1001 BOUL. DE MAISONNEUVE O.,
BUREAU 950,
TEL: (514) 939-2221 FAX: (309) 417-0942
e-mail:
sidklein@sidklein.com
CRASH
Nikkei: 10,365.40
*April low: 7,603.76
*- See March 31 &
SPECIAL NOTE:
As indicated in the Nov.
17, 2003 market report “ASSET ALLOCATION: BREAD AND BUTTER – TIMING: WINE” (see “previous comments” folder online), the commitments of travel
and special projects would cause SKC to only re-emerge this month, to clarify
when regular publishing would resume. To that end, please note that regular
transmissions will recommence the first Saturday of April, though special
reports may be issued in the interim for subscribers. As stated in previous
letters, regular reports will be published the first Saturday of each month but now with a three-month delay, except for
subscribers. Please see the subscribe link within the “subscribe” folder of www.sidklein.com.
Also
within the “previous comments” folder, please find the “Dow Bear Strategy” of
To
facilitate the New York business contemplated by the strategy in question, as
well as complete the transition that leads SKC to the subscribers-only format, I
am very pleased to announce that I have joined Desjardins
Securities, a firm whose affiliation to the major Canadian
financial institution of same root name will only be a source of support for
our specific needs and interests.
(1)
In
the fourth quarter, SKC warned of seasonal weakness for calendar year-end. Such
weakness relates to the activities of foreigners during that time. That
weakness transpired and while followers of the Nikkei may not know it (SKC
readers have not tracked the Nikkei (principally) for four years), Domestic
Demand Oriented Value Stocks (DDOVS), as defined here since 2000,
subsequently took off since the fourth quarter lows, with impressive
double-digit gains. To make these performances even more noteworthy, the Nikkei
has been every bit as unimpressive over the same time period.
After identifying the peak
of the secular bull market within one day on January 13, 2000 (see
“selected past comments” sub-folder), SKC has correctly targeted every cyclical
and intermediate term movement, since going online in November 2001, as
SKWC (Sid Klein’s Daily Fax enjoyed the honours previously).
The letters of
The
The author has been widely
advised to refrain from what may be seen as extreme, even if it is the same
view held since January 2000. It has been suggested that one must be
believable. My answer is simple and two-fold:
Those who could not imagine
the validity and accuracy of this bearish analysis previously were decimated
and, secondly, what difference would it make if 6000 were cited anyway? SKC is
regularly updated for intermediate term forecasts and the author is as mobile
as the markets. If 6000 were cited instead (simply put, “a
(2)
break of the October, 2002
lows”, which were 7197), wouldn’t the sentient and semi-sentient investors
alike get out and/or hedge anyway?
Therefore, regarding SKC’s track record, which the author claims to be unparalleled,
one may reasonably cite an “error” of intermediate term nature on SKC’s part, with respect to having identified a summer peak
in the Dow. Indeed, short sellers would not have profited (but broken even,
based on the Dow) but it is highly instructive in being able to identify where
we are today to note that the summer’s correction occurred by moving
net-sideways, as the “b-wave” (Elliott Wave) was absorbed in this net-sideways
activity (rather than actually dropping sharply).
As for short sellers, it
should be added that SKC only recommends primary trend activity and had cited
that summer forecast as critical solely for the purposes of longer term mapping
of where we are in the markets in tracking the big picture, for our next major
bearish foray. Cyclical and intermediate term forecasting is and was also
useful for those who had chosen to remain stuck with their portfolios in 2000.
TIMING:
Alone in forecasting what
were deemed then to be lofty numbers and dates, I was asked about reviewing
targets before leaving for
The response was simple.
Whenever timing the establishment of a position, I defer to dates rather
than price levels. Having said that, one must also be
aware of the fact that this market has tended to overshoot in each direction,
up or down. As SKC has repeatedly written since identifying the lows
around 7000, the peak would only be made after uninterrupted advances
that would completely exhaust the bears. This explains why this summer’s
correction was only sideways.
Furthermore, by eclipsing
the 10,400 – 10,600 zone en route toward 11,000, the
public would be inundated by press that the all-time high would be within
shooting distance. Again, as reported so often, such activity (an advance that
would be uninterrupted by serious setbacks and one that breaks above the
perceived “final” resistance, according to the decimated bears) would be necessary
to sucker in the public that only a year ago swore that they would never invest
in stocks or funds ever again!
STRATEGY:
(3)
Consistent with the
second paragraph of this letter on page one, SKC has devised what shapes up as
a two-year put option strategy that, under certain circumstances, may yield
2000% returns, by merely breaking the October 2002 lows over the coming two
years. While this may fascinate speculators, those unwilling to liquidate
holdings (again) may take note of a strategy that could single-handedly hedge
holdings fully or even yield returns greater than any portfolio losses!
Whether an investor utilizes
5% of his portfolio’s value or more or less, would depend on his level of
perceived risk, inclination (toward profit or protection) and understanding. As
well, investors may further note the attractiveness of the efficiency of this
potentially, profoundly lucrative strategy in conjunction with the offsetting
dividend yield offered by the hedged portfolio.
GOLD:
SKC has identified every
intermediate term move in the metal since turning bullish at $285 in January
2002. Moreover, our asset allocation within the theme has been as ideal as our
asset allocation in general has been among the different asset classes (stock
markets, currencies, gold). SKC has favoured the
metal when appropriate, the small or mid-caps when appropriate and, more
recently, the shifting to greater weighting in big-caps when deemed
appropriate.
For good measure, SKC
basically focused on only one stock by name (due to general restrictions
pertaining to the publication of specific recommendations). Not being able to
restrain ourselves, SKC focused on Golden Star, which doubled before exit was
recommended for traders. The latter were advised to re-enter at half the price,
before the stock compounded the 100% returns by then soaring 1000%.
In general, in today’s more
abbreviated letter, gold may be seen to be basing for its next lift-off to the
long stated target of $500 per ounce. The 200-day moving average at $380
represents a meaningless “c-wave” possibility (Elliott Wave).
DOLLAR:
Yen: Power, power, power. That sums it up.
While in the realm of AAA
bonds, readers have enjoyed extraordinary profits
(4)
(50%+?) and security since
January 2002, by focusing on the Euro and Swiss Franc, before switching to the
Yen with ideal timing, as the latter had so greatly under performed. There is
no longer any cyclical under performance but, rather, power in the Yen that has
compounded the dramatic risk-adjusted returns of DDOVS.
While the Yen has led the
way, a correction of 4% is possible, though such relaxation in the Yen would be
more a factor of time than price. The Euro contains far greater price risk.
ADDENDUM:
Since the initial draft of
this report was completed yesterday, the Dow Jones has accelerated in a manner
consistent with the scenario contemplated in the last paragraph of page three
above.
Therefore, the greatest
risk adjusted opportunity that I have ever seen (in 22 years) is being set up
now. This includes the perfect identification of the Nikkei’s 1990 peak, when
we were purchasing London-traded Nikkei put warrants for 33% - 40% of the cost
of like Toronto traded securities. On a risk-adjusted basis (two-year calendar
spread), this one seems to be the greatest of all.
Sid Klein
________________________________________________________________
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.
(5)