1001 BOUL. DE MAISONNEUVE O.,
TEL: (514) 939-2221 FAX: (309) 417-0942
Nikkei: 11,010.02 ()
*April low: 7,603.76
*- See March 31 &
SKC’s sole interest in Japanese equities has been DDOVS, a theme which stood alone in the world for differentiation, while representing the investment world’s lowest risk opportunity, despite potential that was no less great. As a result, returns have, to my awareness, reflected the best Sharpe ratio anywhere since 2000. Coupled with matching macro timing, performance could not have been better.
More recently, SKC
cautioned that even
Japanese stocks have indeed been hurt, but the Nikkei has now just about fallen
to both its 200-day and 200-week moving averages. Against this backdrop, individual names that SKC classifies as DDOVS are again offering buying opportunities, as seasonal factors remain part of the Japanese equity landscape. Specifically, the October – November period is fraught with risk as foreigners do their annual tax-selling thing. ”Thank heavens”, say the buyers. Meanwhile, many DDOVS already reflect superb value, seasonal and global market conditions, notwithstanding.
Conclusion: 70% long DDOVS. That could be raised at any moment.
Several weeks ago, George Bush proclaimed that he would delay the US elections in the event of a terrorist attack. In the past, I have explained why our country is the most likely candidate. Without venturing into that here, such an event would support the view that Bush has made the US safer against terrorism and that Canadians need “protection”.
As a partial aside, the reason political “pundits” (read: self-important academicians) hardly ever know what their talking about is because they are ignorant of markets and, as a result, the driving strategy and policy motivators behind the heavily armed business class.
Writing commentary for over twenty years, including Sid Klein’s Daily Fax (SKDF) for over a decade, SKDF went online on Nov. 19, 2001. The following is an excerpt from that missive www.sidklein.com/comments/19-11-2001.doc:
“…causing ordinary folks, and even politicians (not all, mostly Canadian), to truly believe that the unfolding stock and economic crashes are actually related to, and even caused by, the military and terrorist events. They are not!!!!! Having forecast a September crash, bin Laden rally toward 10,400 for November and ensuing calamity, be aware that any future crashes may also appear to be related to political/military/terrorist events. Be certain that these are coinciding events and that one would be prudent to plan one's financial strategies in a manner that does not wait to see if the world's political stage gets any brighter. Smart money should remain technical and not even look at it, except from the humanitarian point of view.”
With the coming cyclical debacle compounded by disaster in the real estate markets, the Dow is en route to 6200 in 2006, with greater secular support at 4000, slated for the subsequent cycle. In terms of the economy, all this is part of
a massive bear market for the latter into 2025, or so. For the relationship between markets, the economy and political (including military) events, as well as the timing relationships between them, readers are encouraged to revisit the above- linked 2001 report.
Strategy: Select calendar put spreads offer 1000% potential, based on SKC’s market forecast, as risk is actually reduced to the extent that leverage is increased. The “catch” would be the outcome of limited potential, if the Dow (the index of choice) were to fall even farther and faster than what is already foreseen here. Tempered greed is better than unbridled and bearishly wishful greed.
Conclusion: Dow 10,200 is now formidable resistance (seen yesterday) and may well not be exceeded, though the point is moot. Watch out below! It appears that SKC has again perfectly forecast and identified a critical extreme, in a major world market and index.
Since $420, SKC has been reporting that the metal should trade between $375 and $430 over a period of several months. In fact, gold is trading perfectly within its post-2000 up-trend channel, while doing so in a manner that has been absorbing selling pressure in a very bullish manner. The pain has principally been in equities that had run too far.
SKC’s allocation model recommended taking sizeable profits, first in the smaller companies and then in the mid-caps, in favour of the blue chips that had as yet not really moved. Indeed, this had been the correct focus, until SKC further advised scaling back in that group as well. Alternatively, leveraged silver equities were recommended on a limited basis, as a means by which to take money off the table, while attempting to maintain a leverage factor to the precious metals that more approximates that of a fully invested gold portfolio.
As SKC has discussed in the past, it will only be during the next stock market debacle that gold funds will truly expand in size. Until now, much of the buying has been in non-gold funds, the primary mandate of which is not precious metal equities. As a result, the influence of the general stock market is temporarily greater on such equities.
Conclusion: With gold now better poised for a move to new highs around $450, given the volatility in favoured silver issues, a greater weighting in the larger gold stocks, at the expense of high beta silver names, is once again more appropriate.
Traders are confused and concerned. Perfect. During major trends, members of the crowd must doubt themselves. This gives the tree a healthy shake. The reality is that the major trends for our principal currencies (gold, Yen, Euro, Swiss Franc) remain up. Simple.
Conclusion: The following allocation is with respect to the currencies referenced in the preceding paragraph, and does not contemplate equities of any kind, as such considerations are dealt with in the sections above:
· 40% Yen
· 25% gold
· 15% Swissy
· 10% Euro
· 10% USD
This newsletter is solely the work of the author for the private information of intended recipients only. Although the author is a registered investment advisor at Desjardins Securities Inc., this is not an official publication of Desjardins Securities Inc. The views (including any recommendations) expressed in this newsletter are those of the author alone and are not those of Desjardins Securities Inc. The information contained in this newsletter is drawn from sources believed to be reliable but the accuracy and completeness of the information is not guaranteed, nor in providing it do the author or Desjardins Securities Inc. assume any liability. No solicitation to buy or sell securities should be inferred from either the contents of this newsletter, nor its dissemination. Each potential investment decision and its appropriateness must be considered within the context of the entirety of the individual investor's circumstances. This information is given as of the date appearing on this newsletter and neither the author nor Desjardins Securities Inc. assume any obligation to update the information or advise on further developments relating to the information provided herein.