John Pitera's Market Laboratory Message Board

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Strategies & Market Trends : John Pitera's Market Laboratory

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To: Doo who wrote (12617)	5/16/2010 4:29:46 AM
From: John Pitera	1 Recommendation Read Replies (2) of 33421

Hi Slewnoir, The Pimco missive I just posted provide some ideas on what are real asset selections. They do not talk about using FX as an asset class category where diversification can be found. Instead of using significant leverage it's possible to divide a pool of assets into several different currencies. The problem with TIPS is if the USD comes under significant assault at some point down the road, Investors are going to be looking to have assets denominated in something besides dollars. I just got done taking a course in Investments and Mutual Fund Management and Fisher Black in addition to developing the Black Scholes option valuation model, also developed the Treynor-Black Model which uses looks at The portfolio opimization procedure using a single index model. It requires Alpha forecasts that are just that forecasts. He went on to co develop the Black Litterman model that allows more flexible views about the expected returns of asset cllasses to improve asset allocation. The real issue that dogs is how to come up with by the input data. Black and Litterman come up with an approach of using past data, equilibrium considerations AND the Private views of the Portfolio Manager about the near Future. and thus we still have the subjectivity of People in making investment decisions. Thus the title of M Sranley's David Darst : "The Art of Asset class allocation". I personally belive we are going to see more and more investors looking into using FX platforms like Deutsche Bank's FX platform for solutions to the wide spread currency volatility that will continue. Pimco's El-Erian has described 2010-2011 as the years of great currency turmoil. I'm sure he's right about that one. John

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