The more things change, the more we must change the way we think about things. As a Certified Financial Planner (R) and an IAR representative since 1983, I have been a proponet of asset allocation portfolio design for many years. Using quality fund families and the buy and hold strategy through the ups and downs of business cycles was the heralded investment paradigm.
My career, started in the middle of the 1983-84 recession, I have guided investor clients through the 1987 crash, 1989 bear market, 1992 Savings and Loan crisis, the "Asian Contagion" and 'Long Term Capital" fears of the ninties, the popping of the 'Tech Bubble' of 2001, and most recently, the 'Sub-prime' banking crisis of 2008. During that time, the buy and hold strategy seemed to create schizophrenic periods of jubilation and fear every four of five years. Enough was enough.
In the beginning of 2009, I started to question the framework of how mainstream advisors were managing investors assets, seeing negative real returns on an inflation adjusted basis of the broader equity markets over ten-year rolling averages. For a person with a 30-40 year working career, losing ground during a quater to a third of their accumluation phase can be devastating, especially should it occur at critical time periods of distributions.
I then began a study in earnest as to what is actually creating such volitility in the markets, disequilibriums in wealth accumulations, fluctuations in currency exchanges, and basic financial analysis of the strength and stability of government institutions on federal/sovereign, state and local levels. What I found was shocking and are detailed in the Delta Paradigm newsletters linked below.
Delta Paradigm Portfolio management is based upon a study of historic and global interactions between monetary policies, increasingly higher levels of debt and the Austrian School of Economics in evaluating wealth creation.
The portfolio is managed to guard against the biggest threat to any investment portfolio, local currency volatility (USD)-inflation and deflation. Inflation from the computerized printing of money and Deflation from the burden of debt servicing. Quantative Easing is the monetarization of debt. Worst of both worlds!
Our Federal Reserve and similar governement agencies around the world were desperately trying to create enough money supply inflation to grow their way out of trouble, while the sovereign governments continue to function under deficits and thereby create more debt and future obligations. As debt becomes a greater burden to service, the default rates increase and wipe out the capital of the financial system that the Federal Reserve just printed and put there. Again, more deficit spending to promote economic growth, more debt created, more money supply inflation to pay for the remedies.
The problem then becomes a bit less obvious, but critically more important. Paradigm or "Truth"? Two parts:
First: Allocation of gorvernment or centralized plannig by definition does not allocate resources in an efficient manner. Therefore economies will not grow at thier most optimized rate. Capital and labor will be underutilized in some areas and also delegated to less productive activities. And then there is the Bureaucracy waste as well. With all the evidence surrounding us, I would call this a truth.
Second: With each passing solvency or liquidity issue the world economies face, it has continually been resolved by pushing the cost of the solution higher until it has now reached the sovereign level. Who is to bail out the nations? The ECB, IMF, US Federal Reserve?
And then, on whom does the burden of paying for the fix fall upon? The same citizens that saw the equity in their homes decline, lost money in the bond defaults and lower equity values in their retirement plans and college funds. The same ones that see the cost of their food, clothing, utilities, and insurance premiums going up and their home value going down. Is this what you see?
If your current Paradigm is for protection against further currency manipuation by all sovereign governments, if you question the feasibility of a financial system that is based upon debt and not savings, if you wonder who else might believe in right or wrong besides you, then you need to protect what you have and what you accumulate in the future. You need a stable currency, essentials of living, and dry powder for the next great opportunity after all this gets sorted out.
Below is a sample allocation of assets in the Delta Paradigm Portfolio. The weighting and allocations are not stagnant nor exclusive over time. They change as prudent with changing economic, political and social evnets.