Portfolio Allocation Shifts


Jyske Bank recently changed their portfolio allocation recommendations which places them very much in line with my portfolio.

Jyske’s portfolio shifts for non US investors is:

Equities:        Under weight (changed from neutral)
Traditional Bonds:    Over weight (changed from neutral)
High yield bonds:    Double under weight  (unchanged)
Cash:            Double over weight  (unchanged)

Jyske Global Asset Management has three portfolio breakdowns for US investors:

Low Risk:

Asset type     Recommendation               Tactical weight

Fixed Income    Underweight                         70.80

Equities          Underweight                                9.06

Alternatives    Neutral                                         0.00

Cash                  Overweight                                20.14
100.00

Medium Risk:

Asset type          Recommendation        Tactical weight
Fixed Income    Underweight                          49.82
Equities              Underweight                           32.58
Alternatives       Neutral                                       0.00
Cash                    Overweight                              17.60
100.00

High Risk:
Asset type               Recommendation        Tactical weight
Fixed Income            Underweight                     26.18
Equities                       Underweight                    53.99
Alternatives                Neutral                                0.00
Cash                             Overweight                        19.83
100.00

The bank expects continued slowing in the global economy.   In the 4th quarter of 2008 economic growth slowed in at a fast pace in a short  time.

Strong inflation in 2008, a major drop in industrial production and banking crash has caused global industrial confidence to slide. This has clobbered economic growth in the last quarter of 2008.

Therefore, Jyske believes a turn in the economy will be delayed until at least
the third quarter of 2009 and that even this may not happen.

There is a chance that recovery will not begin until  2010.   For the first one months of 2009 they expect negative growth in industrialized countries as well as a
considerable weakening in emerging market growth making this recession the worst in recent times.

This has caused much lowered interest rates and increased government spending… already around 2%  of  global Gross Domestic Product.

The bank is uncertain what effect the government interventions will have nor what impact lower energy and food prices will have along with tighter credit.

The bank is prepared for  two scenarios. The first scenario being that falling oil and food prices along with government spending and low interest will get economies moving again albeit slowly by the end of  2009.

The second scenario has greater risk and depends on how long and deep the financial crisis extends and how much credit is tightened.

The financial sector has suffered great  loss worldwide and the banking system may not be able to survive on its own. Some nationalization may be required.

More losses will be on the way as the recession continues.  This will force banks to tightened credit and widen the interest margin they charge .

The amount of credit tightening will determine how much  negative spiral the economy suffers, but Jyske sees a  fairly high probability that the recession in the industrialised countries and the slowdown in economic growth in the
emerging-markets countries could continue into 2010.

This thinking supports my comments of yesterday to do nothing right now. Take events as they come.

Earlier I was anxious to take advantage of the great values that had developed.  Now I believe there is plenty of time  for value investors to pick and choose.

US investors can get more information from Thomas Fisher at fischer@jgam.com

Non US investors can get more information from Rene Mathys at mathys@jbpb.dk

Until next message good global investing.

Gary

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