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Harry Schultz Life
Strategies 
~ For THINKING
humanoids ~ (in 80 nations)
The Comforting (near-magic)
Wands of Investing
Harry Schultz
extracted
from HSL #645 of Jan 23, 2005 -DJIA 10,393
posted February 14, 2005
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Big Picture
Forecasting the
future is my job, as best I can. But even with good forecasts,
people can't cash in on any prediction by anyone if they aren't
flexible investors. If U are old enough U may remember
the Startrek TV episode where Capt Kirk encountered a
race of people in space who were black on the right side of their
body, white on the other. It was done to make a point about prejudice
& stubbornness. I make the same point & apply it to markets.
If U are a perma-bull (meaning permanent) or a perma-bear, by
instinct or training, U can't get full benefits from your investments.
Roughly speaking, most mkts have as many downtrends as uptrends,
over time. So, if U only bet on red, only invest on the long
side--& never sell short--or never step out of the
mkt when it gives technical sell signals, U will, generally,
only do half as well as those who either sell short (or
short against a long position) or simply sell & sit on sidelines-earning
interest & preserving capital. Not only will U only do half
as well, but U will almost certainly overstay the bull
moves (being prejudiced) & end up losing money on some investments.
 Of course, there are other alternatives. U can
switch from stocks to bonds (or vice versa) or from one stock
group to another. Most people are not comfortable making the
stock-bond transition. I bring this subject forward because the
2005 outlook isn't that great (see below). And not as many clear
trends as U would like, for taking new positions-or holding old
ones despite tech warnings. Example: gold gave a pair of sell
signals in the last 2 months. I think our Gold
Charts R Us service was the only advisory to call both
signals in clear, loud, even screaming language. And, IMO, gold
will go lower (after a mini rally to 433 +/-). My GCRU
subscribers sold out at the top & are sitting with profits
on the sidelines. A few sold short. I did. In GCRU last
wk I gave the likely downside target & likely best buyback
prices. But the point is: if U are a half black, half white investor,
U can mentally switch from a bull to a bear in a twinkling. Good
investors learn not to care what the mkt does; they just
want to be on the right side. It's expensive to care. Leave caring
to human relationships, not mkts.
Here's my take on likely developments in 2005, not so much hardcore
predictive as intuitive, & a bit of Spock-logic potentials.
••Stock mkts feel tired, heavy. I feel like shorting
the Nasdaq (& probably will by presstime). I don't smell
a mkt tsunami, but public bullishness is at 18-year highs
& some chart patterns are turning negative. Eg, a bearish
rising wedge in the NYSE Advance/Decline Line, which has been
rocketing up for months. All good things come to an end &
the charts are getting squeamish. I'm selling some longs &
stopping others very tight.
China may have a harder landing than I previously thought. I
sold my China Fund last week. It had fallen to where a nice profit
had disappeared, a pretty strong hint! Friend Jim Rogers, a China
bull, agrees & we hope to see a China buy signal coming later
this year. ••I didn't want to sell my India Fund &
take its fat profit as I think India will fare better than almost
everyone. But it had risen so sharply it's overbought. So I sold,
with order in to rebuy it at support below. •••The
SoAfr Rand looks a short vs US$ for now. Stops. ••The
US$ will rally strongly right now (see currencies), & surprise
& scare the $-shorts, but US$ gives it all back later. Don't
be short US$ now!
Oil is forming an inverted H&S base & looks set to rise
like a phoenix ere long. See chart Pg 11. Oil services, however,
are a better bet than oil stocks. They sell their stuff regardless
of oil price. •••US mkts have gone nowhere much
for 6yrs (1998-2004), so the momentum isn't there. The Super
Trend bear mkt will reassert itself soon. •••Another
mkt tactic tip: whatever mkt buying or selling or shorting U
do this year, do it slowly! If U plan to action 5000 shares,
do 1000 at a time, at different price levels-that prove U are
on the right side. It gives U a chance to get out cheaply if
it turns against U. •••The commodity mkt boom
is only in stage 1. It bounces like a bungee, but the long-term
will be up because no supply is being increased in virtually
any commod. And no large oil or gold finds occur anymore. •••Interest
rates seem fated to keep inching up, so bonds will inch down.
The US 10yr Note chart is on a cliff edge of a sell short signal.
••Fortunately, if my predicto-hunches start to look
wrong, I can adjust them month by month. But it helps to have
a framework, even if tinkering is needed later.
Russia is a long-term villain for Europe, if not the world. I
warned years ago that Europe should not sign up for Russian gas
so heavily. But they have & now EU is dependent on it. Russia
is also a military threat medium-term (subsribers, see War/Peace
inside for details). •••The European Union has
become more bureaucratic than democratic. Look for this to increase
& cause a geo-political crisis with new EU members in future.
•••The euro currency will drop sharply shorterm
but recoup the loss in 2-3 months. •••Emerging
Mkt funds will probably outperform most others in '05. •••Stagflation
will likely be the best label for the economic world as a whole
for 2005. •••European workers will continue to
fight their govts' attempts to trim benefits to salvage govt
budgets, but globalization makes such change inevitable. France
will dump its ridiculous 35-hour week, is already a policy with
handy loopholes. ••My guideline for 2005: rent stocks.
Don't marry them.
US trade deficit is a given villain. What could shock&awe
the world is if US consumers reduce spending & begin
saving money. That would dissolve the trade deficit. Always watch
for the unexpected (& the unlikely) & thus be ready to
act on it quickly at the first hint, while others deny it. In
this example, it would aid the US$. •••Meantime,
the switch from US$ to euro & £ by Central Banks (&
some commodities) will continue. 'Tis survival. •••While
most in the West weren't looking, SoAmerica has become the world's
new breadbasket. Colin Powell calls Brazil "an agricultural
superpower." But it applies to Argentina, Bolivia, Paraguay
& Uruguay also. Collectively, the area will soon pass the
US as world's largest agricultural producer. Grain & cattle
aside, the area already is main world exporter of chickens, orange
juice, sugar, coffee, tobacco. This is changing the stability
of SoAmerica. Investment here should be considered.
 I predict China will not revalue the renminbi
in 2005. More downside than upside, which is the way U should
measure every investment U make. It often surprises when U find
the downside is say 45% vs an upside of only 25%. We tend to
focus on the upside with scarcely a glance at southend. Of course,
stops can bridge the south gap. ••Biggest 2005 worry:
overthrow of the Saudi govt. Their key leaders already have houses
in Switz & the UK. •••Biggest potential folly:
attacking Iran. •••IMO, the environment will get
serious attention in '05. It better or we'll need another planet.
•••The comforting thing about investment is that
U have near-magic wands that tell U if U are on the right
track. The generic term for these wands is: charts.
The more familiar U become with them,
the better they work. Happy '05!
Bye from your Uncle Harry D (for Droll)
Schultz
Lots & LOTS more follows
for subscribers,
Harry Schultz
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1964-2005 F.E.R.C.
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