|  NOV 1995

Are Managed Futures the Future? by Victor Sperandeo

Are Managed Futures The Future? by Victor Sperandeo This well-known money manager believes that managed futures should be a part of your portfolio. Here's why. Very little can drastically alter the economy and financial markets more than a change in monetary or fiscal policy; no better modern example of this can be found than in the activities of the early 1980s. At the time, government bonds were yielding 15%, and anyone holding a note or bond for a year or more had a real loss. Sentiment had virtually all the popular forecasters long-term bearish on bonds. What finally ended this 30-year downtrend on bonds? A hint could be gleaned from a simple interview. On a Sunday, in mid-1982, James Baker was interviewed on the television show Face The Nation. He was asked how the Reagan administration's policy could finance large increases in defense spending and massive tax cuts without incurring inflation. He answered matter-of-factly, ""We can borrow it."" With such a prevailing attitude among policy makers, it was clear that investors, not traders, would be the main beneficiaries of this policy shift. The Keynesian (fine-tuning) monetary policies, in effect since World War II, were the reasons for the inflationary cyclical movements in the economy. This inflationary bias escalated with the Vietnam War and accelerated with the Organization of Petroleum Exporting Countries (OPEC) oil price increases, causing Fed policy to become abusive. The Fed lowered interest rates and purchased government debt in excessive quantities, a strategy that climaxed in 1980. The Reagan policy substituted borrowed money for printing money, leading to disinflation. Expectations of higher prices, as witnessed in the 1970s, would dwindle. Following this reasoning, the Fed need not tighten credit or raise interest rates to the same degree as during the 1970s and would extend the duration of economic recoveries.

by Victor Sperandeo