Year: 2011

MFC. Manulife

Hamilton

This stock was always interesting as it could serve as a barometer for our market, given it’s exposure to the equity markets, interest rates etc. Late last year we still entertained the possibility of at least a $5 rebound from the lows then of about $11. We got the $5 but the stock simple did not do what it should if the market was O.K. Unequivocally we recommended getting out of the stock, and perhaps the market in its entirety on March the 6th (the blog is under “canary” on this website because of the dead bird picture). Here is Manu today;

mfc aug 2011

Often it is more important to observe what a stock does NOT do, than what it does do. The expectation, or at least a  probability of the stock doing an A-B-C as shown in red, was reasonable. But in early March the stock just would not above a narrow range, a dead give-away that something was wrong, so we advised to get out. (by the way, if your broker does not keep track of stocks bought for you , perhaps you should get a different one!).

We are now at $14 and would have given back any gains from$11. As mentioned then this could deteriorate rapidly.

CLX, Clorox

Hamilton

July 12 I commented that this stock should not trade above $75, here is the chart (and the entire blog is available);

clx2

The $75 was where the upper trend line resided for the 5th wave up. It is also close for the trend-line of the whole thing. This is what happens when you get there;

clx aug

In just a matter of days it loses $9. First stop is at $60.

VRX, Valeant Pharma update

Hamilton

vrx aug 2011

On July the 16th it was our opinion that this stock would not exceed $55, it was only a few dollars away from that.  So far it is down $14 from the high of $54+, or about 26%.

To some this might come as a surprise, it shouldn’t. This invariable happens when stocks that were previously shunned and then become darlings go meteoric. Even more so when the largest house in Canada puts it in the top-pick / focus-list category. This ensures that 1400 brokers and quite a number of funds and the even larger number of copy-cat funds are loaded up on the stuff. Nothing needs to go wrong with the stock but at some point the air-pocket will be hit. This one is going lower.

SMI , Swiss Market Index.

Hamilton

smi aug 2011 b

A few years ago Zimbabwe’s (Rhodesia) stock market was the best performer. Nothing else in that country was except perhaps inflation that had gone through the roof. This is almost counter-intuitive as one would think that allowing the currency to degrade (a by product of inflation), would lead to a bad stock market. Clearly this is not true and the simple reason is that stocks represent, in the main, real assets and these should appreciate relative to the currency .

If that is true for Zimbabwe, the reverse should apply to that bastion of financial probity, Switzerland. The above chart is that of the Zurich index, the SMI. That is the big picture. In more detail below with the currency;

smi aug 2011 d  swiss franc

Note that the SMI is now trading at roughly the same level that it was at, 3 months after hitting the lows in march (The AEX , MIB, and CAC40 are doing similar things but a little less pronounced). The correlation with the Swiss Franc is spotty at best. It would seem that within normal ranges, whatever that is, the correlation is positive but once things start to hit the shoulder of the road, that changes rapidly and it becomes negative. The Central bank today lowered its interest rates in a surprise move, citing the “massive” over valuation of the currency. The timing is actually not that surprising if you look at the top chart (see also an earlier blog). The channel that has held for the past 30+ years , except in 2009, was once again threatened. It may well bounce here but ultimately we should reach 3500 at the very least. America is exporting deflation, and the Swiss do not like it.