NEW YORK (HedgeWorld.com)-Distinguished author and economic consultant Peter Bernstein advocates hedging against a potential scenario of growing malaise in the U.S. economy.
Speaking to a ballroom full of school endowment executives at a National Association of College and University Business Officers conference, Mr. Bernstein analyzed approximately 30 years of economic history, from the free market policies of Ronald Reagan and Margaret Thatcher to last month’s declines in the U.S. dollar.
He sees a recent economic shift that has brought on a loss of American jobs to other parts of the world, declining labor compensation and a growing federal budget deficit. On this basis, he suggested to endowment officers that their best bet currently is to take a core equity portfolio and put a defensive rim around it of gold and foreign currency.
While alternative investments have been good and very useful, they do not serve this defensive purpose, he said, arguing that hedge funds and other alternatives work well in a conventional environment but won’t give investors the big upside they will need in the case of extreme events.
Mr. Bernstein focused in particular on the phenomenon of dis-inflation that started in the Reagan and Thatcher years. This lid on prices means that lowest-cost providers across the globe win out and that nobody has pricing power under intense worldwide competition.