PHS.U, Sprott physical silver.

Hamilton

phs.u dec 27 2012

Diagonals are 3-3-3-3-3 structures that are always, supposedly, found at the end of a sequence of five waves. But there is an exception discovered at a later date. It is the Type 2 diagonal. Sounds like diabetes. It occurs at the beginning and follows the 5-3-5-3-5 structure. This could be one of those things. The RSI suggests a turn is coming soon and the b-wave in the a-b-c rebound is particularly well formed. Therefore, tentatively, we think silver might have a little bull run here. The target is about $16 where the 4th of previous degree resides. Do not put all your money on this bet. The a-b-c could be more compressed and already complete but that is at odds with the RSI. By the way, Sprott has these physicals for gold and platinum as well.

Housing

Hamilton

Housing long term

No Canadian long term charts that I could find, but presumable we did pretty much what they did in the US. We do know that in 1912 (the year of the Titanic) a house in the Annex (a suburb of Toronto) cost $6900. That same house today would easily fetch about $800,000. That is roughly the same as in the US chart, roughly 100x. The TSX went from 500 to 16000 or 32x. Not a fair comparison to be sure. A house costs money to own and stocks for the most part pay dividends. Of course in the US owning a house can earn you a substantial tax deduction, not in Canada. But then any capital gains in Canada are tax free, at least on the principal residence. Not so in the States, but then the “deductibles” are so high that nobody pays anyway.

In the period from 1974 to 1978 you could have bought a very nice house in Toronto for about $100,000 when the TSX was at 1000. That house is worth about $1.2 mln. today and the TSX 14000.  Roughly 12x against 14x. One dividend paying and the other tax-free. Very scientifically speaking, that is the same and it should be. Both are real assets and should have tripled simple on account of lower interest rates. And tripled again on account of inflation that our governments insist does not exist. That more or less explains it all. Should stocks go down as a result of higher interest rates and/or lower inflation (deflation) the real estate values will follow in tandem and, no doubt, catch everyone by surprise. In Japan they already know what can happen;

housing japan

From peak to trough (?) they are down 70+ % in the big cities where the majority lives.

TSX update

Hamilton

tsx dec 26 2012

One never really knows if a wave count is actually correct. EW is not particularly good at timing , primarily because all other factors are ignored, quite deliberately, and consequently it is not uncommon that when errors are made they are only recognized years later and after the fact. Also, because there is no road map for the future but there is one for the past, EW has a built in tendency to be “conservative” to put it politely. Another problem is that a minute wriggle somewhere at the bottom can be magnified disproportionately at the top years later.

  But there are rules etc. so despite the above you still might get it right. This is , of course, the TSX on a semi-log scale which works better over long periods as equal vertical distances are perfectly proportioned to each other. Apart from EW we also look for symmetry, harmony, consistency, elegance and so on and so forth to increase the probability of being correct. Here is what we have;

   As with most charts we assume the start of the 5th wave is in 1974 ( with the Dow there is the argument that it started in 1982, that does not apply to the TSX).The relatively large “diagonal” preceding (always a 5th wave) it supports this assumption. Looking at all the wiggles there is only one that stands out as an absolute sure thing, and that is the triangle from 1986 to 1992. I started in retail during this time and I distinctly remember the existing confusion; there were as many bulls as there were bears. Triangles have to be 4th waves! As it cannot be a 4th of the entire 5 wave sequence (we know now with hindsight) it must be 4 of 3. That fits nicely because it makes 5 of 3 the “extended” wave and, this is very common, makes waves 1 and 5 equal (proportionately). Furthermore the chart can be divided in two parts exactly where the apex is. Time wise that does not work quite as well but if you view a B-wave as a failed 5th, it fits perfectly again. Superficially there does not appear to be alternation between waves 2 and 4, both look like zig-zags, but this can be remedied easily by making wave 2 irregular, which it probable is anyway. During the entire 40 or so year period the index stays (roughly) within the channel. Each time it crosses from the left bank to the right bank (4X) it immediately returns to the other side except this last time! We are now hugging the lower side and we have not yet returned to the 4th wave of previous degree. If 10000 holds the Central Bankers will win and we move on to 25000 + (like Zimbabwe), if not there is a free fall below. At least be prepared.

Nikkei 225 update

Hamilton

nikkei 225 dec 225 2012 arith.nikkei 225 dec 25 2012 log

The Nikkei 225 turned on a dime on New Years Eve, 1989, maybe it will do it again this year. We have had this scenario (count) for almost two years. It is absurd and cannot be correct. But here are a few other facts that no one would have believed prior to the peak.

In central Tokyo a single square meter (about 9 sq. ft. for those that are measurement challenged) went for $79,000 at the then prevailing exchange rate of 135 Yen to a dollar.

Downtown Tokyo land values were about $800 mln. an acre and the Emperor’s palace was reputedly worth as much as the entire State of California, or all of Canada.

From 1949  ( the Japanese surrendered on the battleship Missouri in Sept of 1945) to 1989 the Nikkei 225 was up 221 times in yen terms and 559 in US dollars.

In 1989 Bankers Trust Canada issued 3 year put warrants on the Nikkei in Canada. They were priced in C dollars and side stepped all the then existing regulations. You could buy them in an RRSP.

After 23 years of on and off stimulation the Bank of Japan has just recently decided to up the ante again by adding about $120 bln. , far too little according to some but at least a start. The country’s debt to GDP ratio is running at about 230% but there is no cause for alarm because it is mostly domestic.

Japan has a population of 128 mln. dropping by about 1 mln. each year. By 2060 it is expected to have a population of 87 mln. with 40% over the age of 65. About 98% of the Japanese are ethnically Japanese.

If the Nikkei will in fact go much lower remains to be seen. It would take a break of about 11000 before the count is negated. For the moment this still appears to be the best interpretation. How absurd it really is, is demonstrated by this semi-log Wikipedia chart with my annotations.

nikkei 225 dec 25 2012 semi log