Asset Allocation

An economic recovery is at last underway in Gail Dudack’s estimation, as evidenced by what she calls the first signs of job creation. “That’s always an interesting point of time, because the positive momentum starts to feed upon itself,” she says, noting that in such an evironment people feel better about the jobs they have, they feel better about the chance of getting jobs, while employers feel better about hiring and about capital expenditures. “I think that’s all positive,” Dudack continues. “I think the strongest issue for investors is the productivity of corporations and their ability to actually generate earnings even in a slow-growth economy going forward.”

On the downside, Dudack thinks, “the negatives are widely understood, but they haven’t necessarily crystallized. I think that in the U.S. the risks are that job growth will be slow and that will still put pressure on the housing market, which is also going to be a drag on the economic recovery.” She adds that the things she really worries about are mostly outside the U.S. “I worry most about what we see as sovereign debt issues everywhere. Greece is just the tip of the iceberg,” she says. “We have these huge debt issues and they’re not just in the U.S., they’re pretty much global.” Dudack is also concerned about geopolitical issues such as elections in Europe, the political upheaval in Kyrgyzstan, the tragedy in Poland, and tensions between Iran and Israel. “All these political issues tell me that the landscape outside the U.S. borders is changing,” she observes. “The change can be good, and it also can be bad, but it will definitely impact us in the long run.”–Robert F. Keane