Macroeconomic Trends and Implications for Investment Portfolios

While the economic ramifications of many recent events remain to be seen, this 2011 FOX Fall Forum session examines the potential implications for investors and tactics for protecting portfolios from overexposure to these events.

• The global economy is slowing, and we may be headed for more recession. The best case scenario is low growth. 
• The European debt crisis is reaching a tipping point. Greece will default and other nations may need to restructure. This will put enormous pressure on European banks, some of which may need to be nationalized. 
• The ECB is not equipped to handle the European debt crisis under its current charter. Germany will have to intervene despite significant internal political opposition. 
• The U.S. is sputtering along. We may not head into “official” recession, but it will feel like one in terms of employment, consumption, and sentiment. 
• The U.S. government is out of fiscal and monetary bullets. Our best hope is structural tax reform and pro-growth regulatory and legislative policies, which are unlikely until after the 2012 election. 
• “Operation Twist” is unlikely to provide much stimulus other than driving investors into riskier assets in search of yield. 
• The emerging markets are in better shape but also are slowing and cannot hold up the global economy by themselves. 
• Valuations are becoming attractive for longer-term investors, but we don’t think we have hit bottom yet. 
• The “risk on/risk off” mentality makes it very difficult to stay invested – nothing works when “risk off” is in play, and volatility will remain high. 
• Recommended strategies in this environment:
  • Preserve capital 
  • Stick with quality 
  • Stay diversified 
  • Stay liquid 
  • Go for yield and income