumes more than she produces or earns. Of course there are possible gray areas, such as debt defaults.

Also, since the conventional markets have been greatly influenced by pervasive bubble policies and political interferences, then my conjecture is that the ramifications from the actions of political authorities will remain as major factors in determining the risk environment.

This makes taking action from reading and analyzing the political tea leaves a better and a more flexible approach than a one-size-fit-all portfolio.

Friday, October 29, 2010

US Politics: A Libertarian Renascence?

In the Cato Blog, David Boaz posits that in the US, current political trends seem to evolve towards the re-emergence of libertarianism.
Mr. Boaz writes,
This chart, prepared for me by Garrett Reim, shows recent trends in public opinion polls on several issues — support for smaller government, marriage equality, and marijuana legalization along with opposition to President Obama’s health care plan and to the job the president is doing. The latter two have moved more sharply, but all five lines move at least marginally in a libertarian direction:
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Read the rest here.
What was popular then may not be popular now.
As we have long been saying—the world doesn’t not operate in a stasis. And this applies to politics too, where public sentiment continuously changes depending on the prevailing conditions.