A.I.M. Users Bulletin Board

[ls7550]

Hi Nick.

The transition to some acceptance of gold for me was when Gilts moved and continue to remain paying negative real yields. Bad enough already to lend to 'someone' who can set interest rates and revise policies etc. The conclusion I came to was that a barbell of 50/50 stocks/gold served as a form of central global unhedged bond bullet Yes more volatile year to year, but broadly fits.

The Talmud choice also sat well with me. Third each in Pounds, Dollars and Gold (global currency). With Pounds invested in a home, Dollars in stocks. For other reasons small cap value had appeal, and in noting the international exposure of the FT250 along with it being very similar to US SCV I opted for that domestic choice instead of holding US stocks. The other mid/longer term risk factor I considered was that of taxation risks. More so with the rise of a Marxist government opposition party. Utilising a 2x FT250 total return swap (2MCL) was brought into focus.

I even wonder about shifting even more into 'physically in hand' assets i.e. ignoring home value and assuming 50/50 stock/gold, then that could be held as 33 2x, 67 gold. The thought train being that compares to 66 stock, 66 gold, 33 borrowed. Pair 17 stock with 17 gold as a global bond proxy and that might broadly counter the 34 borrowing cost (as in the 2x stock fund), leaving 50 stock, 50 gold effective exposure. see here

2MCL pays no dividends (its a total return swap). Neither does gold. So if Corbyn/crew opt to punitively tax investment income then that's somewhat immune. Two thirds of liquid in physical in hand assets (gold) can also be buried out of reach. Just 22% of total wealth has counter party risk (2x stock swap), that is liquid (T+3 before the value/money could be FX'd into a less punitive state/region). Whilst as a portfolio historically having done the business at offsetting inflation risk.

Legal tender gold coins are capital gains tax exempt under current rules i.e. no different to not having to pay capital gains on copper penny coins if/when the price of copper surges as it a monetary coin, not a commodity.

I appreciate many many hate gold however and at most might hold very very little just as a extreme event hedge. Asian's seem more accommodating of gold, more often because of histories of punitive taxation/defaults in their domestic currencies/bonds. For times when it is deemed OK to hold cash, less need to hedge political risk, then as 50/50 stock/gold is a more volatile global unhedged bond, you might de-leverage that. i.e. based on the standard deviations in the earlier chart I linked to might be revised down to this Many will think such asset allocations to be mad. Maybe I am :) Portfolio's are all very personal things, but even so many like to 'conform' and fall into somewhat alignment with each other.

Weather has taken a distinct turn for 'cooler' last night up here in the London suburbs (near Wimbledon tennis courts). Have a good weekend.

Clive.