Christian Miller Glassman at Goldman Sachs is hugely qualified to talk about the linkage of the dynamics of the market into
your portfolio's retail and institutional around the foundation back to 1926. Of the 60 40 portfolio. Christian thank you so
much for joining and your work with the CFA Institute of which I'm a member is well how dead is the dead 60 40 portfolio.
Yeah listen it always is a bit aggressive to say that you have to dead or death off of kind of one of the most basic and
well-known investment strategies. I think there's always going to be some benefit to be balance. No but I think you have a
particularly poor kind of starting point for these type of portfolios from two perspectives. No. I mean first of all
everything is expensive. We know dads and equities and bonds are expensive at the same time. Devils actually the same a few years
ago. And still these portfolios continued performing really well. But what's new is how we are starting to cycle all the
cycles starting with more inflation and flatter yield cuffs. And and that just means that what bonds can offer you in the
portfolio is even more limited both in terms of returns. Right. And and and with the guts to to to risk reduction. One of the
other determinants here is diversification which over my span I've seen for example 300 stocks down to Fidelity 50 years what
Sequoia did years ago. Tell us about your view on the new diversification if bonds are so unattractive. Do I own Apple
Amazon and seven other stocks. This is exactly a good point you make there. I think you need to look for older sources of
diversification than than just what equities and bonds can offer you. I actually think there's gonna be much more potential for
regional diversification in the last 20 30 years. All the academic evidence is showing that there's no benefit off of
having a global portfolio. If anything the best thing was to have all your money just in the US equity market. But now that
we introduce inflation risk inflation volatility policy uncertainty which we haven't had in the last 20 30 years and
possibly much more macro volatility decent cronies cycles what we could get is more diversification across the markets and also
across styles across sectors. And and and it be the leadership is much much less narrow.
So to some extent you should not just be in the winners of the last cycle and run a really concentrated portfolio.
You need to branch out a bird. You need to diversify. And obviously the other key area which we all know and has already
done really well which will be more important in the portfolio is real assets.
If it's commodities or other sources of of of of kind of real cash flows I think that that will also feature more heavily in
the coming cycle. Dani Burger is cash better than develop market bonds right now.
Listen. This is the most interesting discussion in my opinion which is
new. I think we all know that equities look better than bonds in the long run on most models which you can come up with.
But the more interesting discussion is really bonds versus cash. People are forgetting that bonds have formed very prolonged
periods of time lost your money versus cash actually to hit ratio of cash. Outperforming bonds over a 10 year rolling period
is nearly 40 percent. So it's nearly 50/50 that you essentially do better with cash and with bonds based on the last hundred
years. We obviously have been in the biggest bond market on record
source so we kind of feel that's quite unusual. But if you look back in history there were plenty periods and wants the most
important indicators of how bonds might do versus cash is the steepness of the yield curve and and the steepness of the yield
curve is half of what we normally get after a recession. Exactly. To some of the comments we had earlier because there's
so little optimism about to do a duration and longevity off of the cycle and how our central banks can hike. That means you
have less buffer and you have less return potential for bonds versus cash. So I think definitely cash looks better versus
bonds in the coming cycle than than what we've experienced in recent years. Joel Weber inflation doesn't that sort of erode
the idea because you're buying power is steadily going away with no coupon.
Yeah I mean it's always like do you do you want to lose money fast or slow. No. I think that the big problem is with cash
you're losing money very slowly whereas with bonds you obviously have other drivers. And and we all know that real yields have
morphed to this incredibly low levels and this really weird relationship you currently have where inflation expectations go
higher and higher and higher. But the real yields that follow and we know that might change and you'll have some losses in
bonds. Christian one quick question. You can have Mueller Glassman article without an Ibbotson. Sure. You trot out the
Roger Ibbotson chart like clockwork here. The long term log performance of the equity market in the great unspoken fear is
another 1970s the dismal 70s the Carter malaise the flatness of equity return. What's the probability of that. I think it's
definitely higher post call it and pulse the crisis than before because we obviously have not as the new inflation uncertainty
and inflation is a very I always say it's a very alter correlated animal. Once you set it loose I think it does create
more uncertainty. It has spillover effects. And and I think as a result of that the probability has gone up. We still would argue
that like a 70 stagflation don't forget there was 10 percent annualized inflation over a decade. I mean death is quite
aggressive. And you also have to consider at the time like the type of macro backdrop both with regards to demand supply
disruptions which were related to OPEC embargo or Iranian revolution there were things going on which seemed much more
extreme than what we're dealing with. I think stagflation Nari momentum is something we need to fear next week knocking on next
week next year where I think we know that growth will come down. Inflation might remain sticky and we get a bit of monetary
policy normalization and and and potentially a bit of a catch up for monetary policy. And that can be a bit harmful for markets.
But I think the 70s stagflation to us is still a pretty extreme event which which I would still put more into the tail risk
market not the base case. Question That was a clinic. It's going to catch up says send Ambassador Peter Oppenheimer as well.