ASSET ALLOCATION MODEL
FOR THE FIRST HALF OF 2004
By Thomas G. Cloud - January 26, 2004

In adjusting our asset allocation model for the first half of 2004, we are making several small changes which should provide you with an opportunity to make a profit in the first six months of the year. The economy will continue to be manipulated by reserves being poured into the economy due to the upcoming November elections. You should expect federal budget deficits to continue to explode. In three short years, we have gone from a surplus to deficits of over $500 billion per year. This fact alone will continue to have a negative impact on the dollar forcing it downward as more bonds and debt instruments are created and sold to keep this economy growing.

The recent intervention by the Bank of Japan is also a factor that will cause short-term manipulation and volatility in the currency markets. However, we believe the dollar will continue its decline that started nearly thirty months ago. It is believed that the selling of the Euro by the Bank of Japan during the most recent week would have helped the dollar especially after the Euro reached an all time high. The Euro did fall about 2.5%, but it now looks poised to return to its all time high against the dollar.

Our aggressive position in precious metals for the second half of 2003 made many of you a very handsome profit. We feel just as strongly that gold which has risen 62% in the past thirty months will once again rise in excess of 10%, possibly closer to 20%, during 2004.

Lastly, we continue to be leery of a potential rise in interest rates. We will therefore keep the fixed income portion of our model at lower than normal levels.

It is critical to remember the strategy set forth in Ecclesiastes 11:2 when making changes and/or when building an asset allocation model. The mandates set forth by God through Solomon calls for us to be good stewards by not having our total focus on investments, but to spread them out among several different categories to minimize any sharp declines in any one particular area.

The second key is building an asset allocation model that will make a profit. To do so, a strategy which uses seven or eight different investments while placing a different percentage into each area based on economic dynamics that are taking place in the various financial markets. At present the major factors that we are watching close include: interest rates, dollar value, economic growth, federal budget deficits, tax cuts, job growth, and consumer confidence. While there are many dynamics to look at economically, these seem to be the most reliable factors when trying to gauge an appropriate asset allocation model. With these indicators in mind, our hypothetical asset allocation model for the first half of 2004 is as follows:

• Stocks (U.S., foreign, and hedge funds only) - 15% to 25%
• Gold Mining Stocks - 5% to 15%
• Fixed Income (bonds and annuities) - 10% to 20%
• Foreign Currency (foreign bonds and physical currency) - 25% to 30%
• Tangible Assets (precious metals, gemstones, rare coins and historical documents) - 15% to 25%
• Cash - 20% to 25%
• Real Estate - 10% to 20%
*While the above asset allocation model is designed to help balance risk and give investors security, we strongly recommend consulting with your own personal financial advisor before making any type of change to your personal, retirement, or profit sharing portfolios.

