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

 

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 & May 3, 2003 reports.

 

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.

 

JAPAN:

 

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.

 

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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 September 6, 2003 report:

 

“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):  

 

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“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.

 

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“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.

 

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“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.

 

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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

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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 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.

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