The Keg, KEG.un

November 12, 2010November 12, 2010 Hamilton

The Keg restaurant pays a return of slightly above 10%. At first blush his may seem very attractive given that the market overall pays less than 3% in dividends. However this is an income trust and the payouts for these structures (which must be phased out by 2011) are notoriously disconnected from their actual earnings(i.e. you may be getting your own money back)!The present payout ratio is 99.2% which is high by most standards and certainly for a capital intensive operation. The company has existed since 1971 but only went public in April of 2002. It is a franchise chain with a total market capitalization of about $130 million.

Since inception the stock has traded roughly on either side of $10. The present price of $12 is therefore not cheap. The RSI and the MACD both suggest a drop could be in the cards. More importantly the EW count that best fits the action after the lows is that of an A-B-C correction followed by a new bear cycle. Only if a new interim high can be achieved is this scenario negated. The Keg not that cheap , a decent meal for 4 will set you back $350 easily whereas the same meal at a Chalet Suisse would cost perhaps only $150. This upscale positioning is good when life is good and there are sufficient numbers of high-rollers ( compare to Harley Davidson , nobody buys one because they need one, only because they want one.) Should the market turn down again, this stock would be quite vulnerable.

For comparison purposes I have added Harley-Davidson (HOG) below;

Again click on the charts and move them around to better view the correlation.

HL, Hecla , SLV silver ETF

November 11, 2010 Hamilton

It took the Hunt brothers’ fortune cornering the silver markets to push the price to about $55 an ounce. That was in 1981 when Kodak still made film and your dentist poured the stuff as an alloy in your tooth cavities. Those days are long gone and today, even after shooting up like a rocket the stuff is trading at pretty well half that price, give or take 30 years later. What an inflation hedge! Here are charts of the SLV and HL (Hecla) one of the few pure silver plays.

Just to belabor the point, silver has made new highs over the past 2 years but the HL stock is still far from double-topping. This non-confirmation does not bode well. The vertical uptrend is equally worrisome. For those that cling to the inflation–hedge myth it may be helpful to consider that HL at about $9 is trading at 1/4 of the 1981 value, a period of 30 years during which the value (purchasing power) of the dollar has lost at least 1/2, so combining the two, HL is now at 1/8 of its ‘81 value!

I would get out of the precious metals ETFs. In the old days the commodities were traded by way of the futures and the CRTC had limits to what size an individual player was allowed. Those limits were waived for a number of players such as GS, JPM etc. arguable adding to the financial debacle. The ETFs allow this same expansion of the number of players and the size of the bets to the point where the financial game is completely divorced from reality. This is fine as long as you realize that the game now is not about “ïnvesting” , instead it is more akin to playing Russian roulette with 2 bullets in the chamber!

CEU, Canadian Energy Services – to log or not to log?

November 10, 2010November 10, 2010 Hamilton

The difference between log-scale or arithmetic can be very instructive. This is Canadian Energy Services, a high tech type of niche oil services provider that specializes in mud , special mud! Only wish we could have found this gem earlier but it simple was not on our radar screen. With a balance sheet of under $300 mln. this is not just small cap. but very small cap. meaning that you can either make a fortune or lose it, there is no middle ground on this one. By the way, some $90 mln. or so of that balance sheet total is “goodwill”, not exactly awe inspiring if you have learned the rudiments of accounting 101.

The question here is how do you evaluate this stock for a trade. Well if you are very disciplined and fully in control, you may want to buy this as the stock may still go to ,say, $29 or even a little more. See the log-scale chart. On he other hand , if you are arithmetically inclined ( the top chart) you would not even dream of buying this as it reminds you of that bi-plane at the air show that fell back into it’s own fumes right at this point. Will your broker call you at $27 to get out or did he make 199 other recommendations at the same time , and having forgotten you even own it, only talk to you again when the stock is at $4, of course explaining that nobody could have foreseen this event!

My guess is that if this is a good company, with real good mud, you will be able to buy it at around $14 within the year.

GOLD, the stuff , and the XAU

November 9, 2010 Hamilton

Once again I acknowledge that I do not understand all the hoepla surrounding gold, nor do I have a clear EW count to lean on. Nevertheless it seems to me, once again, a good time to step aside. Here are a few charts, of the stuff and the stocks by way of the XAU.

Also Goldcorp G.

A few things are immediately clear. Goldcorp dropped like a stone just as the world as we know it, at least the financial part, supposedly came to an end. When subsequently Europe became unhinged with Greek , Portugees and other PIG problems Goldcorp barely budged, in fact it flat-lined for almost two entire years as if oblivious to world events. Fortunes were lost on this stock as a result of predictions then by the pundits that gold would go to $3000 and above, now it is just double topping.

Looking at the XAU as a broader guage of gold stocks, it is readily apparent that there is a disconnect between the stuff and the stocks. The XAU has been triangulating for a year and a half and have only recently continued its trek upwards. Even so it is essentially just double topping and could potentially have completed (or nearly completed) its thrust. The next move should be back to the lowest point in the triangle. The disconnect between stocks and the stuff is probable due to the many ETF that have been created in this space creating the artificial demand for the stuff relative to the stocks. This disconnect or non-confirmation does not bode well.

Gold itself has managed an impressive gain over the past few years, but not more than many other commodities like coffee, wheat and a whole host of others. At this point it is approaching the upper parallel trend-line which has been in force for over two years now. It could go a further $100 or so but then will probable drop at least $250/$300 which it seems to do with the regularity of clockwork.

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