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The Media Isn’t a Contrary Indicator, See?

(interim update)

August 25, 2005

Nikkei: 12,416.39

*April 2003 low: 7,603.76

*- See March 31 & May 3, 2003 reports, along with April 10, 2003 ROBtv interview (5 min.), on homepage.

NB: We are back to a regular format of publishing on the first weekend of each month, unless otherwise notified.

JAPAN:

Japanese domestic stocks are doing poorly against the Nikkei, which has hung on to gains above last year’s highs at 12,000. This is very bearish.

This indicates that foreigners are rushing out of New York and buying whatever is most liquid, in the one major world market that offers value. Ironically, value is not where most of the money is presently pouring. This is about fear. This isn’t a bona fide Japanese equity move. In other words, we’re still within the crosscurrents that the previous report and prior letters discussed. Such activity as what is being seen now among the domestic stocks has preceded a decline in New York. This is because they have come to represent the majority of the Japanese economic growth engine. As a result, they have been a wonderful lead indicator.

NEW YORK:

This week is most auspicious.

Tomorrow (specifically, late Friday night EST or, more precisely, 12:30 a.m. EST), we will be able to witness what can come for us only once in this lifetime.

Mars has been getting closer to the moon, causing it to burn incredibly bright, as if they were only a foot apart. The last time Mars was this close to the moon was over 5,000 years ago, and scientists estimate that it will be over 200,000 years before this happens again. Get out your cameras. Tonight, in fact, they are beautiful.

The astronomical effect of all this is that CNBC World interviewed me Monday, at the peak of a rally that followed the first minor move down after the top, in the commencement of a year of Crash. According to Jaco du Plooy (http://www.goldenratio.co.za), this recent peak marked the high of the Grand Super Cycle, as opposed to the B-wave that I have labeled it as. What’s the difference?

Well, the cynical rule was always that if it makes headlines, it’s a contrary indicator. Not this time? You see, if Mr. du Plooy’s interpretation is correct, then it could be said that the network interviewed a representative of the Bear right at the Super Cycle peak. That’s fancier than “B-wave”. Either way, CNBC US was but a day off of perfection, the next day, assuming that this month’s regular letter was correct, and that we are seeing the first downside acceleration for the market. This would also be the initial up-leg for the S&P Volatility Index (VIX), in this calamitous Secular Bear market, which began for the Dow on January 14, 2000.

Above, the Elliott Wave is referenced as a tool. When discussing timing as the final step in investing, using whatever technical tools that are available, such analysis as the Elliott Wave is discussed and included. The other guest on the show with Ron Insana was impressed with my dexterity, it seemed. Anyway, I was discussing this week that the valuation story and technical picture, within the context of where we are in the Long Wave economic cycle, has created a minefield of shocking possibilities for the bulls. There is no need to guess what the catalyst will be proclaimed as “the cause”.

So, closer to earth, under the bright eyes of Mars and the moon, borrowing from the research compiled by an associate, homebuilders stocks are up between 10-15 times, since 2000 and they are all carrying considerable debt. They have inventory (raw land and partially finished homes) of twice shareholders’ equity, on average. Is this enough for 6,500 Dow, all by itself? If you’re unsure, just ask yourself if the 2.3% Dow dividend compensates for the risk of owning the Dow.

How many examples of ingredients of disaster do investors need? SKC looks at the big picture in every area of analysis, so that minds don’t get bogged down in action-stultifying inertia. Anyway, the first slide may be in place and, if so, CNBC‘s timing may be chronicled by a James Grant-style historian, ninety-five years from now.

To digress, perhaps the dictionary will come to read: “Contrarian: mutual fund vendor logic; motives of same”. Therefore, take note that contrarian may have new meaning now, as may free financial press as a signal to be faded.

By the way, “contrarian” isn’t in the dictionary yet, so who knows?

Sid Klein

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This newsletter is solely the work of the author for the private information of intended recipients only. The views (including any recommendations) expressed in this newsletter are those of the author alone. 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 does the author 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 the author assumes no obligation to update the information or advise on further developments relating to the information provided herein.

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2006-02-06

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