Explanation of Model:
The model, or hypothetical portfolio, was originally conceived on May 24, 2001, but at the time only included four broad asset classes: physical bullion, cash, fixed income, and equities (and only from a long perspective). It was inflexible and we found that it obscured our market calls in some of the commodities, the fiat currencies, and on the short side of the equities markets. Brave souls that we are we decided to make the model more flexible and useful, to the trader in particular. With the introduction of the Daily Outlook in October we found that the old model was even less relevant. Still, changes will not necessarily occur in response to our short-term (daily) outlook unless the move has implications for the medium (intermediate) term. Our hypothetical investor / trader has a big picture outlook and adjusts his portfolio to capture the three to nine month trends that technical analysts refer to generally as intermediate trends. Our thinking is that these are the most important ones to you as well. In each issue of the Global Investment Climate we’ll assess the performance of our distribution, or at least if it so requires.

Take heed, however, that we are neither a registered nor an unregistered advisory service, and that the utility of this model is to reconcile our analysis and highlight conclusions about our outlook for the various asset classes. See DISCLAIMER below. Thus, we are an analytical tool, not an advisory service.

Markets Covered:

•   Currencies: Dollar/Gold, Dollar/Yen, Dollar/Euro, Dollar/Canada, and the Dollar Index
•   Commodities: Silver, Platinum, Palladium, HG Copper, Wheat, Lumber, Light Crude Oil, Natural Gas, Coffee, Cocoa, and maybe Cattle
•   Cash = 30 day T-bill money
•   Fixed Income: US Treasury bonds/notes - 5, 10, and 30 year US Treasuries
•   Equities: S&P500, Dow Industrials, Nasdaq, Nikkei, TSE 300, Euro Top 100 index futures, as well as any of the US stock sectors

When and if we trade our model, we usually do it through forward (futures) contracts for their liquidity, flexibility with respect to being short or long, and stronger correlation with the underlying asset (than options for instance).

Leverage can be managed this way, but there are other risks, which you must absolutely check with your registered stock or bond broker. If you've never traded futures I'd personally recommend a visit to the Chicago Mercantile Website. They offer introductory courses at the following link:

Introduction to Futures (before you trade)

The only assets our hypothetical investor takes a position in, which there are no forward contracts available for, are the stock sectors, such as the XAU, or AMEX oil index, or S&P agricultural products index, etc. In this case it is assumed that the investor can buy or sell the index as if there were futures traded on it. In practice, hedge funds would buy or sell a sector by buying most of its components, at least the ones that weigh heavily in the particular index. Moreover, we do not use stop losses, but recommend discussing with your broker whether it would be appropriate for you to do so.

Other Codes:

• NEGATIVES indicate only that our investor is short something, rather than long. They don't add up mathematically. For example, 30% + -30% = 60% of the portfolio has been allocated. They do not cancel each other out, as if they were simply added or subtracted.
• VALUES are calculated using the price of the asset on the opening or closing trade as reference points.
• The BUGOS GOLD INDEX is an unweighted gold index, which includes an originally equal value allocation in between Newmont, Franco Nevada (replaced by Anglogold in February 2002), Placer Dome (replaced by Goldcorp. July 17, 2002), Agnico Eagle, and Harmony Gold mining, ranked accordingly and with respect to their simple statistical influence on this index.

BGI Gold Index Most Current Composition = NEM + GFI + GOLD + AEM (sold @ US$12) + KGC

Lastly, since the world is on a dollar standard, we see all currencies in those terms. It is professional to say Dollar/Yen rather than "I am trading the yen." The reason is that one can trade the yen against the euro, or pound, or perhaps even the CAD these days. Also, by choosing one standard such as that, we can see that the negatives in the currency category always indicate a short position against the dollar while the positives indicate long positions in the dollar, against whatever we specify.

DISCLAIMER: The Goldenbar Report is not a registered advisory service and does not give investment advice. Our comments are an expression of opinion only and should not be construed in any manner whatsoever as recommendations to buy or sell a stock, option, future, bond, commodity or any other financial instrument at any time. While we believe our statements to be true, they always depend on the reliability of our own credible sources. Of course, we recommend that you consult with a qualified investment advisor, one licensed by appropriate regulatory agencies in your legal jurisdiction, before making any investment decisions, and barring that, we encourage you to confirm the facts on your own before making important investment commitments.