© Henry Weingarten Last Updated:

Much of the following material has been serialized in WALL STREET, NEXT WEEK and our subscriber premium channels. This will next be updated in May after our 11th Astrology and Stock Market Seminar May 14-17, 2004 in New York City.
Notes: Hyper links that are prefaced with a S: are restricted toWSNW Subscribers.
This forecast was posted on our web site in October in our premium channels for WSNW subscribers.

Many advisors suggest investors fight the urge to be bearish and enjoy the run-up in the stock market. I wonder what these same advisors were advising in March and April 2000?  While the internal Stock Market astrology, as in 2003 is mixed, the external risk potential is horrific! We consider the long term economic fall out of the US Iraq invasion quite severe and believe that global markets can retest or break their 2003 lows.

Stock selection is paramount and will count more than sector rotation and even stock market timing!
Given that the traditional "Buy and Hold" investing strategy will continue to under perform, we again recommend trading 50%  in "investing" portfolios in 2004. TAKE/PROTECT PROFITS CONTINUOUSLY.
For 3 years we warned:  LEARN THE MARKET LESSONS OF 2000, BECAUSE THEY WILL REPEAT IN 2003. Now that the forecast is true, come June 2004, many investors may be berating themselves with why didn't they sell when the Nasdaq was circa 2000? Why didn't they learn their lesson in March 2000?

BOTTOM LINE:
DON'T BUY AND HOLD. THE STOCK MARKET IS LIVING ON BORROWED TIME. I ADVISE KEEPING A BALANCED AND DIVERSIFIED PORTFOLIO, ELIMINATE MARGIN DEBT AND BE CASH RICH.

MARKET NEUTRAL INVESTING FOR EXPERIENCED INVESTORS
In order to sleep soundly at night, I recommend a Hedge Fund style Market Neutral Strategy in 2004. This involves both buying under valued and selling short overvalued stocks.  This is best done in industry pairs as it involves the smallest risk, although the most work. Alternately, stocks can be hedged against their individual sector membership or the overall market: Buying a stock and selling its sector or broad market index, or Selling a stock and buying its sector index or the overall market.
If you are bullish, I would recommend a long/short ratio of 2-1.
If you incline more to the bearish camp as I do, then a long/short ratio of 1-2 is preferable.

There are five primary celestial and terrestrial phenomena affecting world events and global markets in 2004:

• October 13, 2004 Solar Eclipse; 2 Total Lunar Eclipses May 4 & October 28, 2004,
• Saturn in Cancer and Uranus in Pisces,
  
• The World War on Terror,
• 10 countries joining the EU May 2004,
• The 2004 US Presidential Election.

Three Big Investing Ideas

1. US DOLLAR  REMAINS UNDER PRESSURE IN 2004
Everyone knows now that the US dollar has already peaked. Smart money players Warren Buffett and George Soros are making huge bets the dollar will continue its slide to new lows all next year. Many currency analysts predict a further 10% drop in the dollar's value versus major currencies. US Treasury Secretary John Snow shocked currency traders by stating that the U.S. government no longer measures the dollar's strength by its market value against the other major currencies. Instead, Snow said "strong" refers to such aspects of the dollar as the confidence it inspires in the public and its resistance to counterfeiting. This plus the G7 call for more "flexible exchange rates, has most benefited the Euro and Yen. as well as secondary currencies such as the Canadian and Australian Dollars and gold. All investors need to diversify their investments globally. The average American has less than 5% of his assets in foreign holdings. The decline in the US Dollar's value has made foreign investments more attractive. Stock prices are cheaper by most valuation measures: price to earnings, price to sales and price to book.  Due to the November 8th 2003 Lunar Eclipse 2003, global interest rates reversed course, first rising in Australia and then in the UK. In 2004, we also expect US interest rates to rise due to a lower US dollar and future inflationary worries. Our US dollar Index Fair Value has dropped to 88.80 with .85 to .82 increasingly possible in 2004. One lurking possibility is that it may become necessary for the FED to defend the US dollar or that outright intervention from the US Treasury in the currency markets may be necessary. However, Winter and Spring 2004, we could also see the US dollar as high as .94-.95. If so, this would be a MAJOR sell signal for us.
Our recommended US equity portfolios international stock allocation has been raised to 50%.      

2. A WAR TIME ECONOMY: GUNS AND CAVIAR REDUX


• Bush's Progressed Mars (War) was increasingly prominent in 2003 = an expansion on the war on terror. Saturn is also transiting the US Sun. As Saturn represents "reality", paying the piper is not likely to be overly favorable for US markets, given the US budget deficit from a weakened economy, the War on Terrorism and Tax Cuts. The violence level on the War on Terrorism, unfortunately, is likely to increase in 2004 given prominent Mars aspects in both Bush's and the USA horoscopes. It is possible this could be US global trade war(s), instead of a new/expanded hot shooting war on terror then. Homeland (Cancer) security (Saturn), defense (Mars) and insurance will garner even more public attention. As this will take money away from more productive areas of the economy, we are far from bullish.
• Fears of deflation and interest rate cuts left US and UK government bond yields at multi-decade lows.  Both suffer however, from a  sharp increase in supply, the former more so due to massive tax cuts underway as well as military adventures and increased defense spending. When things do turn, we could see a very nasty bear market in bonds.  Bond markets believe the Fed will act as soon as March, but no later than May, to raise interest rates. At some point, TIPS (Treasury Inflation Protection Securities) will be the major buy in the US bond market.
  

