John Mauldin to advisers: Ditch your asset allocation models

Author says old strategies don't work in a period of superdeleveraging; bring 'em back out in five years

Financial advisers have to understand that traditional tools for managing money don’t work anymore, said popular author and newsletter publisher John Mauldin.
“It’s the end of the debt supercycle [and] it really does change everything — all the [asset allocation] models you use,” said Mr. Mauldin, president Millennium Wave Advisors and author of the Thoughts from the Frontline newsletter.
He spoke yesterday at the Shareholders Service Group conference in San Diego.
The reduction over time of debt in the private and, eventually, the public sector, will put a drag on growth and investment returns, he said.
“It won’t be pretty. If you can preserve the purchasing power of clients’ money, you will be a hero.”
But don’t delete those old asset allocation models, Mr. Mauldin added. “Bring them back in four or five years once we’re through the debt supercycle … It’s not the end yet, because our government has not started deleveraging.”
The deficit can’t be cut quickly without risking a severe economic downturn, he said, but a program to cut debt over time “will lock in a slow-growth period”— not a platform any politician will run on.
Next year, after the presidential election, might be the best chance for serious debt reduction, Mr. Mauldin said.
“If we don’t fix it in 2013, we’re in deep, deep trouble,” he said.