1001 BOUL. DE MAISONNEUVE O.,
BUREAU 950,
TEL: (514) 939-2221 FAX: (309) 417-0942
e-mail:
sidklein@sidklein.com
ASSET
ALLOCATION: BREAD & BUTTER
TIMING:
WINE
Nov.17, 2003
Nikkei: 9,786.83
Oct. high: 11,238.63
*April low: 7,603.76
*- See March 31 &
NB:
Full, regular reporting may only
resume in three (3) months, due to special projects and related travel
commitments. Such reporting will mark the official beginning of SKC publishing
for clients only. As a result, an official email will go
out that pinpoints the timing of resumed, full reporting. As well,
the uploading of market reports into the "previous
comments" folder is now extended to a three-month lag time.
In any event, the contents of
today's letter should serve as a guide for the coming time period.
Summary:
Everything is unfolding
according to script, for the Nikkei, individual equities and the economy. The Nikkei correction (see below) is
unfolding in the projected, seasonally weak time period, finally allowing for
some accumulation for latecomers in DDOVS. Unfortunately, the
corrections are shallow and not broad, thereby not facilitating those with
short buy lists. Still, some exceptional and low risk opportunities are
opening up in a variety of equities not commonly known to Westerners,
again. The correction in
the meaningless Nikkei, only has importance for
exchange traded fund investors. For those seeking more out of life, patience
and knowledge will have held greater importance.
(1)
Asset allocation and
timing:
Japanese investors have
been and are becoming increasingly bullish on their own economy and stocks. The
operative concept remains the DOMESTIC economy and stocks. Well, the cat’s out
of the bag and, after preaching to the fear stricken for so long, now the
audience is the converted.
Of course, the conversion
occurred right at the recent peaks, which set up “the market” (Nikkei) for its
recent (ongoing) forecasted, short-term correction.
The following quote is from
the
“As for Japanese stocks,
they have left everyone in the dust, as many have doubled or tripled or more.
As forecast, due to extreme under-valuation, this would occur with a mere move
to 10,000. As for those who still follow the Nikkei for some reason, these
pages expressed the opinion that a short-term correction could always occur (to
the benefit of those not yet invested). I smelled a rat, however, realizing
that the under-invested had figured out the “shock and awe” thing. Indeed,
as would be typical in the case of such a powerful trend after a short-term
5-wave up-move (Elliott Wave), the correction may be taking the form of a
higher “B-wave”. Simply, this means that the correction is occurring while
actually moving higher!”*
It was explained that the
point is not merely an academic one but, rather, one that would allow investors
with the correct perception to realize that a correction was ending,
precisely as others (the majority) would think it to be beginning! This
is occurring now (see New York (*)
comment below, as well).
CONCLUSION: Directly communicating investors have been
reminded of the Nikkei’s temporary seasonal weakness and that one may sidestep
it, if one did not already do so, based on such analysis as the bolded portion
above. However, one is equally reminded that the big returns are yet to come
for those who know how to marry the correct micro theme with the correct macro
analysis, as that same September 6 letter described.
NEW YORK, GOLD, DOLLAR (asset allocation & timing):
Whatever the market, timing
is crucial. Smart long-term money cares more about asset allocation. Bringing
them together is art. The following is re-printed from the October 4, 2003
report, for the purposes of forewarning and for attracting attention to what
becomes evident, as one reads on thereafter in the subsequent sections
below (the segue to this section, is the very title of this report):
(2)
“From the September 15,
2003 edition of Business Week:
“‘Millionaires aren’t
immune to financial insecurity. A recent Phoenix Wealth Management/Harris
interactive survey of 1,500 individuals with a net worth (excluding debt and
primary residence) of $1 million or more reveals:
·
53% lost
25% or more of their portfolio value over the past 3 years; 24% peg their
losses at 40% or greater, while 4% posted gains.
·
31% feel
they need to save more for retirement to make up for what they lost.
·
40% donated
less than $2,500 to charity in 2002, with 10% giving away $500 or less. Only 5%
gave $25,000 or more.’”
“The following link
shows how the appropriate asset allocation, so precisely provided by SKC, would
have spared such fate of the now broken-spirited and ever-whipsawed investors,
who mistakenly related their bank accounts to their knowledge and who could
have actually profited greatly from the very same market events that deflated
their wealth.
“http://www.sidklein.com/comments/February%2012,%202003%20Special%20Report.doc.”
NEW YORK:
The following is a timely and critical
excerpt from the Oct. 26, 2002 letter:
“SKWC has also been writing
about the most likely fit for time cycles. In this context, we have been
considering the historical relationship of past US presidential elections to
the market. SKWC has remarked more than once that the indices should rally for
about 15 months, yet be down for most of the election year itself (2004)...”
On the day of this year’ low, March 13, 2003, SKC
wrote:
“Consistent with our
most recent commentaries, New York appears to be preparing for a dramatic
run-up that will trap the public at the peak of a blast-off sparked by a
decline in oil and the destruction of late coming bears…
“…Such a rally would
only benefit the nimble stock pickers and since the initial rally would be so
violent, the public would be caused to miss the heart of the gains.
(3)
“This is typical of bear
market rallies and the reason why non-pros should have nothing to do with them.
Swimming with the secular trend keeps one flowing with the safest currents and,
so, a New York rally should be viewed for its value in igniting Japanese shares
even farther, as well as gold stocks, believe it or not.”