3. THE END OF THE HOUSING BUBBLE
Housing, along with Commodities and physicals, is now viewed as an Asset Class along with Stocks, Bonds and Cash by many investors. Positively, there is the enjoyment factor: most woman would prefer to have an additional 100K in a home than in a portfolio. Housing also appeals to safety concerns in times of trouble, but home buying is cooling. Record low interest rates are ending. Other negatives include the fact that the ratio of home prices to home rental rates is too high, while the value of individually owned residential property to disposable income is at a 50 year high. Classically, Real Estate weakens 12-24 months after a market collapse. Thanks to the Fed, this did not happen when individual stock prices returned to pre-1998 pricing.  I still see the probability of a housing drop of 10-35% [depending on location and individual property] over the next 6-18 months. In June 2003, Saturn entered Cancer. Let's not forget what Saturn in Gemini (Communications) did to Telecoms. Hopefully it will NOT be that bad: Favorable tax treatment, low interest rates, along with continuing demand could make this a slowing market with a soft instead of hard landing before July 2005 when Saturn leaves Cancer [home] for Leo. Either way, buyers will benefit more than sellers.

Global Stock markets in 2004 will be determined largely by answering three questions:
Q1:  How will Bush's military adventures affect Oil prices and help or hinder the War on Terror?
Q2:  Who will be helped/hurt the most by the lower US dollar?
Q3:  What P/e's will investors be willing to pay for modest corporate growth?

 HOW HIGH IS UP? HOW LOW IS LOW?

VALUE WITH GROWTH
Capital Preservation is again most important for global investors; hence, we stress caution. Previously, we recommended an investment strategy paradigm of BUY and HOLD Growth stocks with at least reasonable valuations based on current and future profits.  International money flows no longer exclusively favor the US, with Asia, Europe and even emerging markets garnering more global interest. In 2004, both Value and Growth will periodically outperform and under perform. Market timing will be the key.

Classic "Buy and Hold" is passé: Stock picking, more than sector membership, and Market timing will rule in 2004. Successful investing will depend on knowing: 
When all the good news has already been factored into the share price, at what price is the valuation just too high? 
When all the bad news has already been factored into the share price, at what price is the valuation too cheap?

Any and all investing profits need to be protected against future bear assaults in 2004. 
Trade more (50% of  portfolio) and take/protect profits at 10%-20% profit points for long term non-core holdings.

LEARN THE LESSONS OF 2000, THEY REPEATED IN 2003 WITH EXCESSIVE SPECULATION:
1) Buy carefully and when stock valuation becomes super frothy again, SELL.
2) Be careful about owning stocks that are “priced to perfection”, they can only disappoint.
3) It is NEVER “different this time.”
4) Ultimately, profits matter.        

The Horoscope is a MAP of TIME and PLACE - here is a brief overview of selected global markets:
Country risk is re-emerging as a corollary to anti-globalization forces.  Sophisticated investors today are rightly concerned about being overly invested in any one country or currency.

EUROPE - A stronger global alternative to the US
European stocks have a 25% discount to valuations compared to stocks in the United States and domestic demand is growing. Some exporting companies' sales are being hurt by the dollar's drop against the Euro. A further surge in the euro above 124 against the dollar would hit some euro zone based export firms hard. Despite this, on a global basis, Europe is still undervalued and more reasonably valued.      

• GERMANY- No view. 
• HOLLAND - Market Out Perform Q2/Q3 2004.
• ENGLAND - In 2004, the City will Out Perform Wall Street.
• FRANCE -  No view.
  
• LUXEMBOURG- Hold Safety:
• SWITZERLAND: The worst is over.
  
• EU EXPANSION countries, the Czech Republic, Poland, Hungary, Cyprus, Slovenia, Latvia, Lithuania and Estonia remain on Watch as they are likely to compete inside the EU's single market from 2004 on. However, there is little for foreign investors to buy outside of the banks. In the non-financial area, many of the best companies are likely to be bought out, rather than going public. Finally, shares prices there already reflect European entry which means the "easy" money has already been made long ago.
  
Note: WSNW subscribers can review our favorite S: Dow Jones Stoxx 50 stocks.             

NORTH AMERICA - Traders paradise

• S: CANADA - We correctly forecast Canada would no longer lead the G7 economies last year and downgraded it to market perform. The Loonie is no longer undervalued and this is affecting some of its export driven economy. In 2003, its economy was pummeled by SARS, the Iraqi war, the mad-cow scare, the Aug. 14 blackout, a stronger Loonie and weaker US economy beginning of the year. A strong loonie into 2004 will result in more layoffs in export-oriented industries such as forestry and manufacturing. Fortunately for Canada lovers such as yours truly, 2005 will be stellar for Canada beginning almost  immediately after the US presidential elections. Does this mean Howard Dean, a great friend of Canada, will be elected?  It is a distinct possibility! In 2005, the loonie will be .80.
  
  
• S: MEXICO - Last year, we recommended only stocks likely to be a takeover targets like Banacci was by Citibank, AHISA by MetLife or Bital by HSBC or those with domestic strength such as COCA-COLA FEMSA (KOF). In 2004, I would only look to potential take over targets sporting reasonable valuations or companies that can compete in the US for the rising Hispanic consumer market share.  
• UNITED STATES - Still overvalued versus global counterparts. Our current Dow Fair Value is only 8200. Many former investor favorites will disappoint as investors sell rallies to "get even". US Bonds are by and large unattractive except for Treasury Inflation Protected Securities or a similar alternative I Bonds. The US Dollar remains a potential time bomb: It is no longer as safe a haven given budget deficits and the War on Terror. Positively, thanks to the weaker US