The asset allocation dilemma

The inflation report for the month of September should have been published yesterday. Due to the government shutdown it will be published at the end of d of the month (scheduled for October 24th) just in time for the FOMC meeting. Tomorrow we should have the unemployment rate, with an expected 4.3% for September. As per the last speech by Jerome Powell, even though inflation is not where the Fed wants it, the unemployment is now the most important indicator to influence monetary policy. For that reason, the market is expecting 2 more rate cuts this year. How are investors positioning portfolios in this environment? If you look at the chart below, even though Gold is the one of the top performers this year, very few investors have current allocations to the precious metal, and even less to crypto. Asset allocation decisions still gravitate primarily between stocks and bonds, not taking into account, at least not fully, the inflationary an debt forces that are impacting the fiat currency system. Perhaps this is due to the fact that portfolios are having a good year measured in dollar terms, and investing in gold and crypto may imply getting out of the comfort zone. As it usually happens, the early majority will jump on that trade once it has consumed the first strong leg up, among rumors of crowded trade and overextension. That’s the asset allocation challenge it’s presented today.

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