Morgan Stanley: Firing the Last Round

To explain why, since initiation in late 2006, we have framed our market call by varying our equities weighting within pre-defined limits, a digression into Jonathan’s personal history may be relevant:

I would not be here if my grandfather had not avoided death by goring from a water buffalo in Kenya in the 1920s. These are, other than hippopotami, the most dangerous animals in Africa. They weigh well over a ton. He had a single-shot rifle with no time to reload. As it came thundering towards him, he had to stand his ground and wait to fire until it was within 20 yards, as he told it because the skull is so thick. The beast’s head ended up over his mantelpiece with the bullet hole clearly visible right between the horns, which were sharply pointed. The moral of this tale, as my grandfather made clear to me as a small boy, is two-fold. First, keep your nerve. Second, try not to get into a situation where you only have one shot to survive.

So, that’s why we – and we suspect most investors and asset allocators – vary our equities weighting rather than make binary market calls. One of the horns of the charging buffalo today is the EU sovereign crisis, whilst the other is fears of a China hard landing. Our views on both are discussed in detail below. However, having wasted two shots earlier in the year, with the buffalo now at 20 yards and closing, and with only 2% cash left in our asset allocation model, our judgment is that it has now come to the right time to – once again – fire the last bullet.

Reiterate thesis of the painful birth of the Asia/EM centric global economy

As in 2008, we reassert our belief that the general global macro-economic and financial market environment is characterized by the painful birth of the Asia/EM centric global economy. For more details, see in particular our December 2006 initiation piece, Taking Centre Stage: Five Themes and 2007 Outlook, dated December 11, 2006, and Third Transition in Global Manufacturing – Investment Implications, dated July 25, 2010.

Source: Asia Insight, December 2, 2011


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