October 2009 Issue: Key Points

Our economic update this month reviews the data presented in the IMF's most recent World Economic Outlook. We conclude that on balance, the odds of our conflict scenario developing have increased over the last month, and that returns on asset classes that perform well under the high uncertainty regime are likely to show the highest rolling returns in the months ahead. These include short term government bonds (e.g., SHY for U.S. Treasuries, and ISHG for a mix of short term government bonds from other nations), gold, volatility, Swiss Francs (FXF), and Swiss and European commercial property. In this month's letters to the editor, we respond to more letters about timber, as well as questions about oil and gas partnerships, whether diversification can be overdone, the best asset allocation today, and why we don't make bigger allocations to emerging markets equity in our model portfolios. This month's feature article looks at the construction of equal risk weighted portfolios and how they performed across major currency zones in 2007 and 2008. Our product and strategy notes include another warning to limited partners about the challenges of investing in venture capital, a review of recent research into early warning indicators for future financial markets crises, a very interesting new paper on the long term drivers of equity market valuation, and whether investors on average anticipate or react to them, and with what degree of accuracy, and the long-term impact of the 2007-2008 crisis on financial advisers.

| October 2009 Issue: Key Points | Global Asset Class Returns | Uncorrelated Alpha Strategies Detail | Table: Market Implied Regime Expectations and Three Year Return Forecast | Table: One Year Asset Class Valuation Conclusions and Recent Momentum | Market Phase Change Risk Analysis | This Month's Letters to the Editor: Oil and Gas Partnerships - Do they fit in your portfolio?; What's the best Asset Allocation Today; Is it Possible to Over-diversify a Portfolio?; PIMCO Heavy Weighting for Emerging Markets, II's thoughts?; Timber Followup | October 2009 Economic Update | Global Asset Class Valuation Updates Detail | Feature Article: Equal Risk Weighted Portfolios in 2007 and 2008 | Product and Strategy Notes: Challenges Facing Investors in Venture Capital Funds; Improving Warning of Future Financial Crises; A New View on the Fundamental Drivers of Equity Market Returns; and The Long-Term Impact of the 2007-2008 Crisis on Financial Advisers' Compensation |