Musing on 2012

12 month performance chart from the FT macromap:

Looking ahead to 2012 and 2013, I think that equities and equity-like products will benefit from a lower equity risk premium once the European debt crisis stabilizes. Damodaran calculates it on a monthly basis, and according to his calculations -for which I would give full credit- it finished the year at 6.04% (up from 5.2% at the beginning of the year, but down from a max of 7.64% during the market jitters of the summer).

The improvement in the (attractiviness of) valuations has been supported by a good year for corporate america. With earnings up 16% for the year, and cash flows to investors (dividends and buybacks) yielding 5.9% -significantly higher than the 10y UST yield at 1.87%, but also higher than the 10 year average at 4.72%.

Treasuries had indeed a very good year. With returns above 16% for 2011 there is not much more upside potential. Higher economic growth or higher inflation expectations would drag the prices lower, to yields that would be more aligned with historical measures (like those for the end of 2010, above 3%).

This analysis, in combination with the exploration of the supply and demand prospects in some specific markets that have called my attention recently translantes into some more specific trading ideas:

Longs of early cyclical companies. Including:

- Soft commodities -potash and phosphates. I am an avid reader of Jeremy Grantham's publications; and I think he is right in his call about the increasing scarcity of soil for feeding an ever increasing global population. The “finiteness of natural resources is simply ignored, and pricing is based entirely on short-term supply and demand.

Therefore I like potassium and phosphorus, which are necessary for all life and cannot be artificially manufactured or substituted by other products.

- Hard commodities, especially physical ownership of PGMs (rather than miners) via ETFs. i.e. Palladium and Platinum; and in a second order, Rhodium and Iridium.

- Energy-commodities like Uranium. Again, global energy demand is expected to double in the next two / three decades. Even after Fukushima's disaster, nuclear energy stands as one of the most reliable, cheaper and cleaner sources of energy in todays' world. Demand continues to be strong, outpacing global supply, and the depletion of the Russian nuclear reserves is coming to an end.

For uranium you may understand that the investor community is not interested in ownership of the physical asset -but rather, equity exposure through miners. After a very bad year in 2011 in which the sector was battered by investors, junior miners like Fission and Ur-Energy can yield better results (adjusted for risk, although it is the market who will determine that).

URA is the most popular ETF in the industry. Apparently it was the worse performer ETF in 2011; which was what initially called my attention ...

And lastly, digging a bit into the fundamentals of the companies; I like some metals and mining companies like BHP, automotive companies like Volkswagen, BMW and Hyundai motor; and Korean exporters like Samsung.

As said before, I would open shorts on AAA Sovereign bonds (US, UK, DE, JP). Yields are so low that they can only go high. And if they go lower ... what? At these levels there is not much room for higher bond prices and therefore losses are fairly limited. On the other hand, the downside potential (for the underlying prices, and therefore to make money) is much greater. Besides, since we are experiencing a collateral crunch, these assets are priced at a premium vs fundamentals. If I would have a bigger portfolio, not only I would not hold them, I would short them.

I am also quite bearish about the wind energy industry.

I think that there is still money to be made shorting Gamesa, Acciona, Vestas, EDPR (in this order).

Eq long/short spreads:

Long companies with no dividends, short companies with high dividends (since it seems that are priced at a premium up and above their supposed smaller risk exposure).

Long Hang Seng (from 2H2012), Strait Times, short Dow Jones

Long MXP, EUR, GBP, short JPY

I also like an assymetric bet in precious metals: short gold and silver and long palladium and platinum -physical rather than equities.

Acciona - Sell

Spain:

1. Highly exposed to changes in regulation

a. After elections, the elected government will have to tackle the eur 3bn/year deficit that already amounts to 20bn

2. Exposed to the (wholesale) energy prices

a. Most of its generation capacity is unhedged, ie, top-line exposed to the wholesale price fluctuations

b. Expected GDP contraction due to the economic slowdown and the additional austerity measures to be taken by the new government (defitic has to be reduced from 7ish% currently to under 3% to comply with the European mandate.

c. Expected lower energy consumption as the electricity bill continues to rise to close the tariff deficit (3bn/year, a burden to be shared between consumers and producers –and especially clean tech generators among the latter

3. Higher O&M costs going forward due to older wind farms and worse WT technology (acciona

4. Higher country risk premium yet to be fully incorporated in the discount rate. And getting worse

International

1. Lower world GDP growth to be felt in the infrastructure division

2. Regulatory overhang in the US. Little visibility over the extension of the cash grants and PTCs

3. Energy prices in a long-term downward trend, as fracking continues to expand and a higher percentage of the energy generation and consumption is switched towards natural gas.

