Month: March 2009

Pattern recognition March 4, or why diversify?

Hamilton

All learning is pattern recognition as in “monkey see monkey do”. That is how we learn to talk, learn to walk and nearly everything else. Here are two charts to make the point.

nikkei march 4

Tse march 4

At first ,and superficial, blush these two charts are pretty well identical. They break down at about the same time, have their largest move , wave 3, between about September and November/December, then are a little unsure and do show some divergence but after all is said and done they are very,very similar. In fact numerically they are almost in tune, both having started at about 15000 and having dropped 50% to 7000. One has just made a marginal new low, the other may soon do so.

   There is nevertheless a slight difference, one of these two will make a new 25 year low tonight, while the other is only in the 9th month of a bear market. One comes from a high of 38000, now down 81% or so, whereas the other is just down 50% and only 9 months old. They are half a world apart, one is the second largest economy and the other an auto plant for the United States.

   What we learn from this, if we chose to do so, is that , first of all , “diversification” does not work as we live in a global world where correlations approach 1 for just about everything, certainly in a bear market, and secondly that as these patterns do not just occur simultaneously in different markets but also sequentially, it helps if you recognize the pattern early while it still has a predictive value. This is what E-wave is all about!

The top chart is the Nikkei 225 index, the bottom one the TSE, just in case. Click to enlarge.

GE update March 3/4

Hamilton

Ge march3

With a low at $6.85 intraday and closing on $7, the lower end of the suggested range, this is now a buy IMO at say $6.50. Yes they did not act very truthful in saying that they would not cut the dividend but that is in the nature of the business, sometimes it works like a charm think TRP ten years or so ago.  at around $6 two trend lines run from different channels and  as they say “De Wall keert het schip”. There is that “wall” again : freely translated it means that if you  (the boat in the channel) hit the wall you will change direction. At 1/10 of the peak value, lets hope so.

TM Toyota, March 3, the importance of Fibo

Hamilton

TM march 3

This is Toyota, arguable 5-waves up. We have recently heard that Berkshire’s income dropped by 62% and that AIG’s biggest loss ever was 61.7 Bln. This Fibonacci number 61.8 and the reverse 38.2 occur so often that it pays to anticipate them.  The high on Toyota was 140 and they are asking for a hand-out as well. Now we see the line but would like more of a cluster of points. We can get one more , 140 x 0.382 = 53.48 , looks pretty well precisely where the line runs. This does NOT imply that the drop will stop there, but is does imply that the probability of the drop halting there is appreciable better than otherwise.

Bank of Canada, rate cut today? to 1/2 %

Hamilton

Just a quick comment on the bank rate cut today if we get it. Every Tom , Dick and Harry tells us that we should get a cut. Just listening to a guy from  the C.D.Howe institute confidently proclaiming this kind of nonsense. Anyone who has red Keynes, Hicks etc. or otherwise taken the trouble to superficially understand a few things about monetary policy should be familiar with concepts like the liquidity trap. Essentially what that says, without getting into LM and IS curves, is that at some point the demand for money, liquidity becomes inelastic. What that means is that the market does not care. It happens when your kid refuses to mow the lawn when you raise his pay from $5 to $10. This is what is known as pushing on a string!

So they did it, “steadying quantitative easing” it is called. This is the 7th cut in a short period. Was not being insane defined as doing the same thing and expecting a different result???