T

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.

T, Telus , common sense?

Hamilton

T june 30 2012

Telus is one of Canada’s few darling telecommunications stocks. Before we have a look at the EW count, what should a prudent investor do using just common sense? Suppose, for the sake of argument, that one could time the market, which we are continuously told you cannot to give weight to the idiotic “buy and hold” approach – you would have made $55+$60+$35+$30 or the sum total of $180 for the last 4 moves. If one could catch just 1/2 of that the result would still be a gain of $90, substantially more than by holding for the past 14 years or even 20 years.     

Over the past 20 years the stock has only been higher for perhaps 3/4 of a year. Obviously that does not change the chances of the stock going up or down but given the wild swings and applying that very sensible “a bird in the hand” approach it might just be wise to exit. Also, twice is a coincidence, but three times is a pattern! And here we have that pattern, a triple top.

In EW terms, the drop from 98 to 02 is a beautiful, absolutely perfect 5-3-5 zig-zag, which is a complete correction, most probably wave 4 as Telus flirted with bankruptcy. The big move up into a new high would then be wave 5, which wave can be subdivided in 5 separate waves though not necessarily as shown. Then the initial 61% drop is wave A of the next bear. The stock retraces most of that in what must be one of the most “phony” bull moves ever, zero volatility, straight line up for 3 years, see below. That is the characteristic of a B-wave. Next on the menu is wave C of this flat, right back to $30 or lower. In fact much lower as the 4th of previous degree is at $5/6

t june 2012 s

T,Telus

Hamilton

In our last blog, back in February , we suggested that this stock was a sell even if it had not yet reached its full potential. It has now IMO and therefore we would definitely sell at this time (we were buyers at $31). The simple reason is the clarity of the chart which has a similar ending as EMP.A (Sobey’s). Here are the charts;

t 2011 lt 2011 s

The argument is simple, as always. Looking at the Bigchart it is clear that for the past 20 or so years this stock has only traded above it’s present price for maybe 3/4 months at best. That obviously does not preclude it from doing so in the future, but clearly if you are a buy low/ sell high investor, you start of with 3 strikes against you. The stock is sort of triple topping and Head & Shoulder types might see something there. From an EW perspective the dead giveaway is the diagonal (always) 5th wave that the stock has been tracing out since August. This is an exhaustion pattern that quickly retraces back at least to it’s base, and probable  much further.

T, Telus. (update).

Hamilton

t 2011 4

See also previous blogs. This company reported earnings today and beat the street by 1 cent. They all either beat, or miss by 1,2, or 3 cents but it is completely useless and meaningless noise. The stock, in any case , barely moved. It first fell 62% and then retraced a similar amount and it now sits at the b-wave level of the 2007/10 drop. The light on this one is neither red or green , instead it is yellow.

Nevertheless the stock is a sell. This is the original Alberta government telecom company gone private. In Canada governments are fooling around with band-width, content and other such issues. The CRTC is soon going to come with some new rules etc.etc. Competition should increase and as our 3 main phone companies charge exorbitant fees, relative to other markets, odds are that their profitability will decrease. At the present level the stock is up 70% from the blows and clearly well into the “high” range by a very healthy margin.