Capital Structure

1. Despite high leverage (Net Debt/EBITDA over 5x), management initiated share buy-back programme during the last quarter (1.5mn shares at c.66 eur/share for 100mn)

… a price above our fair value / target price

The outlook on Spain and the US, in both regulation and energy prices is negative. In Spain, the PP has not yet disclosed what will be the Energy Policy going forward, but most likely it will take a less benign approach to the renewable energies sector than the incumbent socialist government.

The conservative party has always had a penchant towards lower costs of generation and lower energy bills rather than to subsidy and increased generation share of the clean energies. Several articles appeared in the Spanish press (eg.: expansion / libertad digital) in the latter months have called attention to the dramatic increase in the costs of generation caused by the subsidies to the renewable energies, and how they have destroyed c. 2.2x more jobs than created, due to the industrial sector sensitivity to higher energy costs.

Furthermore, J.M. Entrecanales, CEO and Chairman of Acciona is a close friend of the Prime Minister Rodriguez Zapatero. This does not auspicious a more lenient regulation framework if the government changes, given that Acciona is the biggest national wind farm developer, with a different tariff regime from that of other peers (like EDPR), operating in a market that currently has 3bn euro deficit p.a., already amounting to eur. 20bn.

All these factors call for prudence in relation to the future tariffs in Spain. Besides, the upside potential embedded in the current tariff structure won’t be triggered. As energy prices in Spain won’t reach the level at which pool prices (market price+premium) will become more attractive than the current tariff. The gap stands currently at 7? eur/MWh, and the required increase in demand to close the gap is simply not there.

Elsewhere, PPAs in the US will also remain depressed in price levels and duration for two factors. First, policy makers continue to favour a strategy of energy independence. Shale gas extraction (known as fracking) has been the method gaining more market share and is indeed lowering the prices of natural gas in America. As a consequence, an increasing proportion of the generation and consumption of energy in the US is switching towards natgas. Second, the subdued economic outlook is dragging down the energy prices and the inflation expectations of the US, the two factors that determine the pricing of the PPAs. The alternative to not signing PPAs is to sell the energy directly in the wholesale market, but this exposes them to the price fluctuations.

Acciona has been investing heavily in wind energy projects with low IRR-WACC margins during the early stages of the development cycle of this technology. So far, a reality check about the growth prospects for wind, in combination with the worsening of the macroeconomic variables have dragged this margin to negative territory, with a spread of c. 140bp. We expect that higher-than-expected O&M costs will increase this spread further.

Furthermore, the company has very poor disclosure within its Energy division. It has only mildly improved the disclosure on its non-generating Energy activities (which include the loss-making WT manufacturing facilities), but overall remains far from sufficient for valuation purposes.

Given the few opportunities to achieve a project specific-IRR above its cost of capital with a comfortable margin, we think that the management strategy going forward will be to increase FCF by reducing CapEx even further. On the other hand, management appears to be comfortable with the current gearing of the firm at xx D/E, for that reason we think that a flattish debt evolution and a gradually declining Debt/EBITDA is the most likely capital structure scenario.

The company could certainly dispose assets above book value realising capital gains, but most of the value that could have been rescued by disposals in the appropriate geographies (mostly Spain) has already been lost, as the market has re-priced the sovereign risk accumulated throughout the last economic and political period, and a government of the PP conservative party seems would be committed to improve the economic stability (which would reduce the cost of capital in the long-term).

In this sense, we also see the political environment in Chile as stable and favourable to investments (as in all the other geographical areas in which Acciona is invested: US, Canada, Mexico, Australia and Poland -infraestructure), and do not find much added value in the disposal programmes carried away in Chile.

Corporate Governance details

Does the company have a combined chair/CEO? Yes

Percent Independent Directors 58.30%

Does the company disclose its corporate governance policies or guidelines? Yes

Do all executive board members own shares after excluding options held? Yes

Is the company currently under investigation for accounting irregularities? No

Do all common or ordinary equity shares have one-share, one-vote, with no restrictions? Yes

Do shareholders have a right to convene an EGM with 10% or less of the shares requesting one? Yes

Do shareowners have a right to act in concert through written communication? No

Potential Dilution from Stock Options Outstanding + Not Yet Granted Under Old or New Plans 0.00%

Is there a single shareholder or shareholder group which controls a majority of the voting power of the company? Yes

Has the company adopted a shareholder rights plan ("poison pill")? No

A random walk down Wall Street

... is probably one of the very best books about financial markets for non-professionals.

