JAPAN ASIA INVESTMENTS

1001 BOUL. DE MAISONNEUVE O., BUREAU 950, MONTREAL, CANADA   H3A 3C8

TEL: (514) 939-2221     FAX: (309) 417-0942

e-mail: sidklein@sidklein.com

www.sidklein.com

 

  CRASH

 

Feb. 11, 2004

 

Nikkei:      10,365.40

*April low:   7,603.76

 

*- See March 31 & May 3, 2003 reports, along with April 10, 2003 ROBtv interview on homepage.

 

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 Nov. 6, 2003. Real numbers can now be substituted for the theoretical ones, both in terms of which strike prices and strike dates to select, as well as in terms of the option prices in question (see New York section below).

 

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.

 

 

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JAPAN:

 

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.

 

Japan’s economic performance has been in line with SKC hopes and expectations, while, technically, the negative crossing of the value of the Nikkei versus that of the Dow Jones portends critical activity to come for both markets. Subsequent letters and direct communication will explore these key developments in greater detail.

 

 

NEW YORK:

 

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 Oct. 5, 2002, Feb. 12, 2003 and March 13, 2003 may be given special attention, insofar as New York is concerned.

 

The Oct. 5, 2002 letter identified the Dow’s low to the week and forecast 10,400 for this month. No one believed it. Bill Gross had proclaimed fair value to be at 5000 and everyone who had been bullish at the peak was now nervous about a so-called war in Iraq.      SKC simply nailed another extreme. Now, SKC warns readers to be prepared for a CRASH to 4000, into 2006.

 

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

 

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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 Asia last month.

 

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:

 

 

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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

 

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(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

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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.

 

 

 

 

 

 

 

 

 

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