FURTHER CLARIFICATION
(1) Stocks - We are increasing the recommended percentage in stocks (including U.S., hedge and also foreign stocks). With this being an election year, historically we realize that stocks have done above average. This year should be no different. Stocks should continue to trend up throughout 2004. However, the second half of 2004 will probably see adjustments in this particular category - particularly as we get closer to the election and as the problems of the sliding dollar and federal budget deficits are dealt with. For now, there are opportunities within the stock market. Investors should consider hedge funds. We continue to recommend Rydex (and in particular, the Rydex Ursa along with the Rydex Juno) as hedge funds that could do very well particularly in the last half of 2004. You can check these funds out at rydexfunds.com.
The sectors we recommended the past six months in Water and Value funds have turned out to be two of the largest winners overall. We continue to believe that Water, Value and natural resource funds will do very well during the first half of the year. We continue to look at growth funds with some caution due to what we believe are very high price to earnings ratios.
Lastly, we continue to recommend that investors hold any Israeli stocks.
(2) Gold Mining Stocks – This basket should be kept in the range of 5% to 15% of one’s investable portfolio. While gold shares were mixed for the first half of the year, many showed returns of 50% or greater. Keep in mind that it is important to spread the risk over as many gold mining stocks as possible. If you are a small to medium investor, we continue to recommend mutual funds. The ones we recommend are American Century’s global gold fund at (800) 331-8331, Invesco Strategic Gold Fund at (800) 525-8085, and Franklin’s Gold Fund at (800) 342-5236.
(3) Fixed Income – Hopefully every investor cut his exposure during the second half of 2003 in bonds and bond funds. We continue to believe interest rates will rise slightly during the first half of 2004 and we are therefore recommending shorter maturities on all bonds and bond funds. Annuities should be held in place as above average rates were given on annuities while interest rates were low over the past couple of years. Therefore investors are still in good shape with annuities and we do not recommend liquidating those at this point. Just like the past six months, we are recommending that no more than 20% of one’s portfolio be positioned into the fixed income area.
(4) Foreign Currency – With this writing, we are cutting our recommended percentage here down to 15% to 20% of one’s portfolio. The foreign currency basket has been one of the largest winners for the past two years. However, we are expecting manipulation by the Bank of Japan (as mentioned earlier), the Federal Reserve, and others who have a vested interest in the dollar. We feel, therefore, that investors should continue to purchase foreign bonds by investing in American Century’s International Bond Fund. To secure a prospectus, simply phone (800) 345-2012. Investors can also acquire time deposits and two-day call deposits in foreign currencies. There are banks out there selling these. We continue to believe that this area will continue to increase in value during 2004, but not at the same rate of the past two years.
(5) Tangible Assets - We have now seen gold rise 20.15% in 2003 after going up 24.80% in 2002. We believe every portfolio should have a minimum of 20% in tangible assets and a maximum of 25%. Of this percentage, at least half should be held in gold. We expect another year with gold increase at least 20% for the third consecutive year. There are many dynamics taking place with demand coming from China, India, Italy, and investors at rates that have not been seen before. It is estimated that there is less gold above ground than at any point during the past thirty years. As we have mentioned on several occasions, we are able to get you gold at dealer wholesale in many situations. This means the 3% commission you paid us for years no longer has to be paid. You can now buy gold at the same price as a dealer of many years.
Silver rose 28% in 2003. It is already up 4% for the month of January. This is a metal we feel will exceed 30% this year. As many of you know, we have stayed away from silver for the past few years while many people have talked about its sharp ascent. We are now moving into silver and currently recommend that investors should position 3% to 5% of a total portfolio in silver. Do not be surprised to see silver top $8 per ounce during 2004.
Platinum has been an incredible metal. In 2003, platinum increased 35.80% rising from $598 to $812 per ounce. Since January 1st, it has risen to $850 per ounce. The interesting thing to note is that the platinum market cannot be manipulated like the gold market. It appears to truly be a free market. When we issued the buy signal for platinum four years ago at the $324 per ounce level, we were looking for the $1,000 per ounce goal. While we continue to believe this level is forthcoming, it is perhaps a good time to take a profit in platinum putting that money back into silver and/or gold which may perform better over the next twenty-four months.
Additionally, we are recommending that approximately 5% of one’s total holdings be placed into EGL and/or GIA certified diamonds and colored gemstones. The larger the carat weight of the particular stone, the greater the potential. We continue to see better appreciation in the larger sized stones than in the commercial or lower carat weight stones. An overwhelming majority of the gemstone dealers with whom we have worked for many years have consistently predicted that 2004 will be the best year in over a decade for particular stones. If you have an interest in this area, please give us a call to discuss the choices. For out of state residents, please phone (800) 247-2812.
(6) Cash - With all the uncertainty, your cash holdings should be increased until a more clear direction is seen in interest rates, stocks, and bonds. As we mentioned in January, one should not use standard commercial paper money markets to get higher rates than are generally offered by Treasury bill money markets. Again, keep that cash basket a little higher for the next six months and be ready to take advantage of any market opportunities.
(7) Real Estate - While real estate is not climbing at the rates of the past several years, there are still opportunities in REITS, select rental properties along with standard duplex investments and triple net leases. This basket should be purchased only with cash. This will give the investor higher yields than money markets plus equity build-up.
For questions or any assistance with your asset allocation model, please do not hesitate to reply via e-mail or contact us by phone.

TURAMALI, INC CONSULTING, INC.
8735 Dunwoody Place, Suite 0
Atlanta, GA 30350
www.turamali.com

(770) 642-6702 or fax (770) 642-0137