In combination with Security Analyis / Intelligent Investor, the 'novice' investor could already assemble a good understanding of the investment tradeoffs, and pick up some strategies to beat the markets.lol. Summarizing:

• There is a premium for bearing risk in the financial markets: the return on holding risky assets has been higher than the risk-free rate of return.
  E.g.: Good quality corporate bonds and equities have generally beaten the cash / T-Bond investor. We should take advantage of it: buy and hold a portfolio including bonds and equities.
  Tip suggested: Do not spend much time researching the market. You'd rather buy the same amount of money at regular intervals of time regardless of the market conditions.
  
  
• Buy value, i.e.: good quality stocks with stable cash flow. "Buy stock in a company that is so good that even an idiot can run it, because sooner or later one will... Warren Buffett. Hilarious, and quite applicable to the TBTF companies (50% due to idiots misalignment of incentives, 50% due to the complexity of the task).
  
  
• Be diversified: spread your investments across different investment (sectors) or even asset classes. Including geographical diversification.
  The big franchise firms recommended in the 'value school' pass both tests, as they are truly international E.g.: KO, PG, JNJ, KFT, GSK.
  
  
• When a crisis comes due ... your value shares should cope better than the average market; your cash holdings even better than your 'value' investments; and your T-Bonds may even draw a smile on your face.
  
  In my opinion, if you have been cautious during the greed-driven cycle with a conservative portfolio, you could and should take advantage of the soundness of it during panic moments: that's the opportunity to bear higher risk aiming significant returns rotating your portfolio towards riskier assets (such as, for example, stocks that are more sensitive to the business cycle (luxury, automotive, discretionary goods in grl.), and/or index investing across the world -e.g.: SP500, HK, Singapore, South Korea, India, Brazil- and maybe even better if they are denominated in their own emerging currencies.
  
  In the 'flight to quality' movement, emerging markets assets will suffer a double slap on their face: capital losses (market prices drop), and currency depreciation.

note: the last bullet point is more about my investing philosophy than about malkiel/buffett/graham's ideas.

note II: if bonds and stocks are expensive (which should happen half of the time:), then do not buy so much in securities, and hold more cash (long volatility strategy:), which gives you the real option to benefit of the market jitters.

See chart below about the real return of cash, bonds and equities during the 70's.

Financial Mkts, where we are? and where we are going?

... only Bernanke knows

In an environment of (high to) low interest rates, growth companies (valuations) rise.

In an environment of (low to) high interest rates, growth companies decline.

In the current market situation, I think Bonds are poised to a significant fall in the med / long term. Thus, I like value companies more than growth companies.

Favourites among them: big franchise companies who have maintained a good operating margin through time (are price settlers), and have little debt: KO, JNJ, PG, MCD, MRK ...

VALUATION MODELS (PE / EVtoEBITDA / RIM)

PE is the most popular ratio. It is a measure of the price paid for a share relative to the annual net income earned by the firm per share.

It depends on:

- Growth (expected EPS g)

- Risk (Ke)

- Payout ratio (assuming constant growth, therefore ROE)

10y PE used by R. Schiller
Normalized PE used by J. Grantham: Calculate normalized earnings by multiplying a normalized profit margin (avg is 5.5%) by current P/S of the share / index. Apply the PE multiple (from 1900 to 2005, arithmetic avg 14, geometric avg 16)

Normalized PE for the SP500:

Calculate normalized earnings by multiplying a normalized profit margin by sales per share, assume 6% profit growth for the next 20 years – which is the long-term growth rate for earnings – apply a multiple of 15x – which is the long-term average PE of the market – then discount this 20-year expected S&P 500 target back to the present to calculate the expected capital gain. Then add the current dividend yield to get my total expected return. Currently, this model is forecasting a total return to equities over the next 20 years of 6.7%, well below the long-term average of 10%.

Enterprise Multiple (EV/EBITDA) looks at the cash flows before interest expenses.

It is very used by professionals (e.g. LBOs, MBOs, PE), because they could buy the outstanding equity and debt to change the leverage of the firm, and extract more value if possible.

It also leads to lower multiples' values (which is good, looks more attractive to buyers lol:)

RIM ...

would be the perfect valuation measure. Very appealing intellectually.

Takes into consideration the opportunity cost for the shareholders and examines whether the company created value up and above the broad market risk/return trade-off.

