C, CitiGroup, Prince Al Waleed bin Talal a.k.a Arabian Warren Buffet

Hamilton

Typically the way the human mind seems to work is that first you make up your mind and only then do you try to find the evidence to prove the point. Particularly if using EW it can be very dangerous to follow this approach as a pattern is a pattern, end of story, pretty mindless but that is how it should work. Let the market, pattern, tell you what is going on and then make your conclusion accordingly

Applying this to Citi Group we should remind ourselves that CitiBank has been in big trouble before  as a result of  REITs, and that at the time (late eighties early nineties), Prince Al Laweed stepped up to the plate and bought a large chunk of Citi at between $2/3. As it happens this turned out to be a very good bet earning the Prince the moniker of Arabian WB. The question now is, will history repeat itself?

c june 2010 1 c june 2010

Throughout my working life City Bank was not only the largest but also the most aggressive and innovative banking operation in the world, by far. It is hard to believe that this bank will retreat into the background for long. Looking at the long-term chart a reasonable count would be a 9-year a-b-c correction, presumable complete as it already reached <$1. Of course Nortel type of action is possible but one would then still expect a half decent rally from the lows. Looking at the short-term chart this is entirely plausible given the pattern. As a minimum an a-b-c counter-trend rally should be expected and, so far at least, that may be exactly what we are getting. The first 4th wave is at $9 and then at $20+.  Buying this goes against my own interpretation of the bigger picture, but nevertheless this may just be what the chart is telling us.

BCE (but also Telus and Rogers)

Hamilton

Just this week our minister Tony Clements announced that the federal government has plans to “liberalize” the telecommunications (and broadcasting ? ) industry in order to create a little more competition. Canadian rates for cell phones and fixed lines are often twice  what they are in other civilized countries ,which difference is not entirely explained by the more challenging expanse of the Canadian territory. More probable , the 3 main companies providing these services, each with a quasi geographic monopoly, have , so far at least, managed to keep their monopoly rents at the expense of the public. Slowly this is changing and , perhaps, the rate of change will accelerate! Under such circumstances BCE would be extremely vulnerable as it is most dependent on fixed lines and is(or was), by far, one of the worst managed companies in Canada, something it could only afford thanks to those same rents. Its attempt to go private at about $41/42 a few years ago became a disaster despite the fact that the company was able to , literally “walk on water” as it negotiated some of the foreign content and other issues with the relevant authorities. Here are the charts;

BCE June 2010 bce june 2010 2

On the left is the long term picture. From an EW perspective a multiyear A-B-C is a reasonable expectation (for a good comparison look at GE , General Electric; the comparison is not that far-fetched as BCE is the widows and orphans stock par excellence , whereas GE is the only stock left standing from the original Dow Jones Index, see below for your convenience)

ge june 2010

Remember that you can enlarge these charts by clicking on them, and then you can put them side by side if you wish. The chart on the right is the short term (3 years) chart. The stock drops pretty well precisely 50% of its value ( mainly due to the failed privatization  attempt which coincided with the second coming of the great depression. Now we have regained 50%  and in the process have closed the gap. However, this being a C wave  and therefore requiring 5 waves, it is not at all clear that we have had 5 waves, in fact  one more down seems very plausible which would fit the big picture handsomely. By the way, a drop to about $15 would still keep the stock above the long-term trendline; all this would do is erase the brief madness between 99 and 01 and, paradoxically return the stock to blue-chip status. Definitely a sell, just in case!

Unemployment in US, according to ShadowStats

Hamilton

unemployment rate in US according to ShadowStats.

This mornings unemployment rate was announced as having dropped 2/10 of a percent and now stands at 9.7% (compared to 8.1% in Canada). However, according to ShadowStats.com the stats are massaged to show a way too flattering result. If, again according to them, the old way of calculating this statistic was used, that is if the longer term unemployed were not simple ignored, the rate would be as high as 22%. The U-6 rate is actually reported and stands at 16.6%. Over and above that the US has the doubtful distinction of having the largest proportion of any civilized country of their citizens behind bars ( hopefully they do not also receive Old Age Security on top of their room and board as they do in Canada). Arguable this also flatters the situation even more. Anyway, with 1/5+ of your population not working it is not clear how this recovery can be self sustaining.

DAX, as a proxy for TSX and S&P

Hamilton

DAX June 4 2010

The question at this point is whether or not we are at the beginning of a tremendous sell-off, wave 3 of C within a multi-year correction or if we still have upside potential first. The action over the past few weeks has been ambiguous as is nearly always the case just to confuse us all. Using the DAX as a proxy I can come up with three basic scenarios, the first (in purple) is bullish as we had a simple a-b-c correction and are now on our way to a new high; this would be valid in either a 3-3-5 flat structure or a 5-3-5 zigzag. I have little confidence in this scenario considering the big picture in which we retraced 62% of the entire down move.

The second possibility (in green) is that we traced a 1-2, (1)-(2), a fairly common occurrence where waves of different degrees sort of merge. This would require a 5-3-5-3 pattern which, with a little imagination may actually have occurred. This is a decidedly bearish situation! It fits the bigger picture to a tee.

The third possible scenario (blue) is that we had a first wave down followed by a a-b-c counter-trend correction.  This scenario is unlikely to be correct as the b-leg is very obviously a 5-wave affaire which it should not be! Apart from that, this too is a bearish scenario as , once complete, we go straight down again. The critical level to watch is about 6200 on the upside and , of course 5600 on the downside.

For the moment, the evidence in this case as well as in the bigger picture points to the most bearish scenario as the correct one. Instead of the DAX, the Can Dollar can also be used and, for that matter also the S&P, see below.

fxc june 2010 S&P June 2010

The S&P, by the way, allows for a fourth interpretation wherein the entire pattern is just one single first wave down followed by a rather pathetic counter trend, again bearish.