Month: September 2015

VRX, Valeant Pharma update

Hamilton

We have the then, July 24,2015, and now charts as usual;

vrx july 24 2015 arith.vrx sept 29 2015

Valeant with an e is really Canada’s only pharmaceutical company. There is, I believe, a TSX sub-index for pharma but it is about 98% VRX so you might as well just buy this stock. This stock has outperformed just about everything and recently the company was actually Canada’s largest by cap., beating even the Royal Bank.

    This stock is the example, par excellence, of what a momentum stock is and does. Our friends at Merrill Lynch Pierce Fenner Smith understood this perfectly well when they very deliberately chose the bull as their brand for the simple reason that it was so capable of stampeding mindlessly  in one direction at the slightest prodding of their cowboys. In the process, of course, many otherwise innocent bystanders are sucked into the wake of the charging herd. This phenomenon is not unique to animals, it has been the object of many a scientific study on the subject of group-think where normally intelligent humans congregate in like-minded groups, as in a management team, a board or whatever. If , for instance, the members have IQ’s ranging from a low of 60 (3-year old) and a high of 140 (equal to mensa entry level) and there are, say 10 of them, then collectively their IQ is 1000. Invariable it was found that the group functions at a level that corresponds to the lowest member’s IQ, in this case 60. It seems that in these settings the lowest common denominator trumps everything else and prevails, regardless of the shape, square, round, or oval, of the boardroom table. This works un till it doesn’t. VRX doesn’t work anymore. It closed the gap and is on it’s way to $120 and possible lower.

DE update

Hamilton

DE sept 25 2015

So we got our 4 and 5 waves and the stock is now down about $25. For the moment that may be enough even though forward looking statements by CAT are hardly inspiring. After a bounce this one will probable proceed to about $55 for starters. Komatsu, the Japanese heavy equipment builder looks even sicker.

Komatsu Ltd. ADR, sept 25 2015

POT, going to pot?

Hamilton

POT sept 22 2015

Back on July 30, 2013, when this stock was essentially at the same levels as it is today, we unequivocally opined that the drop was not over and that we should first get a 4th wave. We did even if it took longer than we would have expected. This is a large A-B-C in which the C will probable turn out to be a “diagonal”. This is normal for commodity stocks that typically have outsized 5th waves.

Potash is the product of a lot of engineering by the province to create a monopoly (or oligopoly). Not surprisingly then that the Premier got real anxious when there were threats to this business model when BHP showed an interest in expanding production and perhaps even stepping out of the cartel, this despite having advocated an open-for-business approach. Things went wrong because monopolies only work if the monopolist has the luxury to wait forever. As soon as some form of dependency is created the pull towards expanding production becomes irresistible.

You could have sold at $62 right after the bid. You have already lost half of that. If you hold and this EW interpretation turns out to be correct you will loose another 2/3 from here.

Harvard (not the university)

Hamilton

4harvard

This is the type of aircraft I learned to fly in during my stay at the Royal Naval Academy. There is a Cessna in the background, it has a mostly horizontal attitude and weighs a lot less. The power to weight ratio is totally different. The Cessna has a Lycoming 4 or 6 cylinder boxer engine with an output of, my guess, about 240 horses. The Harvard has a radial 9 cylinder engine that is rated at 600+ horses. It sits on top of the wings rather than hanging from them making for a less stable and self-correcting handling.

When you start to fly these machines there are a lot of forces that you simple do not see, do not expect and most probable have never heard of just like in the world of business. A novice, having seen the Cessna started by hand might want to do the same with this beast, not a good idea! Some older models actually had a shotgun cartridge starting mechanism.  Then once you get it running down the runway and pull up the tail you get a rather hard push to the left that is if you have a clock-wise rotating engine. This is caused, among other things, by gyroscopic precession, propwash and torque causing yaw. All require quick and hard rudder responses to keep the plane straight and stop it from ultimately going into a ground  loop. It takes time to get accustomed to all these forces and how to handle them. There is room for two, in line, so the experienced pilot can train the novice. The most critical thing, just as in business, is that you do not go solo un till you know what you are doing. But some simple cannot resist .