There has been a lot said and written lately about the failure of asset allocation, supposedly proven by the large losses experienced in 2008.  We don’t believe asset allocation failed.  We believe asset allocation practitioners failed in their execution.

Too much slicing and dicing had crept into the working definitions of asset classes — pushing granularity beyond reasonable limits.  Categories were being confused with classes.  Just because two categories sound different, doesn’t mean they are different in the asset class sense.

Assets are primarily aggregated into classes, and classes distinguished one from the other, based on the correlation of their returns.  Diversification, while important to minimize issue selection risk, is not allocation.  Allocation is putting assets into asset category groupings that do not respond to economic and other conditions in the same way, to the same extent, at the same time as each other — that mean’s low correlation.  Merely different category

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by Edward Hugh: Barcelonabr /br /blockquoteKeynes’s genius – a very English one – was to insist we should approach an economic system not as a morality play but as a technical challenge.br /Martin Wolf, a href=”http://www.ft.com/cms/s/0/be2dbf2c-d113-11dd-8cc3-000077b07658.html”Financial Times/a/blockquotebr /br /The euro fell again yesterday, by 1.1 percent against the dollar (to $1.2860) and by 1.2 percent against the yen (to 117.52 yen). The change, even if quite large in a short space of time, is hardly dramatic, but what is of more interest is the why. Russian companies announced yesterday that they were thinking of opening negotiations to “restructure” their debt. a href=”http://www.bloomberg.com/apps/news?pid=20601101sid=aq5iyuLURj1srefer=japan”Bloomberg/a:br /br /blockquoteThe euro fell after a Russian bank official said the nation’s lenders asked the government to help moderate talks with foreign lenders on $400 billion of loans, adding to speculation financial turmoil in Europe is worsening. br /br /The euro fell versus 13 of the 16 most-active …

U.S., European stocks slide after dismal jobs report… Dollar falls to 7-week low vs yen, but rises vs euro… US government debt falls in face of historic low yields… Crude prices fall to lowest level in almost four years

U.S. stocks fell sharply on Friday in response to a grim U.S. jobs report that sent bond prices higher in Europe and pushed the price of crude down to $42 a barrel as prospects for the world’s economies darkened.

European shares extended losses in afternoon trade as investors reeled at U.S. government data showing a loss of 533,000 jobs in November, the weakest performance in 34 years.

Oils and bank stocks led the decline in Europe, while oil and defense stocks pushed the Dow down in the United States.

The dollar fell to a seven-week low against the yen but rose against the euro as investors

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The current credit crisis should be both a squeeze and a crunch, but it seems to have been neither in the euro area. This column explains why credit may become costlier or scarcer under current conditions and explores how European financial entities seem to be defying the negative news. There are two channels through which the present credit crisis can affect economic activity. The first is prices, making credit more costly, and the second is quantities, making it scarcer. Dearer credit is called a "credit squeeze" and while scarcer credit is called "credit crunch". The euro area seems to be suffering neither of the two, at least for the time being. Credit may be getting dearer for at least for four reasons. -Today's banks tend to face higher spreads when issuing debt compared to non-banks, even of the same rating, thus their lending to ...