The Asset Allocation Channel

How to Make Time Segmentation Work in Practice: Three Options for Extending a Bond Ladder

For time segmentation to work, there must be a clear procedure for how to extend the bond ladder. Unfortunately, with its varied implementation, that procedure is often overlooked. I will examine the potential for time segmentation by considering three different ways to implement it.

On My Radar: No Friends on a Powder Day

We touched down late last night in Salt Lake City. Susan, the boys, Brianna and me along with a dozen bags. It’s a long-standing family tradition and let’s just say everyone is really excited. A snowstorm just ended and my Snowbird app says 11” of fresh new snow.

Time Segmentation as the Compromise Solution for Retirement Income

Time segmentation is wildly popular in practice and it goes by many different names. But it is also the least studied retirement-income approach. Whether time segmentation is a superior investing approach for retirement income has led to many heated debates.

The Deep Causes of Secular Stagnation and the Rise of Populism

In a companion paper, “Six Impossible Things Before Breakfast,” we present evidence that asset markets are generally priced for “secular stagnation,” and argue that this requires a number of extreme assumptions on the part of investors.

Six Impossible Things Before Breakfast

One of the great joys of working at GMO is the freedom to disagree. Indeed, many moons ago when Ben Inker first approached me about joining GMO, he told me that, having read my work, he believed we were very much philosophically aligned.

What Does the Health Care Decision Mean for Stocks?

There is plenty of “upside risk.” Earnings growth is improving, even in the environment of modest growth. The recent market strength could go on for years without any policy changes. If some of the Trump agenda (probably with Democratic support) becomes law, it could mean a spike in both economic growth and profits. We already see improved business and consumer confidence.

Strategist: Keep Calm, Tax Reform Is On Its Way

Regardless of its failure to be repealed, tax reform is on its way. Just today, Treasury Secretary Steven Mnuchin reassured Americans that we could still expect “comprehensive” tax reform by August. It’s also worth recalling that, even though he failed to reform health care during his eight years in office, President Bill Clinton still managed to tackle tax reform with the Omnibus Budget Reconciliation Act of 1993.

Quest for the Holy Grail: The Fair Value of the Equity Market

Macroeconomic volatility is a useful tool for contrarian investors who are seeking fair value in an equity market characterized by continually rising valuations.

Fund Managers Become Bullish

A tailwind for the rally over the past year has been the bearish positioning of investors, with fund managers persistently shunning equities in exchange for holding cash. 

Scaling It Back

We expect the global economic expansion to strengthen and broaden over the cyclical horizon, but with improved growth and inflation prospects, central banks may scale back accommodation.

To Hedge or Not to Hedge?

Although the value of a currency can impact your international holdings, Russ talks about when it makes sense to hedge that effect.

On My Radar: A High Probability Way to Forecast Recession (Recession? No Sign Just Yet)

One of the realities we will face is recession. The good news is that we are in the eighth year of a growth phase (the last recession was in 2009) and as you’ll see in my favorite indicator charts below, there are no current signs of recession.

How Do Alternative Investments Perform in a Rising Interest Rate Environment?

The proliferation of liquid alternative mutual funds happened in response to the 2008-2009 recession, which was followed by an extended period of unusually low interest rates.

The Latest Look at the Total Return Roller Coaster

Here's an interesting set of charts that will especially resonate with those of us who follow economic and market cycles. Imagine that five years ago you invested $10,000 in the S&P 500. How much would it be worth today, with dividends reinvested but adjusted for inflation? The purchasing power of your investment has increased to $18,453 for an annualized real return of 12.32%.

Big Machine: Why Large Caps Are Likely to Outperform

Many investors are wondering whether the stock market has come too far too fast. The latest consolidation brought the S&P 500 down only 2%, but the average stock was down more than that.