Month: September 2012

SU, Suncor update (#12)

Hamilton

su sept 2012su s sept 2012

This is a special edition for my friends (I hope) at an investment club that I occasionally attend. There are now about 12 entries for this stock, some bullish some bearish. Overall you would have made a lot of money following the advise but I know that most people do not preferring to listen to fundamental bla-bla-bla. The question now is what to do if a merger, read take-over was to occur given the various options offered. The stock in question is ETP, Energy Transfer Partners, shown below.

etp sept 2012

ETP is a 10.7 bln. dollar company, SU at 51.8 bln. is roughly 5 times the size. The stocks behave in roughly the same way, even with similar numerical values so there is no reason to expect one to convey value to the other with the exception of synergies of scale etc. etc. From the perspective of owners of SU the impact should be marginal and accordingly the single most important consideration is where is this stock going on it’s own! That is down after this c leg is complete, approximately to $38, that is if there is a c leg. The ultimate target is at $17 or below, when you have $2 to the upside, perhaps as a result of the noise created by this take-over, and $20 to the downside the answer is quite simple that you do not need to evaluate all the little differences in the options, you need to sell now. One of the cardinal mistakes that investors make is that they focus on trivialities and lose sight of the big picture.

Baidu (BIDU) update

Hamilton

bidu b sept 2012bidu s sept 2012

Baidu has intrigued us, in good Chinese fashion it does not want to reveal it’s intentions. Last time (see previous blog) we were hesitatingly bullish on the stock with an immediate target above $125 on account of the expanding wedge in June and July. It went to $140. For the past year or two the stock has stayed within a narrowing range between $165 and $100 (nice Fibo relationship). Then and now we are ambivalent but prefer the downside this time. The bullish case is represented by the purple triangle which is technically incorrect as both boundaries are downward sloping; they should be in opposite directions. Also we fell out of the channel, tried unsuccessfully to get back in making the blue interpretation more plausible. Also, we have not reached the 4th wave of previous degree ($90), nor have we retraced a decent  (50/60%) portion of the $150+ rise in the previous 3 years.

For the fun of it we have a chart below that has nothing whatsoever to do with Google but perhaps it does with china;

obfuscated stock

I know that the similarities are not perfect but clearly they do look alike and perhaps the common factor is China.  Where one goes the other might go as well. You can move the charts around to better compare. It is an ETF. This triangle, if there is one, is kosher so to speak.

Interest Rates, update

Hamilton

Japanese 10 year yield

This is a great chart, unfortunately I cannot find the source but you can get the charts separately from St. Louis Fed and the Japanese Treasury Department. I have added the last few weeks!     Since the announcement of the 40 bln. / month purchase of mortgage backed securities for an unlimited period in the future, interest rates have actually moved up, but so far at least not in a meaningful way. In the mean time Japan has joined the group of Central Bankers by announcing another 10 trillion yen of bond buying ( about 125 bln. US, bringing total to 700 bln.) Other Central banks have simple lowered the fraction in fractional-reserve banking or, as in the case of China, gone straight for infrastructure improvement programs.

Japan is not America, that much we do know. The yen is not a reserve currency and Japan holds about a trillion US dollars as reserves. China another two trillion. So the US is beholding to its creditors, for Japan this is mostly an internal matter. Japan has an aging population and is not keen on immigration. The US has a much younger generation but is nevertheless not that keen on immigration anymore either! Japan has a collective mindset, the US for the most part subscribes to Ayn Rand type of raw capitalism. I don’t think any of this really matters, what does is that Japan embarked on a easy money policy years ago and its stock market is still down 75% and real estate about 80%. If the US follows this example we would have another 14 years to go, that is to 2027, give or take a year. The assumption seems to be that the Fed. can do what it wants but perhaps this will prove to be incorrect.

US 10y

The US 10 year bond on this log-scale chart,  could have made a nice wedge which could be complete. If it is it should break the upper trend-line soon. The alternative is that we just completed a 4th wave which would allow for about another 1/2 year of low and lower rates. That is the least likely alternative at this time, preferring the scenario where rates start moving up right away. See our previous blog of June 7, 2012.!. Below is an additional chart of the 10 year constant maturity. From 15+% to about 1.5%

10-Year Treasury Constant Maturity Rate (DGS10) - FRED - St

SLB , Schlumberger update

Hamilton

slb sept 2012

This one is following our script to the dollar, stopping precisely at the first target of $55 (see previous blog). Since then it has almost completed an a-b-c correction that has taken much longer than expected but nevertheless fits the scenario to a T. This does not bode well for the outlook for oil stocks in general.