Year: 2011

IYR, iShares DJ US Real Estate Index Fund

Hamilton

This fund or ETF seeks quote – investment results that correspond generally to the price and yield performance, before fees and expenses, to the performance of the real estate sector of the US equity market, as represented by the Dow Jones US Real Estate Index – unquote. There are 84 components in this index, mostly REITs. Here is the chart:

iyr

This “picture” should be a familiar one. This iShare only came into existence in 2000 so the chart covers less time than usual. The explosive run-up into the $95 high is pretty standard. The drop down to $21 or so a little more than standard, but the structure is a very nice A-B-C. That could be all of the correction were it not that the rally from there has an identical A-B-C, or corrective structure. It follows then that at the very least the rally should become more complex, this being just the first large leg, or we go to levels below the $21 low. Either way we will go to about $43 as a minimum, the start of a wedge wave C. Notice that the volume rises as the ETF trades down and v.v. According to Bigcharts short interest on this ETF is running at 87.18% an unheard of high percentage. The shorts are mostly smarter than the longs so this does not bode well for the immediate future.

In Canada real estate is immune to what happens in the world. Even so one has to wonder how anyone can live in Vancouver. According to RBC it now takes 92.5% of pretax household income to pay for the average house. As income taxes are around 20% or so the new homeowner can forget about eating or anything else. In Toronto it is a mere 51.9% so you might still be able to eat, but that is about it. Interest rates better not go up!

DAX, Frankfurt

Hamilton

dax aug 20 2011

Just to make sure that my bullish comments are properly understood, I am bullish but only  for  five  hundred points or so. Next BIG move is still down, down a lot and this may only be the beginning. Cash at 0% might just be the bargain of the century.

CEF.A , Central Fund of Canada Cl A N.V.

Hamilton

cef.a

The Central Fund is a closed end quasi mutual  offshore fund incorporated under Dutch law. It has been around for a long time and is worth close to $7 bln. It is all about gold. Which is shown below by way of GLD;

gld aog 20 2011

The charts are over a comparable period but since the GLD has not been around that long it starts in ‘05. From that time gold is up about 4 to 5 times and so is the Central Fund. The GLD is worth about 76 bln, 10X larger. The correlation is obvious.

Both charts have triangles in them, presumable 4th waves as that is the only possibility, the question is just of what degree. Given the size, one or one and one half years in duration, I suspect that they are of the highest degree, which would imply that sometime in the not too distant future the stock/unit price should drop back to that level!!  This should happen once the 5th wave or “thrust” is complete, i.e. after again 5 waves (or 9, 13 etc). On the Central Fund 5 waves can easily be counted, and wave 5 is now precisely equal to waves 1 and 3 combined: on the GLD 9 (after the triangle) so both could be topping now.

One , according to Greenspan, cannot tell if there is a bubble and when it will end. That is the wrong question. All bubbles, once they burst invariable drop to below their respective starting points ergo by selling at any time during their existence you will be better off than holding forever. Furthermore there actually is a very easy way to tell if you are in bubble territory, when the angle of ascend reaches the vertical you are there. From the looks of GLD that is NOW. For reference purposes I have added the Nasdaq “tech” bubble below, notice that the proportions are about the same!;

Tech bubble

PS. Today the GLD ETF surpassed the SPY, which un till now has always been the largest and most active ETF as it represents the S&P 500. If bubbles are caused by the concentration of investable funds in a , usually, narrow asset class, this is it.

HCG, Home Capital Group and CWB, Canadian Western Bank.

Hamilton

HCG aug 2011

HCG has surprised me by its strength. At the beginning of this year it looked to me as if the stock might start down, with the proviso that it might go up another $5. It did $4 and then started its decline. This is a great company that feeds on the discarded leftovers of the big boys, much of which is still high quality business considering the fastidious requirements these big banks often apply. The P/E is quite low at 8-9. Even so I doubt that they will escape the general downdraft banks inevitable will face in the near future. Going lower.

 

 

cwb aug 2011 b cwb aug 2011 s

My concern with Canadian Western Bank stems partly from their statement to the effect that they would finance anything that is yellow and spews diesel soot; read Caterpillar and other such machines. Which, of course, makes them more sensitive to the vagaries of the mining and construction industry and vulnerable to demand destruction should the good times come to an end. The history of banking in Canada, West of Ontario is also not all that inspiring given the experience of the Northland and Continental banks in the ‘80-ties, confirming the adage that the exception proves the rule by going bust in very short order.

In EW terms this rally over the past two or so years is most probable a B-wave, not a 5th as with HCG (perhaps). The A – triangle B – C is readily identifiable by both the channels and the Fibo ratio between the two. I have no idea what keeps the stock suspended at these lofty levels ( for about seven months the stock has traded at a dollar above or below $30!) but, assuming this analysis is correct, a fairly violent drop could be just around the corner.