AA

AA, Alcoa update

Hamilton

aa july 17 2014AA july 17 2014 s

See also previous blogs. We first recommended this stock on July 7th, slightly more than a year ago, when it had traded at a low of $7.54 a few days earlier. The pattern is that of a large, 13 year long, A-B-C correction that does absolutely all that it should except that the 5th wave of C did not establish a new low. It seems to have been supported by the 40+ year bottom support line. In any event we were fortunately not looking for perfection. Here again we are not. The stock could go a tad higher to just above $18 where the 4th of C resides but we would nevertheless sell now for an easy double in one year. For those that find math a challenge, that is equal to a 100% gain.

My laptop is on its last legs so some interruption to this blog is unavoidable. Stay tuned.

AA, Alcan update

Hamilton

AA feb 22 2014 b

aa july 7 2013AA feb 22 2014 s

Back on July 9th we already liked the stock but thought it might still be missing the always elusive 5th wave. Well the timing was perfect even if the count, perhaps, was not. Now with the benefit of hindsight we have to assume that the 5th wave failed to make a new low (by about a dollar), or that the entire correction was already over and a new bull had started (that is a wave 1 followed by an irregular a-b-c wave 2). Either way the next up leg should be pretty robust. They are still selling beer, building planes and yachts and now even entire cars and the cost of electricity has gone up, so why not aluminum. A buy.

The Great Rotation, Employment Numbers and Alcoa beating expectations.

Hamilton

The idea of money flowing out of bonds and into equities has caught the imagination of many of the market commentators. This is another fallacy of composition. Granted that it is possible for a single investor to sell his bond and purchase more equities with the proceeds, it is not possible for “the market” to do this. For each seller there is a buyer and visa versa, ergo no money flows either in or out. This would only happen if bonds or stocks are redeemed or new ones issued. To the extent that wealth is created or destructed the value of holdings will move up or down as the “stock” of holdings, either bonds or equities are marked to market. Still no money moves from one sector to the other, this is simple a nonsensical concept.

The Bureau of Labor  Statistics is the agency responsible for compiling the employment number. They do their thing partly by interviewing a sample of the population and partly by doing some very high level math that nobody, including themselves, seems to understand. See http://www.bls.gov/news.release/cewbd.t08.htm  In the US quite a number of businesses are created and die in any given quarter, these are fabricated from thin air and than incorporated in the total number using rolling averages. For the last two very good numbers the imputed value for each was about 130,000, about 60-70% of the total, according to one source. If you try to find it on the website of the Bureau, you will see that by definition the last few entries are not there. Transparency is invariable the enemy of the truth. On hearing the numbers the markets were absolutely jubilant.

AA, Alcoa reported it’s earnings yesterday afternoon. They were horrible but beat expectations so again the market is jubilant. 91 days ago AA itself estimated earnings at $0,14 per share. 61 days ago they lowered their estimate to $0.11 per share. They confirmed that estimate 31 days ago only to lower it again to $0.7 per share 8 days ago. They earned $0.07 which is exactly half of what the market expected 3 months ago. Clearly cause for jubilation. Back in 2009 the stock hit a low of about $5. For almost two years now the stock has traded in a fairly narrow range and seems to have traced out a triangle. It may still make a new low but given that once upon a time it was nearly $50, it is obviously more a buy than a sell. Here is the big picture from a year ago and the present, detailed situation;

AA jul 2012 b

aa july 7 2013