EFN, Element Financial

February 16, 2016February 16, 2016 Hamilton

The fellow that runs this company, Steve Hudson, was the founder of Newcourt Credit, a company that got into a little bit of trouble many moons ago. At one point, if I remember correctly, it’s instalment receipts were trading at a negative value. It, as is EFN, was involved in equipment, mostly cars, trucks, planes etc., leasing, financing whatever. The business model is that you can finance at a lower rate than the operator can, or alternatively can depreciate faster or operate more efficiently. In order to do this the collateral value of the equipment must at all times exceed the amount needed to finance it. In a recession or depression this is often no longer the case and that is when your external financiers no longer return your calls, or worse, start calling you.

This stock went up 5-fold in as many or fewer years. Some of the business was bought in big chunks, for instance from GE. Lower financing costs have been a God send, but things may be changing. The run up since inception is a clear 5-wave sequence. This is confirmed by the 4th wave triangle. So far there is a clear 1-2 down followed by a third wave which does not look at all finished. And all this is just wave A. Sell after a bounce to maybe $14/$15. First waves are normally retraced almost entirely.

Shanghai, China update

February 16, 2016February 16, 2016 Hamilton

We view the rise of the Shanghai index above 5000 last year as a B-wave, a correction in other words. Consequently we expect the entire rise, and perhaps some more, to be retraced. We have heard as many excuses why this is not an overvalued market as we heard when the Nikkei traded at a p/e of, I believe, something like 70X. Other arguments are , of course, that the p/e is only one out of many metrics or that you have to do it looking forward rather than backward which puts you into a circular argument.

The reality is, according to “the Simple Truth” as per Business Week/ Bloomberg is that the p/e, even after this almost 50% drop, is still at 57X. Even if we give China a p/e equal to the average/mean of about 17x and add 7% growth, we get about 24, say 25. That is roughly, very roughly, one half of where it is now. The implication is that if the p/e were to drop to a still high but “normal” level, still double Hong Kong’s or Canada’s, the Shanghai index could fall to about 1400, besting it’s 2008 low marginally. Since this index comes from 6000, 1400 would be about 1/4 of the peak value which is not substantially different from what the Nikkei actually did during the first 13 years of it’s drop. We are great believers in the adage that there is seldom something new under the sun. For your convenience, we repeat our blog of June 26, 2015;

BCE, Bell the phone company.

February 15, 2016February 15, 2016 Hamilton

From this morning’s news;

Japan’s benchmark Nikkei 225 soared 7.2 per cent to close at 16,022.58, rebounding from last week’s slump to post its second biggest one-day gain in three years.

Stocks rallied after government data showed Japan’s economy shrank 1.4 per cent on an annualized basis last quarter because of weak consumer demand and slower exports. It’s a setback for Prime Minister Shinzo Abe’s economic revival program, which aims to stoke inflation through massive monetary easing. However, the latest report also gives the government more reason to open the stimulus taps wider to restore growth, economists said.

Clearly bad news is still good news, which is why today we will take a look at BCE. This is a blue chip, widows and orphans, quasi government owned, utility type of stock. For the most part management (civil service rejects) was considered inept. They were but the monopoly shielded them from the worst consequences. Bad news was served all the time so this stock must have done very well. It did.

Exactly a year ago, Feb. 8 2015, we opined that this stock was a sell (see blog). It had reached a peak of $60.20, very close to that Fibo ratio of 61.8. We have trouble confirming that peak today, but despite that it does not appear to have made any progress over the year worth speaking of. A triangle remains a possibility but it is not worth betting on.

Waves 5 on normal, non-commodity stocks, are seldom longer than waves 3. That would be at the pink line. This chart is very educational. Everything within the green circle is a “flat”, the very same pattern that most stock markets are presently in, only at a higher degree. This one took 9 years so the higher degree patterns should take even longer. That flat took the stock down >55% just eyeballing it and more like 60% if you adjust for the failed 5th wave of c. Should this happen again we would be looking at $24 which is very close to the 4th of previous degree. BCE could be just one good disruptive communication adaptation away from becoming, a copper mine without a future.

HCG , Home Capital Group update

February 14, 2016 Hamilton

The then, June 29, 2015, and now charts as usual;

At the time the stock was around $42 or so. Recently it got to $23 or another $19. From the peak the total damage is close to the 61.8% magic Fibo retracement and consequently a bit of a bounce could be in the cards, perhaps in a minor wave 4 of 5 of 1. After that a bigger bounce which may even close the gap and then further down in wave c of this a-b-c correction which should reach the lowest point of the triangle. Reverse engineering suggest that closing the gap is attainable assuming c will equal a.

All the banks have similar patterns, mostly B-waves without triangles, but all are well on their way. This one and CWB are the furthest down and CM, Commerce , oddly enough the least. There is no reason to change the EW count at this time so we remain bearish on the group, including the insurers.

Share this:

Share this:

Share this:

Share this: