A month ago, we warned that despite markets having been calmer in February, it was too early to sound the all clear: as we put it, it seemed to us that 'dangers were still lurking below the surface'. Now, with the US's fifth largest investment bank having gone to the wall - or, at least, being in its death throes - it is clear that the turmoil in financial markets has not just claimed another victim, and this time one on a scale that not only makes even the Northern Rock debacle look like child's play, but that this event strikes to the heart of the financial system itself - threatening a much greater hit to confidence and thus to the global economy at large than anything hitherto.

Having been overly optimistic about the prospects of the US economy avoiding recession, both when we first published Signpost last September and in our 'Skating on Thin Ice' annual edition in December, it now seems like a good time to ask if this increased downside skew warrants us shifting our assessment in a fundamental way - especially when our overly-optimistic macro views also led us to adopt a pro-equity stance in our strategic asset allocation last September (and again one that we have held throughout the past six months to our cost: our 5% overweight of equities versus bonds has cost us nearly 60 basis points to date compared with a neutral asset allocation.