Year: 2012

Nikkei 225 update

Hamilton

nikkei 225 dec 225 2012 arith.nikkei 225 dec 25 2012 log

The Nikkei 225 turned on a dime on New Years Eve, 1989, maybe it will do it again this year. We have had this scenario (count) for almost two years. It is absurd and cannot be correct. But here are a few other facts that no one would have believed prior to the peak.

In central Tokyo a single square meter (about 9 sq. ft. for those that are measurement challenged) went for $79,000 at the then prevailing exchange rate of 135 Yen to a dollar.

Downtown Tokyo land values were about $800 mln. an acre and the Emperor’s palace was reputedly worth as much as the entire State of California, or all of Canada.

From 1949  ( the Japanese surrendered on the battleship Missouri in Sept of 1945) to 1989 the Nikkei 225 was up 221 times in yen terms and 559 in US dollars.

In 1989 Bankers Trust Canada issued 3 year put warrants on the Nikkei in Canada. They were priced in C dollars and side stepped all the then existing regulations. You could buy them in an RRSP.

After 23 years of on and off stimulation the Bank of Japan has just recently decided to up the ante again by adding about $120 bln. , far too little according to some but at least a start. The country’s debt to GDP ratio is running at about 230% but there is no cause for alarm because it is mostly domestic.

Japan has a population of 128 mln. dropping by about 1 mln. each year. By 2060 it is expected to have a population of 87 mln. with 40% over the age of 65. About 98% of the Japanese are ethnically Japanese.

If the Nikkei will in fact go much lower remains to be seen. It would take a break of about 11000 before the count is negated. For the moment this still appears to be the best interpretation. How absurd it really is, is demonstrated by this semi-log Wikipedia chart with my annotations.

nikkei 225 dec 25 2012 semi log

COST, Cosco update

Hamilton

costcost dec 25 2012

Back in June, now six months ago,  we suggested stepping aside, getting out, selling or whatever on the simple basis that we did not expect the stock to go much beyond $95 (it was $93 at the time). We did mention the Mnt. Everest syndrome that somehow sucks stocks to about $100. This one went to $105.97, including overnight, $99.44 without. When we suggest selling we did so with the average investor in mind, one that is completely undisciplined. If all our readers were “professional” all the time the sell option would not exist, simple because you do not sell a stock that has momentum going for it, after all the sky is the limit! Instead you would ratchet up your stop-loss ( to the trend line) and let events dictate when it is sold. Personally, we would sell here if we had not done so back in June. With a p/e of 24 this one is rather rich relative to the market.

TSX update & Merry X-Mas

Hamilton

tsx dec 25 2012 btsx dec 25 2012

If you look closely (by all means enlarge the charts-click on it), you will notice that the TSX is not all that much higher now than in 2000. On a year-over-year basis, the year is not over yet, the gain is a mere 3+%. That is very disappointing as the last few years supposedly had the commodity boom and/or the China factor working on overtime for us. What happens when that stops? Moreover interest rates have never been so low for so long. Using the discounted cash-flow pricing model stocks (and everything else) should be worth 2 to 3 times what they were 10+ years ago. Real estate is, stocks are definitely not! Looking at the short-term chart a fairly clear triangle appears to exist for the past year and a bit. This is a “consolidation” pattern that is normally resolved in the same direction as it started, down in this case. The problem with that is that the big picture cannot have a triangle in this position (wave 2), therefore we may be looking at either a very protracted wave 2 (of 3), or a series of 1-2s. The best possible outcome is for another 300 points up and then down hard, not very likely. In the extremely remote event that a huge 10 year triangle is forming starting at the 2008 top, a drop to about 9000 is still plausible. In short, we remain bearish.

All though I do not know who you are, I do know that there are about 100 different people looking at this blog every day. I appreciate that. In the future I hope to be more actionable in the recommendations, perhaps by using the green, red and amber categories. The challenge there is that what is a good trade for one , may not be a good trade for the other. Success, in my opinion, is based on a combination of insight and discipline. A trade may work well when both are applied and not at all if only one is. Furthermore the “philosophy” used is fairly simple, like a cat on a tree branch we wait for the prey to pass below us, then we pounce on it, very opportunistic if you wish. If it works we are happy with 25/30%, if it does not we are out with a 10% loss. There is absolutely no need to be fully invested! A recommendation positive or negative has nothing whatsoever to do with the quality of the company or it’s management, all stocks have their seasons. The main input will continue to be Elliott Wave but not necessarily in a pure form. The sole purpose of all this is for me to be right on a call and for you to make money on it. Once I have everybody completely dependent on this blog and fully aware of the gains that can be derived from it – this is still further in the future – I am contemplating charging a modest fee to cover costs. Also I am not presently licensed to give advice to the public, so none of this blog should be misconstrued as advice. You are completely on your own.

See you in the new year.

SAP, Saputo update.

Hamilton

We thought this one was high enough at $41 almost exactly a year ago. We did not get it right but did note that we had a problem figuring out a plausible count That is still a problem. Here are the charts once again;

sap dec 24 2012 lsap dec 24 2012 s

The assumption now is that the entire move up from the great recession is one, single, 5th wave. There is , perhaps, a 4th wave triangle that seems to be missing the e. In any event it is a consolidation pattern that lasts for a year and a quarter and is then followed by the usual thrust. It has now travelled about 62% of the “mouth” and could therefore be complete. If not $56 is still a possibility on account of that particular metric. All other indicators are more overbought than ever before in the last 3 years.

We looked at earnings and revenue since 2002. Earnings are up by (very) roughly a factor of 3x and revenue by 2x. The company regularly buys back its own stock on an ongoing basis. Last year about 200 mln. at an average of just under $41 The company was founded by Italian immigrants in Montreal back in 1954 and obviously has done very well ever since. It is now the largest dairy products company in Canada.   But the stock trades at a not too modest P/E of 26, almost double the market’s. There is either an enormous renaissance going on in cheese eating or this one is a little overdone. A sell, again.