#efta01172125
LightNews LightNews
epsteinweb.bsky.social
Parts 1-3/3 — EFTA01172125.jpg
#epsteinweb #efta01172125
https://epsteinweb.org
Available in the iOS app store now!
https://apps.apple.com/us/app/epstein-web/id6758880661
EFTA01172124 | EFTA01172125 J.P.Morgan Global Asset Allocation The J.P. Morgan View but that they will instead turn less bearish, inducing them to deploy cash. • What risks in 2012? Three local risks have the most chance of turning global, EMU breakup, Chinese real estate,and US fiscal policy. In each case, both policy makers and portfolio managers have all incentive to prevent a global crisis, through the right policies and positioning. The risk is that they underestimate these forces and do not adjust policies and positions on time. • EMU breakdown surely ranks as the highest risk, given its size, leverage, interconnectedness, and magnitude of the challenge. Investors are positioned for trouble, but not a blow-up. We have argued the crisis needed to get worse before it creates the incentives to swallow the bitter pills needed to solve the crisis. This year, we surely underestimated how bad the crisis needed to get. Our current view is one of neither dissolution nor resolution. Movement to a needed fiscal union and ECB QE will be incremental and full of setbacks. A full resolution will not come early as the crisis itself is needed to extract necessary changes in EMU South. But an EMU dissolution is also quite unlikely as the costs are unacceptably high. EMU blow-up risk is higher for 2013.14. • The slump in Chinese real estate activity and prices invites comparison with the US in 2007.09. We see enough differences, including that the Chinese slowing is policy induced and can be turned around, but the situation mast be monitored closely. US fiscal fireworks in August likely triggered this year's big equity sell off. As in Europe, we see a controlled crisis where both sides will keep the battle going, but neither side wants a crash. • What will be the trigger for a risk-on move? Not a single event but a condition: risk not aggravating in the presence of high risk premia and riskunderweight investors. • What have we learned from 2011? ( I ) Be tactical and respect stop losses and momentum. Our momentum-based asset allocation models— Efficiente and Mosaic — performed very well, and we should have stayed closer to them. (2) Use Value only as a strategic bias. The average UW of risk should be smaller than the average OW during the year. (3) Be objective and don't get emotional on what should happen. Focus instead on what will and could happen. • Asset allocation. Strategic long-only: 41% equities, 49% Fl( US Agg, HY), 7.5% gold, 2.5% cash. Tactical: Small OW of risk through US equities and HY. Fixed income • Global government bonds have had their best year since the panic of 2008, marked by dramatic yield divergence within the Euro area. The EMU crisis will remain front and centre next year. The main pitfalls: a hard Greek restructuring early in 2012, and especially Italian and Spanish refinancing, with the scale of liquidity support for EMU sovereigns still uncertain. Our expectation is that enough liquidity support to stabilise the crisis will eventually be forthcoming, mostly through a faster pace of ECB bond purchases, but only in the face of more market pressure. That implies a tactically negative view on peripheral bonds. even as we expect stabilisation later in the year. 2012 return forecasts %, &plies are in lighter colour MSCI EM MSCI AC World SW500 MSCI Europe (LC) US High Yield GSCI TR LACI EM FX ADXY EM Local Bonds (U) Gold EMBIG US High Grade EM Kap. US Axed Income US cash EM Local Bonds (H) Global Gov Bonds 01) f DXY 40 0 10 20 90 SOU/DC JP. Wien Sheinberg. rietrns ki LSD tame Pe) is hated kto USD.IUIe:irhedgeSn mtrssdnCI is kcal cumrcy. US Ha HY. EMIG rd DA S c ps PM irdees. EM FX is rum to S. 2012 sharpe ratio forecasts equities are in lighter colour. Return forecasts minus cash forecast. divided by the volatility of monthly excess returns (annualized) over the past three years. MSG AC World MSC' EM MSCI Europe(LC) US High Yield S&RS0D High US Grade FX LAG EMBIG EM Local Bonds(U) EMS Cap. Gold GSCI 18 ADXY US Fixed Income EM Local Bonds(H) Global Gov Bonds(H) DXY -0.5 • More stability in the Euro area is one prerequisite for core yields to rise significantly from these historically anomalous levels (see chart). The other is Dec 16, 2011 00 0.5 1.0 15 Son J.P. raga Bcanterg. Returns II USD exact 041s hedged alb USD. M s unledged in Man rd ILG) is bail arreney. US HG. Ht. BING and al S Cap area Sees. EM FX SEIM in S. 2 EFTA01172125 Epstein Web iOS app on the App Store.
May 12, 2026 at 3:22 PM