X

X, TSE update.

Hamilton

x mar 2011

We recommended getting out of this stock the day the “merger”was announced. It is some $5 lower and the can of worms that this has opened is getting exponentially more complex. The large Canadian banks have , and this is quite unusual, broken ranks with 3 against, one on the side (it is in an advisory capacity and should stay mum) even though the chief earlier favoured the deal conditionally. The Ontario Securities Commission has weighed in but has no authority. Mr Prentice, now vice chair at CIBC but a few weeks ago still a minister, rambled so much about it that no one nows where they stand. The former CEO, now CFO with RBC but already slated to “move on” favoured the deal. And so on and so forth. This is another BCE privatization in the making and my guess is that in the end, just like in a Agatha Christie who-dun-it, the gardener will show up 3 pages from the end. More important is why an investor would want this to go through. Below is the LSE and it is rather dismal.

lse

Should X follow this example it will trade substantially lower, more in line with most of the world indexes which fate it has, so far , been able to avoid to some extent.

TSE, is EW wrong? What now?

Hamilton

The basic call coming from EW analysis, my version and that from others,was that from 2007 the market should drop and lose 50/60% of its value. Well before the lows in March of 2009 the bearish scenario became very bullish as it called for a retracement of the previous drop of , again, 50/60%. So in total the call was correct for the first 11000 points. Then the market charged on for another 2000 so far which EW did not , unfortunately , anticipate. As seeing your neighbor making money while you are treading water or worse, is extremely painful and this could pull the hesitant investor into the game, which is no doubt what the market wants. But there are a few good reasons not to buy now!

tselongterm2011

treasuries

In the top chart is the TSE and beneath it the 30-year US treasury in yield terms. I use the US rather than the Canadian as it is much easier to find and the Canadian one would actually amplify the point as our rates travelled a wider range. The point being made here is that the two are highly correlated through the “discount factor” discussed elsewhere in this blog. All you have to do is turn the bottom chart around so that you are looking at it from the back (SeitenVerkehrt). and the correlation is startling. Even the numbers are almost proportionate. Also the individual swings get bigger as the numbers get bigger and v.v.. All this of course does, is anecdotally demonstrate that interest rates are a huge factor in determining stock prices. With a 1.6 trillion deficit how much lower and for how long can the US keep this up (down)?

Looking at the top chart, the green arrows marked X,Y and Z, all 3 drawn vector equal, show that the up leg from the March low is now equal to the leg up into the tech stock bubble of 2000. As of today this is the fastest up move in the 150 year history of the TSE, travelling more in less than 2 years than it did in the first 145 years of its existence! But it does not have to stop here. The next level is where c=a (of the B-wave)at around 14400 (all numbers are monthly!), the parallel trend-line is a few hundred points higher. Then comes the old high at 15000 followed by 16500 where this leg would be vector equal to the preceding two. In between are slightly different levels (light blue) where the vertical distance is equal. The point is that out of the 5 or 6 possible ending levels, the very highest one is at “only” 16500 or about another 2500 points or roughly 18%. All others are much closer.So to get in now to get, say an extra 10% by possible risking 60% is not a good proposition.But then this call could also be wrong!!

By the way, the TMX group (X) itself, has been declared a strategic asset so that take-over/merger is dead on arrival.

Recent take-overs, mergers and B-waves.

Hamilton

Danaher Corp’s , DHR, recent take-over bid was done rather precisely at the peak of a B-wave in the target stock Beckman Coulter, BEC. Both are shown below;

dhr bec

Note that the “currency” of the take-over (stock/cash) is at a high as DHR is quite obviously peaking. What is more interesting is that the target, BEC, is also at a high. It would seem that the “relative” values are less important than that they are at highs. This phenomenon can be observed in quite a few of these situations recently. Here are just 2, Ensco and Pride International Inc. , PDE, and the TSX, X.

pde x feb 2011 big

All are at double tops and have completed clear B-waves. except the Toronto Stock Exchange X. All are sells.

X Toronto Stock Exchange.

Hamilton

x feb 2011

The TSE does in six months what it took one hundred years to do. Everyday we are up 50/100 points no matter what the news. We have one Fed. member saying that we are pushing the envelope. another saying that we should seriously review QE2. China increases interest rates, now at about 6%-plus, but here in Canada we still believe the nonsense about our great banking system etc.etc. I will stick to the basics. This is a sell, period!

The stock looks to open today at around $42.60 up about 2 1/2dollars from yesterday’s close. The TSX will end up as a minority shareholder of the new company, clearly it is seen as the pig in the Ham & Eggs joint venture. There are lots and lots of regulatory issues that need to be dealt with and one can only wonder how they are going to assert that this is in the interest of Canada after the Potash nonsensical position. The OSC, which has no teeth will have to step aside for the English version, FSA. All of this can get very messy! Reported earnings for the quarter (came out this morning) were lower than expected and below last years by about 20% or so.