Current Valuation by Forward PE:

1. Calculate normalized earnings by multiplying a normalized profit margin by sales per share (P/S)
2. Assume 6% profit growth for the next 20 years – which is the long-term growth rate for earnings
3. Apply a multiple of 15x – which is the long-term average PE of the market
4. Discount this 20-year expected S&P 500 target back to the present to calculate the expected capital gain.
5. Add the current dividend yield to get the total expected return.

... currently, this model is forecasting a total return to equities over the next 20 years of 6.xx%, well below the long-term average of 10%. For how long Bernanke may sustain the house of cards (wealth effect among US consumers) ??

Jeremy Grantham on Asset Management

On the importance of Asset Allocation:

…That incredible discrepancy…says the main event in investing should be getting the big picture right. It’s nice to pick stocks, but how many good stocks do you have to pick in a whole portfolio to equal that incredible move between the biggest asset class in the world, US equities, and the third or fourth biggest asset class, emerging markets? It’s these movements between the big asset classes that make you money.

On his current view of blue chips as the best investing opportunity at the moment given the general over-valuation of bonds and equities.

Being (still) British, this is likely to be my nth opportunity to show a stiff upper lip. There is, though, one quite friendly influence lurking around that may help us lovers of quality stocks. They are getting so cheap relative to the market that a wider range of buyers is finally noticing them. In the third quarter, in a market up a significant 12%, quality stocks held the market. To say the least, this has not been the law of nature recently: for the past eight years, quality stocks usually won in down quarters and usually lost badly in extreme up quarters.

On his current view on emerging markets

Everyone and his dog are now overweight emerging equities, and most stated intentions are to go higher and higher. Emerging markets are admittedly fully priced, but they still sell at a decent discount to the 75% of the S&P 500 that are not quality stocks – a particularly strange quirk in a strange market. With their high commodity exposure, their strong finances, and their strong GDP growth especially, I believe that they will sell at a premium to the S&P, perhaps a big one.

Choosing a broker

... choosing one is not an easy task. It seems there is no good broker in this world.
After struggling to find rankings and reviews of brokers that met my requirements (which included good price-low comission fees & broad portfolio of products, leaving aside the a chart station) I came up with a final list of candidates, which are:

• FXCM
• MB Trading
• TradeStation, and
• Interactive Brokers.

These were the sources of information I found more valuable:

• Global Finance at GFMAG.com - Awards: World’s Best Foreign Exchange Providers
• Reviews at ForexPeaceArmy.com
• ranking - Barrons
• ranking - TickerPedia ?? ... I know, they are nobody, furthermore some of their scales are inverted some other not. I would't even bet they reverse those before getting the final score.

... and the winner is:

• Interactive Brokers.

So I'll switch from my current Spanish discount broker (interdin) to IB during July 2010.
I'll post my trades here; which hopefully will reduce the number of stupid decision I'll make, and who knows... we may even make mone:y!

Other options evaluated were:

- FXall.com and 360 Trading Networks.

FXall

360T Trading Networks

Spain vs Euro

... Zapatero: "ya se esta notando la recuperacion"

Standard & Poor's baja la calificacion de "AA+" a "AA"

la rebaja de la calificacion de la deuda estaba anunciada, pero lo que me parece que va a traer juego, es que la mayor parte de la deuda espanyola es a corto plazo. Desde un punto de vista empresario-gubernamental, tenian que haber aprovechado estos meses atras que el mercado estaba valiente para emitir deuda a LARGO PLAZO!

...y endosarla a unos niveles de riesgo que todavia eran aceptables.

Ahora cuando quieran hacer roll-over de la deuda que tienen, va a salir mucho mas caro. Lo cual es malo para las finanzas del gobierno (que somos todos).

Pero mirando un pasito mas alla... igual nos vendra bien que la barra libre se haya acabado. Esa mayor dificultad para el gobierno de endeudarse, es el toque de atencion de los mercados financieros que necesitamos los espanyoles para pararle el carro al gobierno inconsciente y derrochador que tenemos.

Con el euro tenemos juego para rato ... (lease las tensiones entre la competitividad de alemania y holanda vs PIGS al jugar todos con una misma moneda.

Yo creo que o se toman decisiones muy serias (y creo que la talla de los politicos no es tanta) o al final estamos condenados al fracaso. O bien deshacer el euro y volver a nacer con peseta, o sufrir un "periodo correctivo" de ... diez, veinte ... treinta? anyos. Hasta que tengamos un presi con lo que se tiene que tener, que baje la deuda a cero, y despues los impuestos a las empresas (y volver a empezar aqui tambien:)

saludos!

