BCE

BCE update

Hamilton

In a previous blog, back in March, we opined that we very much doubted that the stock would trade above $48.50. It did not. Here is the detailed picture;

bce aug 16 2013

From the peak of $48.27 it traced out an initial 5-wave sequence down (about 16%). It then did an A up right to the apex of a 4th wave triangle and then collapsed again, almost to where it started the rebound. That is clearly a B-wave. Now the C should take the stock to about $45, the highest level in that triangle ( and possible a little higher). There is an alternative, the B could become a triangle which really doesn’t change anything except the timing. As it happens $45 is also a clean 62% Fibo retracement. So a buy here if you play for small gains and then a sell again as you get closer to $45.

RCI.B , T and BCE. The value of an oligopoly, empirically measured.

Hamilton

RCI.b aug 15 2013T aug 15 2013BCE aug 15 2013

See also previous blogs on these stocks individually.

Theoretical economics has wonderful “models” that will tell you what the value of a monopoly is, the so called monopoly rent. Oligopolies are slightly more difficult because of the relationships between the , small number, of players. Typically all kinds of supply and demand curves are drawn and by shifting them to the right or the left, or up or down you solve the rent question simple by measuring the surface area created in this manner. The practical drawback is that nobody really knows where the demand and supply curves fit in the model and what shape they might have.

Empirically, every now and then, real life provides the opportunity to figure out what the “rent” is actually worth. POT, Potash Corp recently gave a good indication of how high such a rent might be. In Canada the above three telecom companies control about 90% of the market. Our government would like a little more competition and is consequently contemplating selling certain blocks of frequencies and allowing the sale of one or two smaller players to entice foreign companies to enter the fray, in particular Verizon which is about three times larger than these three combined. The complaint is that this is so un-Canadian because we are, as a nation very fair, perhaps, but why are we then the oligopoly paradise of the world?. Full page adds trumpet the unfairness and even the labour unions are weighing in on the argument. The whole thing is almost pathetic  and is reminiscent of the silly arguments BCE offered a few years ago to go private, quite unsuccessfully by the way. Cutting through the propaganda we can observe that all three stocks recently dropped by 20 to 25 percent.(wave 1 of C down). Presently we are in a wave 2 up that is not yet complete. So, all other things being equal (they never are!) it follows  that the mere suggestion of Verizon entering our market, and then the announcement that this will be postponed caused this drop and ergo one might conclude that the oligopoly rents are (at least) in the order of 25% and perhaps a lot more. Despite all the pathetic demagoguery the past weeks or so, this is something the average Canadian has known for years!

After a bounce we would unload all three.

BCE, Bell Canada Enterprises update

Hamilton

We begin with the then, June 2012, and now charts;

BCE june 2012bce mar 7 2013

As you can see some eight months ago, the stock had already been as high as $42.50, we thought it could go a little higher (about $50) but that there was not that much left in it. Other than time passing by nothing has changed. The stock could still go to $50, which would represent another 10% or so from the present $46, roughly. We would advise a tight stop however, as we are near a point where things can get a little nasty, if for no other reason than that they have been so nice. Here is why on a chart;

bce mar 7 2013 msn

This is using the MSN chart, monthly and arithmetic , instead of the Yahoo semi-log chart. Not only is the difference rather startling, proving once again that you can prove most anything with a chart, but the implication to be inferred , at least from an EW perspective, is that we are in a 5th wave that is now about 62% of the extended 3d wave influenced by Nortel. Not only that but the straight line, no interruptions performance over the past 3/4 years is indicative of pure thoughtless momentum buying, something that can go on for ever provided the value of money is debased, or it can stop for no particular reason. From a risk/reward perspective the time seems right to either use the tight stop loss or get out.

bce mar 7 2013 s

For an incorrect count see previous blogs. We will not give it another try but nevertheless we doubt that this stock will rise above $48.50! To stick around for so little is not sensible.

BCE, Bell Canada Enterprises

Hamilton

BCE june 2012

BCE almost self-destructed back in the tech crash and of course it’s precocious and better known offspring, Nortel Networks actually did. For the record, I have been wrong on this one never expecting it to get back to the Teachers et. al. $41.60 privatisation bid, which itself resembled the recent Greek tragic saga but this time entirely made-in-Ottawa, with bureaucrats on one side and ex-bureaucrats on the other.

This company, like most Canadian blue chips, owes its existence to the strong belief here in Canada that uncompetitive and therefore safe is the way to go. It is a regional monopoly, together with Telus , Rogers and a few smaller players, each with their own fiefdom. It is not unusual today for a family to pay more for TV, phone and internet than they did 30 years ago on their mortgage! By some estimates rates here are about double what they should be. Also it is no coincidence that the richest man in the world figured this out on the other side of the US.

In EW terms there is an initial drop of 5 waves (?) followed by a long drawn out A-B-C, a correction within a down trend. The correction looks like it could be complete or go on for another year or so but in dollar terms it should not gain much further. In fact, like with Rogers, the peak at $42 may already have occurred about 6 months ago. Time to tune out.

bce june 2012 s

Just like with Telus this C-leg is very suspect. For most of the time the stock has a range of about $2 or 5%, this while the financial system seems to be breaking down for a second time. It is climbing on momentum created by memories of blue chips and a general lack of choices. No broker has ever been sued for buying BCE, an oddity itself considering how ridiculed the stock was. These things go on un till they stop and then there is no support other than the bottom , that is below $18.