March 13 did indeed turn
out to be this year’s low but October 2002, which was in fact the low.
Fifteen months from then does indeed give us highs at the projected levels
(probably), right in the idealized time frame! The following is reprinted from the
October 4, 2003 report:
“This summer SKC looked
for a possible correction, which never occurred. Interestingly, analysis at
this time suggests that we indeed saw an orthodox top (Elliott Wave), if not a
price peak. The difference is more than philosophic, though very short-term
traders may not care. This interpretation suggests a few points. Firstly, a
correction now, according to this analysis, would have a Dow correction from
here hold at 9000, rather than 8500.”
CONCLUSION: The
preceding only refers to worst case, not what is probable. See Japan
comment above (*) and the first paragraph of the gold section below.
GOLD:
When SKC last reported on
gold on October 4, 2003, the metal had just collapsed in a virtual
straight line from $387 to $367. Well, consistent with the following
re-print from that letter, gold took off toward $400, without even getting
to the worst-case scenario (see below)! SKC’s position as a premiere asset
allocation and market timing model service, across a broad line of the
world’s most critical investment themes, remains in tact:
“A big deal is being
made about last week’s decline in gold. However, it isn’t a big deal. Readers
who called were reminded that I had been remarking that junior and mid-sized
gold stocks had gotten too far ahead of the metal to fit within the risk/reward
paradigm for investing that is traditionally sought here (though the response
to callers never pondered the silliness of potentially out-smarting oneself and
selling the metal itself, as one could lose sight of the bigger picture and,
with it, the greater move anticipated by SKC to $500). The decline in the metal
itself is merely consistent with such a technical background, of the aforementioned
equities’ overvaluation.
(4)
“When gold collapsed to
$330, SKC immediately reminded that $330 was the forecasted support area (see
March 13) and this was followed up with the analysis that the worst-case
scenario was $320, anyway. This was correct and this time around as the tree
shakes common stocks loose from the nervous ninnies’ hands, look for a worst
case of $362 in the metal.
“As for stocks, among
the biggest performers were the two that had been cited in SKC, above all, Golden
Star. There, investors enjoyed a 100% return and the opportunity to
re-invest after the stock got chopped, before a 500% explosion (SKC
commented more than once). “Recommendations” were referred to as totally
technical (unofficial, as a result), and that one should therefore check with
one’s own investment advisor. SKC does not discuss individual equities, due to
constraints by which these reports must abide (those two gold stocks were too
cheap to not discuss, in some appropriate manner, insofar as readers’ interests
were concerned).”
Also on March 13, 2003,
these pages also offered:
“SKWC here reiterates
the view that gold stocks will benefit from a Dow rally as fund managers, being
in buy-mode, seek to invest in equities that have done well through the bear
market and that represent a greater safety profile. Large-caps, that have
vastly under performed gold due to the equity bear market, will be among the
gap-narrowing (vis-ŕ-vis the metal) beneficiaries.”
The purpose of re-printing
the above is to describe an asset allocation shift within
SKC’s model.
Since early April, gold has
indeed taken off about 23%, while the Philly Gold and Silver Index has
soared about **66%, since the identification of the March 13 stock market
low!
The greater context is that
SKC forecasted that the previous model of gold stocks’ countertrend performance
vis-ŕ-vis the Dow would break down, as a bull trend would cause investors to
look for what behaved “well” during the post-2000 collapse**.
Thereafter, on March 13
(see above), SKC wrote that fund managers would seek the highly liquid
equities, thereby narrowing the underperformance of gold blue chips vis-ŕ-vis
the market. In other words, SKC was no longer of the view that one should be
predominantly in small and mid-cap issues (i.e. – Golden Star, Goldcorp, etc.)
but, rather, that one should have half of one’s gold equity portfolio in the
bigger names.
(5)
CONCLUSION: This figure is now raised to 80%.
DOLLAR:
The Euro and Swiss Franc
peaked in the 2nd quarter (the latter has been forming descending
peaks since May). Meanwhile, the Yen made new highs last week. Given this,
consider the following from the October 4, 2003 report:
“At the beginning of
2002, SKC turned bullish on the Euro, Swiss Franc and Yen, at major the lows.
The first two currencies provided all the return that one could have ever hoped
for since, whether from the stock or bond portions of one’s portfolio.
Make no mistake about it now, though. The Yen will lay all major currencies to
waste (see Japan economy section above).
“From the time that SKC
recommended the Euro or Swiss Franc as its favourite currencies (followed by
the Yen), the former advanced 36% from bottom to top (see Feb.
16, 2003 Special Report). Then, on July 3, 2003, SKC wrote:
‘“The Yen’s
correction may already be over, while the Euro and Swiss Franc may have another
minor down-leg to go. As SKC has stated, the Yen is now our currency of choice,
deemed to be the strongest fiat currency, from today’s levels going forward.”
“From that point, the
Yen has advanced 7%, while the Euro has done nothing.
Simple asset allocation over these recent few years (since Jan. 2000) would
have offered any investor capital preservation and outstanding returns, without
even considering the performances in the equity analyses offered by SKC.”
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 MCA Securities Inc.,
this is not an official publication of MCA Securities Inc. The views (including
any recommendations) expressed in this newsletter are those of the author alone
and are not those of MCA 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 MCA 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 MCA Securities
Inc. assume any obligation to update the information or advise on further
developments relating to the information provided herein.
Canadian Investors Protection
Fund
(7)