Pairs-Trading Strategies

Stock market strategies based on pairs trading have lower volatility. Since we're shorting one stock/indice and buying another. This is my recipe-list for such kind of trades:

- Market Size
Bigger companies will probably react sooner to general market information / events than smaller ones. e.g.: Repsol and Cepsa plummeted at different stages of the '08 crisis. chart

Emerging markets are more prone to suffer booms than developed ones (bk they are smaller, and more vulnerable to ... investors' sentiment, money supply, ...

- Macro / Politicians :) Controversial issue
But in my opinion, libertarian / conservative parties will do better for the economy in the long term than socialist parties at government (provided that they fit to the "clasification given" and act and govern guided by such ideas. e.g.: Spain before and after the socialist party got the government at '04. Trade: long DAX, short IBEX, FTSE. chart

In the States the difference is not that big, as republicans may be more prone to run war's deficits (Bush), and democrats to do good at economics (Clinton's reduction of debt), and the FED can play an important role on the stockmarkets (thru interest rates, SEC thru buying stocks ... everything is possible)

- Board of Directors

As Mr. Damodaran asks, Do they work for the investor? or for the CEO? Take a look at the funny board of Disney in '97.

Corporate governance principles include: board independence and leadership, board and executive compensation, audit integrity, corporate responsability, shareowner rights, emerging market principles ...

There are some rankings out there: good information to trade (with care)

- CEOs' Empire building aspirations

Acquiring other companies that do not provide particular synergies, overpaying...

The market is generally wise in its reaction. But in my opinion, most of the time underreacts (those CEO's are not going to stop till they ruin the company. e.g.: Jean-Marie Messier as CEO of Vivendi since '96.

As a former investment banker ... he was capable of much more than running a simple water-utility company, wasn't he??

His hubris drove him to turn the company into a Media Giant
In 2001, losses of 13 billions of euro.

2002: losses of 23.6 billion. French loss record

... eventually the "giant" wasn't that big: he had to sell the Veolia, the water business, Vinci, and some other acquisitions (Universal Studio / NBC Universal, from Seagram Universal, where he paid a 20% premium. British Sky broadcasting: UK's largest pay TV provider. American Nerworks ($10 billion).

Another illustrative example in the Spanish energy sector:
Gas Natural took over Endesa (a much bigger company) for political motivations.

Prior to that, a bidding war had started between E.ON (Germany) and Enel (Italy) driving the bidding price above intrinsic value.
Iberdrola, EON and Enel have done much better than Gas Natural has. chart.

- Economic links between companies
Companies in one sector usually underreact to profit warnings of linked companies. Especially when the links are not obvious. In the article by L Cohen, A Frazzini - Journal of Finance, 2008, it is showed an example about two golf companies: Coastcast is a manufacturer of golf sticks, and Callaway Golf Corp. is its main client, a golf retailer. The latter announced a dramatic profit warning, dropped 30% in the market (efficiency OK), ... while the former kept trading around its price range (as if nothing had happened -efficiency KO-.

... eventually the gap was closed.

--

To bear in mind the risk of these strategies.
Although market exposition can be reduced, leveraged is frequently over?used in these strategies, and history brings valuable examples: LTCM (biggest hedge fund, which had to be rescued by the SEC), Orange County (the biggest municipal bankruptcy @US), etc.

Value Investing

The three factor model to explain most of the differences in financial markets returns:

1. The premium return of the stock market when compared to riskless assets.Sharpe's Beta.
2. The premium return of small capitalization stocks over large cap stocks.Fama's size effect.
3. The premium return of value stocks over growth stocks.Fama's value effect.
... I don't think the momentum factor is at the same level.

The performance of the stock markets exceeded those of Bonds, T-Bills, Gold and Dollar.
(Siegel's "Stocks for the long run"). But we should also bear in mind certain factors:

1. Take the market's geometric return (not the arithmetic return.

2. Consider the survivorship bias: Siegel only considers the best market in the best century of the history. But Argentina was as wealthy as the US a century ago. Austrians lost all their money at the mid-century. Japan will have to wait some generations to see the 40,000 back, ...
So, to bear in mind: companies do fail (while S&P500 do not consider those), some currencies lose value, and markets / economies sometimes get exhausted for some generations.

Stock returns in developed countries - markets, have outperformed those in emerging countries, with an astonishing Sharpe ratio difference.

The average return of small (and medium) companies outgoes the average return of the big companies both in developed and emerging countries (Fama's size effect).

