Year: 2011

X , TMX Toronto Stock Exchange.

Hamilton

x aug 30

The Exchange presently trades a little under $40, against a bid of $50 by Maple. Clearly expectations are not high that this will best regulatory approval. If combined with Alpha, as is the intention , the new entity would control upwards of 80% of all trading , a level that will be seen to be monopolistic and uncompetitive . The big surprise is that not everybody believes this. We have consistently advised getting out of the stock. The a-b-c pattern does not bode well for the immediate future. Looking at some of the others, the LSE the first suitor, and Deutsche Börse, itself involved with a failed bid, is not promising either.;

lse aug 30 2011 db aug 30 2011

Whereas X trades at about 70% of it’s peak value, the LSE is at about 40% and the DB at less than 25%. In the event of a merger these fractions presumable will also merge leaving only downside for the TMX.

SPX (SPY), S&P500

Hamilton

spx (spy) aug 30 2011

We can forget about the triangle idea. Instead we either had a failed 5th and an a-b-c from there or the entire thing from the lows of Aug 8 is an a-b-c. 124 would be a rough target. I guess we missed all the good news.

1 Confidence in the US dropped to 44

2 It did something similar in Germany earlier this week and also in England today.

3 There is a legal question with regard to the legitimacy of bond purchases in the ECB (to be resolved Sept.7) that , together with the political untenable position of Mrs. Merkel assures, that the trillion or so euros needed to bail out the system will not be forthcoming.

4 Irene’s damage is minimal compared to the hyped billings but it is still 10 bln.  or so more than before.

5 Home prices in the US fall another 4.5%

6 The new head of the IMF insists that the banks need to get more capital, now. Mr Trichet is equally optimistic with his remarks that the system is shakier than ever.

7 The Fed just confessed that they are impotent, leaving only the administration to work things out.

And so on and so forth.  What is there not to like? Maybe it is just month end.

CL, ColgatePalmolive.

Hamilton

In our view this stock is the ultimate barometer for what might happen in the US. The end point has been a little elusive, a few months ago at around $89 or so it looked pretty well complete. Then it went for a $10 quick round-trip, causing overlap that made it look like it was done, only to shoot back up to new highs. Here is the July chart again;

cl july 2011

Since then the action was fast and furious;

cl

So since that July high this stock has travelled the better part of $20. At $90 to $91 I have to assume that we are topping.

Three banks ? GS , DB , RY.

Hamilton

Goldman Sachs, Deutsche Bank and our own Royal Bank. Of course it is debatable whether or not GS is in fact a bank or just a bank of convenience, but all three are very prominent in their respective communities and are both very visible and influential . The RY is actually the largest at a cap. of 72 bln and pays the best dividend yield at 4.41% and has a p/e of 13+.  For GS the numbers are 57 bln. , 1.25% yield and a p/e of 8.5 . Deutsche is the smallest at 37 bln, pays 2.76% and trades at a p/e of 10.2. Here are the three charts.

3banks ry 3banks gs  3banks db

       Royal Bank                                 Goldman Sachs                          Deutsche Bank

From 2002 to 2007 they all roughly triple in value. Then they all crash right back to that starting point or a little below. Then we get the rebound with RY having the most powerful advance of all , even making  new highs. GS and DB start dropping immediately but the Royal actually makes a second high (does not show properly on this chart, but the second high is $0.30 or so higher). Then all three start breaking down. Together they look like this.

3banks tohether

Santander, STD, the Spanish big boy I have left out, it gets too messy otherwise, but it fits in between Deutsche and Goldman. There are some conclusions that might be drawn from these charts. First it does not matter much what regulations were put on the books or taken off. It clearly helps to have political clout something presumable GS excels in but the others are not that far behind , I am sure. So the moral of the story is they are all going lower, given the pattern, and that suggests that RY is royally overvalued.