From Telegraph (via Naked Capitalism) my french Ecole Polytechnique comrades over at the Societe Generale are striking a very bearish note in their allocation recommendation.
The bears at Société Générale are going into Siberian hibernation, issuing an "Ice Age" alert. They have slashed exposure to global equities to a minimum 30pc for the first time ever.
Their weighting of super-safe "AAA" government bonds has been raised to a maximum 50pc. This is a bet on gruelling "Japanese" deflation. The bank expects equities to fall by 50pc to 75pc.
"Nowhere and nothing will be immune. We are on the cusp of an equity meltdown that will slash and shred portfolios," said Albert Edward, SG's global strategist.
"We see a global recession unfolding. Liquidity will drain away and crush the twin emerging market and commodity bubbles. The recent hope that 'the worst might be over' is truly staggering. Profits are disintegrating," he said.
Well I am already at that allocation. So I guess I should be moving some more, but where, where the frak do I go from that kind of allocation. 10% equity? Synthetic exposure to market via options?
I am starting to get a taste and understanding for options and that may be the way to play this current market. I do share the view that there is one more drop to come. How bad it is is still fuzzy, but the shorts are out there. The word "hedge" takes on its full meaning, it isn't the bullshit structure that most snake oil vendors are peddling out there: put in bonds, borrow lower, multiply through debt. I don't need to be paying the fees for that NON-SERVICE. Managers are lazy and passive in these structure.
No, hedge means "hedge" meaning the capacity to buy risk protection in a portfolio above and beyond straight diversification. The zero-sum game nature of the options always makes it an interesting bet, I am always betting against someone else, and puts in perspective the odds, but I always had a taste for hedging in the roulette game at the Casino. It is the only one I could play.