Month: February 2009

RIM Feb 6 update.

Hamilton

Today, after another 725.000 people lose their jobs in North America, obviously a very positive development in new economics, the market is on wheels. RIM, POT and all the usual high beta stocks are participating in the euphoria. RIM has the additional little boost from the option back-dating saga coming to a close with just a few hundred million dollars changing hands, (what ever happened to the good old days – 1820-ties -when children were sent to the gallows for stealing bread in order to feed their families?).

As stated earlier I would be out of this one even if the target has not quite been met. It does have a little more room, probable around $77.

rim feb6

Economics made simple, very simple.

Hamilton

Earnings

Here is today’s chart of the day. Any student of economics has , at some point in their lives , come across the “discounted cash-flow” concept. In its most simplistic form it states that a stream of income in the future has a value today (PV) equal to that stream adjusted by the discount factor. Given that few market participants look further than 10 years , that rate is a reasonable proxy for the discount rate. The math, for those of you who were not wholeheartedly attracted to calculus, limits and other such wonderful concepts, can also be simplified. We get PV= Stream/ 10year rate. Using the US government 10 year note, 2% just a month or so ago we had PV=100/2= 50 (notice that when rates drop to zero, the value of anything and everything starts to approach infinity – a phenomenon either very well understood by the FED or not at all. Now with the 10 year at about 3% and earnings at 40 we get, PV=40/3=13.3. Simplifying the math tends to take out the compounding and therefore exaggerates the result, lets call it 20. From 50 to 20 is a drop of 60% (do I detect the invisible hand of Fibonacci, that guy from Pisa?). Applying that to the S&P which topped at 1576 gives us 630; we are at 860 today! This , of course , assumes that profits do not drop further and or rates do not rise more.

WMT update Feb6 (by special request)

Hamilton

wmt feb6 1

Pretty clear pattern, 5-waves up from 0 to $65, probable a FAILED 5th wave. Do not like that but does fit best with reality.

wmt feb 6

The triangle (usually a 4th) is clear as daylight, the 5th wave thrust falls short by about $5 from making a new top. Assuming this interpretation is correct than completed bull cycle is being corrected. Normally this takes the stock down 50-62% no problem, which puts the target firmly in the 30/20 dollar range. Wave 1 down was clear, and 2 retraced the anticipated 62% plus a little. Now in 3 down, where in 3, not sure.