Month: August 2011

The Fed.

Hamilton

We all know that the Fed. was created in the middle of a dark night off the coast of the Carolinas in 1913 or so. It is not a government agency as just about everyone wants to believe. It is more a quasi partnership between banks of different nationalities to save the world, after saving themselves.

The market, supposedly is looking forward to whatever rabbit will be pulled out of the hat at Friday’s Jackson Hole conference. Last time it was QE2, might it be QE3 this time ? Apparently it is not yet abundantly clear to the vast majority that “pushing on a string” or bringing the proverbial horse to water does not matter if the beast does not want to play ball. Even so hope is eternal and the market seems to know that there will be a rabbit, no matter how small.

In the mean time the San Francisco Fed (there are 12 of these) did a research study that was pretty well ignored, at least the impact was less visible than the earthquake. Here is that study in short;

fed populat 2  fed populat 1

They, the research guys at the SF Fed found a correlation between age and investment behavior. Nothing new, we had that here with Foot and others already. But here is the point, they expect with a high degree a statistical credibility ( a lovely 61% correlation for Fibo  believers) in support of their conclusion that stocks should trade at a P/E of about 8 or so in 5 to 10 years. We are at 14 now so the Fed is telling you stocks might drop by 1/2. So much for QE3 or the next rabbit.

The M/O ratio is the fraction of people between 60 and 69 that own most stocks and are about to retire. More at the website SFFRB.

ACN, Accenture Ltd.

Hamilton

acn l acn s

Accenture, like all or most, is on its way down. A reasonable first target would be around $36 or so. Short term it is possible to count 5-waves down (black) in which case we should get an immediate bounce. More in line with the rest of the market would be the blue count at about $43. We will keep an eye on it.

CNQ, Canadian National Resources.

Hamilton

cnq b cnq m

CNQ is like so many others, except a little clearer even. You have to look at the chart and then it is not that difficult to conclude that , if this stock were actually to regress to the mean, it could easily make it to $10 . In fact, it is not far-fetched at all as regressing to the mean is as normal as the sun rising in the morning.

In EW terms it gets pretty compelling. The rally after the lows of March is ,without a doubt, an A-B-C shown in a stylized way to make the point. It has given back almost 40% of its value and about 60% of the rally. It may go a little lower just to get to the B-wave level but should get a solid bounce soon (decent here means almost $10). Then the regression will continue! A sell at $41 if it gets there!

IYR, iShares DJ US Real Estate Index Fund

Hamilton

This fund or ETF seeks quote – investment results that correspond generally to the price and yield performance, before fees and expenses, to the performance of the real estate sector of the US equity market, as represented by the Dow Jones US Real Estate Index – unquote. There are 84 components in this index, mostly REITs. Here is the chart:

iyr

This “picture” should be a familiar one. This iShare only came into existence in 2000 so the chart covers less time than usual. The explosive run-up into the $95 high is pretty standard. The drop down to $21 or so a little more than standard, but the structure is a very nice A-B-C. That could be all of the correction were it not that the rally from there has an identical A-B-C, or corrective structure. It follows then that at the very least the rally should become more complex, this being just the first large leg, or we go to levels below the $21 low. Either way we will go to about $43 as a minimum, the start of a wedge wave C. Notice that the volume rises as the ETF trades down and v.v. According to Bigcharts short interest on this ETF is running at 87.18% an unheard of high percentage. The shorts are mostly smarter than the longs so this does not bode well for the immediate future.

In Canada real estate is immune to what happens in the world. Even so one has to wonder how anyone can live in Vancouver. According to RBC it now takes 92.5% of pretax household income to pay for the average house. As income taxes are around 20% or so the new homeowner can forget about eating or anything else. In Toronto it is a mere 51.9% so you might still be able to eat, but that is about it. Interest rates better not go up!