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October 11, 2011 at 10:07 AM
The global investment committee of Morgan Stanley Smith Barney said Monday that the risk of recession in the United States and the rest of the developed world had “grown significantly in recent weeks, so we are adopting an overweight position in safe havens and an underweight position in risk assets.”
Chief Investment Officer Jeff Applegate and his colleagues explained in an asset-allocation report, “This is the most significant change to our tactical asset allocation in more than two years, as we are decisively moving to bearish from bullish.”
In general, Morgan Stanley is embracing more cash, bonds and managed futures and moving away from equities, commodities and REITs. In its moderate-balanced model portfolio, for instance, the percent of cash has increased two percentage points to 5%, and allocation in global equities has fallen by two percentage points to 32%.
“The primary source of the recent financial market distress—with, we think, more to come—has been a combination of policy inaction and ineptness in the U.S. and Europe,” Applegate and the other committee members said in the report. In August, the October report says, the Morgan Stanley Global Economics team explained that the developed economies were moving “dangerously close” to a recession.
Morgan Stanley’s report also draws attention to the Economic Cycle Research Institute’s recent warning that that the U.S. economy is on track for a recession. According to the investment bank, the ECRI has successfully called each of the last four U.S. recessions “with no false alarms.”
