Tactical asset allocation research

With the topic of presidential elections being an active topic in the news, I thought that you would be interested in some research conducted by Professor of Finance and Insurance Emery Trahan from Northeastern University College of Business Administration on Tactical asset allocation and presidential elections. Below is an abstract and an introduction from the research piece.

Over the past 75 years, common stocks performed better under Democrats, while U.S. government bonds and Treasury (T) bills performed better under Republicans. Using a mean-variance framework, we find that Democrats provide better risk-reward opportunities for portfolios weighted toward stocks, while Republicans provide better tradeoffs for portfolios weighted toward government bonds and T-bills. More recently, Republicans provide better portfolio opportunities than Democrats for a bond-stock allocation range typical of diversified investors. Moreover, when segmenting the value stock (style) premium by political party, we find that Republicans provide better risk-reward tradeoffs than Democrats for portfolios of value stocks, bonds, and bills.

The issue of tactical asset allocation (TAA) around calendar events, such as U.S. presidential
elections, is a controversial one for investors.1 At the heart of the matter is whether
or not the capital market is efficient in the sense that security prices fully reflect the
information content of known events. If so, then calendar events, such as presidential
elections, are irrelevant to current investment decision making because security prices
already reflect the information content of any perceived patterns or cyclicality. Conversely,
if investors evaluate the investment consequences of calendar events in a somewhat inefficient
market, or if the outcomes of presidential elections impact the returns on various asset
classes, then a series of questions emerge that are relevant to tactical investing.
Applied to U.S. presidential elections, a prominent four-year calendar event, these active
investing questions are as follows: Are asset prices impacted by a four-year presidential
election cycle? If so, what are the effects on different asset classes (stocks, bonds, bills, etc.)
according to the political party elected into office? More important, as presidential elections
come and go, should investors depart from their long-term or strategic asset allocation to
pursue a TAA posture?

Our initial focus is on whether asset returns vary by the political party in office. If asset prices
are related to presidential elections, then investors will want to consider information pertaining to election outcomes in making asset allocation decisions. Tactical investing around a four-year
election calendar would hold the possibility of earning superior returns (alpha). Anecdotal
evidence suggests that many investors follow expected election outcomes closely.

Bear Stearns arrests give a face to crisis

The arrests of two former Wall Street investment fund managers gave the nation a pair of alleged villains in the subprime mortgage crisis.

With their arrest Thursday on a nine-count indictment, two former investment fund managers for banking titan Bear Stearns are now the public face of the nation's mortgage finance meltdown.

The U.S. Attorney's Office in Brooklyn brought the securities and wire fraud charges against Ralph Cioffi, 52, and Matthew Tannin, 46, respectively the founder of two Bear Stearns hedge funds for ultra-wealthy investors and the funds' manager. The two were also charged with conspiracy, and the Securities and Exchange Commission brought civil charges against the pair Thursday.

The indictment alleges that the two deceived investors into believing the hedge funds, which held special mortgage bonds that were backed with now-toxic subprime home loans, were healthy when they knew clearly they were not. The end result was that well-heeled investors like the one described in the indictment, Major Investor 1, collectively lost more than $1.5 billion.

Despite that assessment, the pair allegedly told investors the market downturn was an ''awesome opportunity'' to buy, when in fact Cioffi transferred $2 million of his own money out of the fund, allegedly without disclosing that to investors who believed the pair had their own money at stake, too.

''The Bear Stearns indictments present a remarkable trail of e-mails regarding what the Bear Stearns managers knew, when they knew it, and what they told investors. The tale the alleged emails tell, if true, should make an investor's blood run cold,'' Kurt Eggert, a law professor at Chapman University in Orange, Calif., said in a written analysis of Thursday's indictment.

If you would like to read this entire story, please visit http://www.paradigmshiftpr.com/media/placements/bearsternsarrests.htm

JustLuxe Partners With RedButler

JustLuxe.com, an online publication focused on the luxury market, has teamed with Red Butler, the global concierge company. The publication will deliver content directly to Red Butler members via the "Luxury Lounge" on RedButler.com. "This is a valuable step in expanding our brand by establishing strategic content partnerships with Red Butler and other leading companies in various segments of the luxury market," said Gilbert Gautereaux, president of LuxeMont, JustLuxe.com's parent company. "I hope their sophisticated global audience enjoys our content, and we look forward to introducing Red Butler to our business and consumer audience in the future." --Tanya Irwin

United cuts deal to lower expenses

Continental partnership also aims to benefit fliers

United Airlines and Continental Airlines will link their flights and mileage reward programs together as part of a broader partnership meant to combat steep fuel prices.

