Will the Fed cut interest rates again at its December 11 FOMC meeting next week? There’s plenty of chatter suggesting the answer will be “yes” and Fed funds futures are in agreement.
The January ’08 contract is priced, as we write this morning, for Fed funds at just under 4.14%, which is to say about 36 basis points below the current 4.50%. To extrapolate the message further: a 25-basis-point cut is likely, but there’s debate about whether a 50-basis-point slash is possible.
Nonetheless, bond guru Bill Gross of Pimco predicts the central bank will have to go much lower. “To restart a near recessionary economy we may need to eventually go down to 3% or lower,” he wrote in his latest missive that was published yesterday.

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Now that volatility has returned to the global capital markets, an inquisitive investor might reasonably ask: What’s vol done for me lately?
It’s a good question, and it’s one that this writer routinely asks as an input for weighing global equity diversification. In search of an answer, or something approximating one, we turn to the numbers. As a preview, Europe looks intriguing, at least on a relative basis. Or so November 30 data from S&P/Citigroup Global Equity Indices suggest.

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Actually, it never left, even if it seemed otherwise. Perhaps it was hibernating for a few years. No longer. As November’s tally of mixed performance among the major asset classes shows, the prospect of throwing money at virtually anything and earning a tidy return suddenly looks conspicuous by its absence as a prospective opportunity.
The numbers, as always, tell the story. As our chart below documents, selection was everything in last month’s financial horse race. Indeed, TIPS were the best performer, rising more than 4% in November. In last place: REITs, which shed a hefty 9.5%. Looking at the year-to-date returns for two shows an almost mirror image of results: TIPS are up 11.9% in 2007 through November 30; REITs have lost 11.7% YTD.

Red ink, in fact, is a growing presence on our table above. That’s just another way of saying that volatility has returned. Anything’s possible, of course, but it’s starting to look like nuance and variability has returned to the money game. As a result, the details matter once more in building and managing diversified portfolios. The game once again favors the nimble asset allocators, or so we predict.

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Investing tends to promote unyielding and often conflicting ideas about what works and what doesn’t. Witness the schism between those who embrace active management vs. indexers. Many use both, although some fall into one or the other camp and summarily dismiss the other. But is it wise to preemptively reject passive or active management for all of eternity? Or, maybe, is it better to keep an open mind on the off chance that the other side might come up with a useful idea every now and again?
So suggests Matthew Rice, CFA, in an recent interview with your editor. In the course of a Q&A, originally published in the December issue of Wealth Manager, Rice made a case for looking at all the options when it comes to surveying the investment possibilities. That, at least, is the guiding principle at DiMeo Schneider, a Chicago investment consultancy where Rice is a principal. As he suggests in the following interview, indexing isn’t always and forever the best choice for every asset class. The same holds true for active management.
No doubt, there are many who disagree or remain suspicious of such notions. Indeed, your editor, for one, favors betas for building multi-asset class portfolios. Nonetheless, Rice has co-authored an interesting study published earlier this year that’s worth reviewing if only to stress test one’s core beliefs. For additional perspective, take a look at our recent conversation with Rice, which begins now….