Modern Portfolio Theory is much riskier than you have been led to believe.

2/20/2010

MPT (standard asset allocation modeling) is largely dependent on normal distribution. Market returns are assumed to cluster in the center of the bell curve while the infrequent big changes dot the outer edges. All price changes are independent of each other, there are no trends. The market is efficient, everything that can be known about a given security is reflected in its current price. You can control your risk exposure with proper diversification. We do not believe any of these things are true, but there are other strategies that can clear these things up.

Move Over China: Beijing sells a whopping $34.2 billion worth of treasuries in December as Japan becomes the largest official holder of US debt. Gradually we are getting confirmation that Chinese "posturing" about offloading US debt is all too real.

American political and economic leaders have sounded the alarm for years about the red ink rising in reports on the federal government's fiscal health. But now the problem of mounting national debt is worse than it ever has been before with potentially dire consequences for taxpayers, according to a report by the nonpartisan Peterson-Pew Commission on Budget Reform.

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