The airlines, which announced the deal Thursday, say the move will help them lower expenses, boost revenue and provide their customers with more flight options.

The agreement will "redefine the industry by going forward in a way that is beneficial for our airlines, employees, shareholders, customers and the communities we serve," Glenn Tilton, United's chief executive officer, said in a recorded message to employees.

By connecting passengers to each other's flights, United and Continental could help blunt the impact of those capacity cuts. But some observers question how much it will bolster the financial health of the two airlines.

"This could help (revenues), but it is not going to do much for their costs," said Harlan Platt, a turnaround specialist and finance professor at Northeastern University in Boston. "To achieve real cost savings will require more than an alliance. My opinion is that this is a logical first step on the way to an ultimate merger between the airlines."

If you would like to read this entire article, please visit: http://www.paradigmshiftpr.com/media/placements/unitedlowersexpenses.htm

Advance look at chapter on Russian MNEs

I thought you might be interested in seeing an advanced copy of a chapter on Russian multinationals written by two business school professors from the College of Business Administration at Northeastern University who are expert on Eastern European economics in general and Russia in particular. The proposed book title (scheduled to come out in late 2008) is Emerging Multinationals from Emerging Economies. Below is the introduction to the chapter entitled Russian Multinationals: Natural Resource Champions, written by Daniel J. McCarthy and Sheila M. Puffer. Profs. McCarthy’s and Puffer’s bios appear after the introduction, which is provided below. Please let me know if you’d be interested in seeing the entire chapter, or interviewing the professors on any of their ideas.

INTRODUCTION
Of the 63,000 multinational corporations in the world in 2006 (Lodge & Wilson, 2006), a relatively small, but increasingly visible number were from Russia. This was despite the country having ranked only 62nd out of 125 countries on the 2006-07 Global Competitiveness Index (World Economic Forum, 2006). Russia’s ranking fell from 53rd in 2005 due in large part to the increasingly pervasive role of the state in the economy. Still, the importance of these large multinationals is underscored by the fact that small and medium-sized enterprises in Russia accounted for only 12 percent of the country’s GDP in 2006 (Fallico, 2007). The future competitiveness of MNEs, however, will depend substantially on continued positive developments in the Russian economy in which they play so important a part. And it is clear that their competitiveness will also be determined in large part by the role the government plays in the economy.

The chapter begins with an overview of the Russian economy, including benefits as well as dangers like the Dutch disease, of its energy-driven character. The role and priorities of the Russian government in the economy are then discussed, including government ownership of key MNEs during the Putin administration. The next section traces the rise of Russian MNEs as well as the industries in which they operate. Corporate growth strategies for building international presence are the focus of the next section, which includes not only MNEs’ competitive strategies, but also how successful firms overcame late-entry challenges, the competitive advantages they possess, and obstacles to their development emanating from the national context in which they operate. This section is followed by one that discusses the sustainability of that presence. How the rise of these MNEs has changed global dynamics is the next topic addressed. The chapter concludes with implications for various parties of the entrance of Russian MNEs into the global economy.

IMPLICATIONS – The end of the chapter outlines implications of Russian multinationals’ global strategies on the following:

· Emerging Market Firms
· Western/Japanese MNEs
o Natural Resource-reliant MNEs
o Natural Resource-based MNEs
o Nonnatural Resource-based MNEs
· Russian Public Policy Makers

