25% Gold and Precious Metals: This is an offense and defense play. Defense against erosion in the value of the dollar (and other currencies) and for unsettled political scenarios. Offense, since the absence of another reserve currency means we need some store of value -- and will return to the historical standard.
25% Emerging International Markets: The BRIC and other emerging economies will maintain positive growth rates through the global downturn and rapidly pick up growth once the economy turns. The structural advantages (demographic, etc) of those economies make them a good medium term play -- with lots of volatilty in the short term, but a clear light at the end of the tunnel for the medium term.
25% Short Bias on Developed Markets: A secular downtrend is firmly in place for several more quarters, even as we see volatility and false rallies. Individual security, sector, and index level plays (naked shorts, ETF's) will provide alpha.
25% Experiments:
1. Volatility Trading: Expect unprecedented ongoing volatility to continue. Establish a portfolio of stocks (or trade the VIX and equivalents) to monitor and range trade for narrow gain. Remember the secular short bias as you "day-trade" the portfolio
2. Policy created returns: New administration in the US has new priorities and will create new winners and losers based on policy incentives. Expect winners in "Green", Defense, Financial Services.
3. US/Europe small cap stocks: Wait a while on this one, but keep it in mind for a play later in Q1 2009 as the Dow corrects to ~6000 and sets up temporary rallies/recoveries.
4. High Yield Corporate Bonds: Even strong companies are facing a real credit crunch. In the short term there is relatively safe fixed income to be had. Add a bit of diversification to the portfolio. DO NOT expect this to be the historical safe play of bonds. Overall bonds are an asset class to just stay away from at this point.
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