Boosted Equity Allocations Slightly

Given today's sharp worldwide equity selloff and a slightly lower probability of emerging economy collapses (due to chatter about an IMF plan to consider loans up to 5 times quotas to emerging economies), we're slightly boosting our allocation to U.S. and emerging market equities.

We're still underweight -- at only about 2/3 of our target U.S. Equities allocation, and at a mere 1/7 of our target emerging market equities allocations -- because we think the IMF probably can't head off the crisis we're anticipating. Recall, we've been waiting for widespread emerging economic collapses before raising our equity exposure to our "policy allocation." But IMF flexibility could buy the world more time to re-balance the accumulated "global imbalances" in leverage, currencies and current accounts.

A bit more background: In addition to above-mentioned imbalances, discussed at length here, emerging markets are seeing capital flight to the developed markets, which the U.S. has afforded access to vast quantities of dollars, and where governments have been quicker to announce bigger bailout plans. Global capital flight is taking out the weakest link in the global financial chain ..... currently, the weakest link is emerging markets; if this link is strengthened by the IMF and other efforts, capital flight will probably find another weak link in the global finance chain. So we're not turning bullish, but are instead preparing to be fully-weighted in equities closer to an ultimate market bottom, which we won't be able to time perfectly.