Daniel J. McCarthy, Alan S. McKim and Richard A. D'Amore Distinguished Professor of Global Management and Innovation, Entrepreneurship and Innovation Group. Professor McCarthy is cofounder and codirector of Northeastern’s highly ranked High-Technology MBA program. He has been a member of the editorial board of The Academy of Management Executive, and has more than 80 publications, including four editions of Business Policy and Strategy, as well as Business and Management in Russia, The Russian Capitalist Experiment, and the recently published Corporate Governance in Russia. Professor McCarthy is the lead director of Clean Harbors, Inc., and has consulted in the US and Europe for more than 40 companies. Early in his career, he was president and cofounder of Computer Environments Corporation and served as a director on its board, as well as the board of its sister company, Time Share Corporation, and other private company and nonprofit boards. Professor McCarthy holds AB and MBA degrees from Dartmouth College and a DBA from Harvard University. He is a Fellow at the Davis Center for Russian Studies at Harvard University. Professor McCarthy ranks as the #1 most published author (tied) in the Journal of World Business from 1993-2003, and has been identified as one of the top 5% of researchers in international business in a Michigan State University study of publications in the top international business journals from 1996-2005. He is also one of the top three scholars internationally in business and management in Russia and Central and Eastern Europe, based on a Journal of International Business Studies article analyzing publications in 13 leading journals from 1986-2003.

Sheila M. Puffer, Professor, International Business and Strategy Group. Professor Puffer is a fellow at the Davis Center for Russian Studies at Harvard University, and recently served as program director of the Gorbachev Foundation of North America. She has been recognized as the #1 scholar internationally in business and management in Russia, the former Soviet Union, and Eastern Europe according to a 2005 Journal of International Business Studies article analyzing publications in 13 leading academic journals from 1986-2003. Professor Puffer also ranks as the #1 most published author (tied) in the Journal of World Business from 1993-2003. She has been identified as one of the top 5% of researchers in international business in a Michigan State University study of publications in the top international business journals from 1996-2005. She was also ranked among the top 100 authors who published in Administrative Science Quarterly from 1981-2001. Professor Puffer has more than 125 publications, including over 50 refereed articles and 11 books including Behind the Factory Walls: Decision Making in Soviet and US Enterprises, The Russian Management Revolution, Managerial Insights From Literature, Management International, Business and Management in Russia, The Russian Capitalist Experiment, International Management: Insights From Fiction and Practice, and Corporate Governance in Russia. She served as the editor of The Academy of Management Executive as well as a member of the Academy’s Board of Governors from 1999-2002. She worked for six years as an administrator in the Government of Canada and has consulted for a number of private and nonprofit organizations. Professor Puffer earned a degree from the executive management program at the Plekhanov Institute of the National Economy in Moscow, and holds BA (Slavic Studies) and MBA degrees from the University of Ottawa, Canada, and a Ph.D. in business administration from the University of California, Berkeley.

Thoughts on Pepsi Acquisition of Aquafina

With Pepsi’s recent announcement that their popular Aquafina water brand comes from tap water, I thought I would share some additional thoughts from Gloria Barczak, Professor of Marketing and head of the marketing department at Northeastern University’s College of Business Administration:

“Many consumers already know that Aquifina and Dasani are purified water from public sources. For those that don't know this fact, they may be turned off from future purchases of these brands now that they know the truth. There are some consumers who never buy such brands; opting instead for spring water.”

“Overall, I think the impact of clarifying the source of the water will be minimal either way. Consumers buy bottled water for two primary reasons: convenience and concern about public water with the former being the more important motivator.”

2 Wall Street execs first to face charges for sub-prime chaos

WASHINGTON — With their arrest Thursday on a nine-count indictment, two former investment fund managers for banking titan Bear Stearns are now the public face of the nation's mortgage finance meltdown.

FBI agents made the first high-level arrests of Wall Street executives in connection with the nation's sub-prime meltdown, parading the handcuffed fund managers in front of cameras as the sun came up over Manhattan.

Despite that assessment, the pair allegedly told investors the market downturn was an "awesome opportunity" to buy, when in fact Cioffi transferred $2 million of his own money out of the fund, allegedly without disclosing that to investors who believed the pair had their own money at stake, too.

"The Bear Stearns indictments present a remarkable trail of emails regarding what the Bear Stearns managers knew, when they knew it, and what they told investors. The tale the alleged emails tell, if true, should make an investor's blood run cold," Kurt Eggert, a law professor at Chapman University in Orange, Calif., said in a written analysis of Thursday's indictment.

Although the case involves rich investors losing big sums, it has a great importance for ordinary Americans. It's a milepost in an unfolding national saga.

If you would like to read this entire story, please visit: http://www.paradigmshiftpr.com/media/placements/twowallstexecs.htm