Asset Allocation: Financials Blow Past the Broad Market
- Jun 27
- 4 min read
Updated: 3 days ago
June 27, 2025 | Premium Service | In this issue of The Institutional Risk Analyst, we return to some past themes and ponder asset allocation in 2H 2025. One of they key themes we identified in pass missives is the tendency for both stocks and bonds to climb the proverbial wall of worry. As of Friday’s opening, equity benchmarks are touching record levels and the 10-year Treasury was back down to 4.25% yield, as we predicted. And yes, despite dire predictions, the dollar remains the default currency for global markets.
“I think the dollar is still the number one safe haven currency, and I don't think it's -- you know, I would say these narratives of decline are premature and a bit overdone,” Fed Chairman Jerome Powell told the House Financial Services Committee this week. The problem is not that the other nations of the world will stop using the dollar as a means of exchange and finance, or a reserve asset. The problem is that the other nations of the world have no reason not to make free use of the global dollar.
The global role of the dollar as a "reserve currency" is an anomaly, the byproduct of two world wars that left all of the antagonists broke by the time of the Bretton Woods Agreement in July 1944. Choosing the fiat paper dollar as the default global reserve currency 80 years ago reflected the fact that America was the victor and possessed a viable currency – and a nuclear arsenal – that gave Washington unchallenged economic leadership for half a century.
Now the world is slowly migrating to a multilateral currency structure with gold and other precious metals serving as an independent reserve asset and store of value, as was the case before the First World War. What global currency will replace the fiat paper dollar? None. As this article is written, gold is now the second largest reserve asset for central banks after the dollar.
“The initiation in 2002 of the Shanghai Gold Exchange (SGE) was of great strategic significance, both for gold and the global monetary system,” notes veteran gold fund manager Henry Smyth in an interview in The Institutional Risk Analyst. “Now it is completely clear what happened.”
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