Relative price is often measured by a firm's book-to-market ratio (BtM). When stocks are ranked by relative price, high BtM (or "value") stocks tend to have higher average returns than low BtM (or "growth") stocks. This is known as the relative-price or value effect.

Active management is encouraged to rely on settled rules. My favorite guide is the 50 day Nasdaq moving average. On the other hand, passive management stands on solid theoretical grounds, has enormous empirical support, and works very well for investors.

Regarding the composition of the portfolio:
Between 5 and 15 different stocks provide enough diversification for a personal portfolio.
(although some behaviorist may call this "the rule of five", ... a rule of thumb that only leads to underperformance)

In that sense, a good long run strategy to apply could be:
% of our portfolio invested in the stock markets = 100 - our age.

A book that should be re read more frequently...
"The intelligent investor" by Graham,

From his best student, W. Buffet, we should learn that a continued and periodically buy, in the stock market, is not only more easy and relaxed than the timming and stock picking strategies, but it will generally provide better results (80% of the Funds fail to match market returns).

And regarding the company's management:
Natural, organic growth for a company is better than the M&A growth.
(stock markets reflect it very well, and the reason the second is so much practiced is mostly because the CEOs looking for perks (i.e. empire building).

Repurchase of its own shares on the market is a better way for the company to pay their shareholders than providing dividends (because by doing that, we are going to suffer double taxation: company's + shareholder's). I think most mutual funds do not suffer the double taxation though. Furthermore it is well documented that senior investors, who are already retired, do prefer not to sell capital (stocks) and perceive the dividends as a rent.

Pairs-Trading Strategies @ personal portoflio

I have made some changes recently in my portfolio because I think we have to be prepared for uncertainty in the financial markets.

As a consequence of that, my strategy is almost market neutral.
These are my positions (for a 1700 eur power purchase) :

POP.MC - 600 @ 6.75 e
ACX.MC - 270 @ 14.11 e
MT + 123 @ 24.7 e
NOK + 400 @ 9.13 e

portfolio
--
I think Arcelor Mittal will outperform Acerinox. The last one have not dropped so much during the downturn in the financial markets, and that is just because it has fewer liquidity / # trades.

Secondly, Nokia makes good cellphones (Does Customer Satisfaction Translate to Excess Stock Returns?, the sector´s outlook is bright and the shares have underperformed the market and its sector recently. Certainly it is a risky proposition, since we do not know when the company will pick up again. But .... I like this moment to buy the stock, I think it may have been over-sold.

On the other hand, the Spanish bank, Popular will suffer from spain's PM.
Zapatero and his socialist ideas are not the best macro strategies to deal with the current recession. So the levered position of the bank in the spanish housing market has gloomy perspectives unless BIG! changes in public policy take place -diminishing the taxes, subsidies, government power, government cars, travels, # wages ... it is just not gonna happen.

Asset Allocation for personal portfolio

What if we had $100K to invest today for our own account? ... empirical simulation

The first thing we should do, is to establish the risk adversity we want.
Tough that is a personal decision, there is a pretty simple guide to do that:

% RISKY ASSETS = 100 – AGE (years).
… Bonds, T-bills and gold are good low-risk assets.

Since I am a follower of the Austrian School of economics, I find gold quite appealing, furthermore in such market (and policitcal) conditions.
But I think that a 10% allocation is in the highest range of alternatives. More than that is not an option: gold doesn't produce anything.

So … If we were 40 years old, we’ll end up with this proportions:
Risky assets: $60 000
Bonds / T-bills: $ 30 000
Gold: $ 10 000 (preferably in spot, rather than in financial products. Otherwise... we never know whether we will have it when it is more needed)

- RISKY ASSETS [leveraged]:
- Currencies: $ 20 000
aud.usd - 0
cad.usd - 28 (buy, wait)
chf.usd - 27 (BUY)
eur.usd - 18 (buy, wait)
gbp.usd - (neutral)
jpy.usd - 25 (inverted) (SELL if it is around 1/103 - BUY if it is around 103)
... so as June 19th, we start a position: CHF/JPY (at around: 89)

- Stock markets: $ 40 000
Hedge strategies: $ 20 000 [$ 100 000] : mt.acx / acn.ibm? / gas.oil /
Moving averages crossovers: $ 5 000 [x]
New maximums - New minimums hedged system: $ 5 000 [x]
MACD R2: $ 5 000 [x]
Seasonal trading opportunities: $ 5 000 [x] (1st month) / Options / Volatility / Option wRiting strategies (risks) ...