Posted by Mark Bunting on November 24, 2009

Gold may well eventually hit the loftier levels predicted by bullion bulls. But, in the near-term, gold investors might want to look out below.

Gold’s Relative Strength Index, or RSI, which measures the magnitude of up days to down days over a given time period, is screaming overbought at a reading of 82, according to Bloomberg data. A number approaching 70 is thought to be nearing overvalued. Conversely, a reading of 30 is getting close to oversold territory.

I remember a Market Call guest telling me that a stock, or gold in this case, can sail along at overbought positions for several weeks before it eventually corrects.

That’s the danger for bullion right now.

It’s unclear what kind of decline gold may be facing. It could experience a cooling off period of just $30 or $40 US an ounce, or a more pronounced pullback toward the key support level of $1,000.

Another technical indicator worth looking at is the parabolic trend line of gold’s price chart over the last few months. It has echoes of oil’s trend line last year when it hit $147 a barrel before collapsing.

I’m not saying that’s about to happen to gold seeing the long-term environment for the precious metal is bullish due to a number of factors including a weakening U.S. dollar, central bank buying and other forces. But, simply based on the RSI and the shape of gold’s chart, bullion is likely to lose altitude at some point soon. The question is how much and when?

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Posted by Paul Bagnell on November 24, 2009

Last March, while I watched my son at his weekly skating lesson, I met a guy who had recently retired from a career in the brokerage business. We started talking about stocks, and before long our chat turned to the shares of Canada’s banks, which had rallied modestly for a couple of weeks after taking the worst battering in their histories. Both of us were astounded at how far the bank stocks had fallen. And we both believed investors had overreacted in their panic.

Where did he and I differ? He was brave enough to put some money on the table.

A week later, that guy told me he had invested a significant chunk of his sidelined cash into shares of Bank of Montreal. BMO’s dividend yield at that point was huge – close to 10 percent – and the stock had nudged higher since late February. He was willing to bet on that rally continuing for a while.

He was right. About a month later, he told me he had cashed out of BM0 stock. It had gained about 40 percent – from the high $20s to about $40 - since he bought in. He knew he might be exiting before the rally was over, but 40 percent was good enough for him.

I wonder what that guy is thinking now. BMO stock is trading at $53.90 as I write this, and the bank has kicked off fourth-quarter earning season with better-than-expected results.

BMO reported a 16-percent improvement in profit of $647 million from $560 million in the final quarter of 2008 – and earnings per share of $1.13, significantly more than Street estimates. And BMO’s stock moved higher by about half a percentage point.

The rally in Canadian bank stocks has been the stock story of the year in this country. But, as always, the question: 'How much higher can they go?' looms large.

There are plenty of reasons to be wary.

While their share prices have surged (the S&P/TSX Banks Index is up 110 percent since February 23), dividends remain stuck in neutral and loan losses continue to rise. Three of the big five have significant operations in the United States.

Dividend hikes are still a long way away, most experts agree. In fact, Karl Berger, partner at Toron Capital Markets told BNN viewers this morning that he doesn’t see a Canadian bank raising its dividend until 2011 at the earliest. (Click HERE to watch the Karl Berger interview.)

BMO’s provision for credit losses was higher in the fourth quarter than it was in the third. And provisions in its U.S. business almost completely wiped out profit south of the border.

We’ll know a lot more about how Canada’s banks are faring once the final set of fourth-quarter results are in the books on December 8.

But right now, stepping into the stocks looks like a brave move. Even braver, perhaps, than the winning bet made by my friend at the skating rink last March.

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Posted by Frances Horodelski on November 23, 2009

Canadian bank earnings season is on us again. It begins Tuesday with Bank of Montreal releasing its fourth-quarter results, providing investors with another opportunity to become familiar with terms like loan loss provisions, net interest margins and capital market revenue.

Over the next three weeks, analysts will pore over hundreds of pages of numbers and commentary from the major Canadian banks as they report on the final quarter of a year, which will go down in the record books for volatility and, perhaps, as an investment opportunity of a lifetime.

And investors will be making decisions on bank investments using parameters such as: the cheapest (Both National and Laurentian Bank are currently trading around 10-times estimated earnings); the best yield (Bank of Montreal at 5.2%); the most profitable (Royal Bank with a 22%+ return on equity) or best price/book valuation (Canadian Western Bank). Analysts and investors will react quickly to the headlines and try to handicap the next batch of winners and losers.

The consensus is that earnings will be up sequentially from the third quarter, but still down year-over-year on average, with a lot of variation across the companies.  Loan loss provisions have yet to peak, say most analysts, but capital markets revenue will be a strong plus in the period. What about the 2010 outlook? Analysts on average are looking for very modest gains; essentially flat in most cases.

As for dividends, Darko Mihelic, analyst at CIBC World Markets put it best when he noted in an environment where global authorities are still focused on capital levels and regulatory reform, and with the global economic trajectory still unclear, it is unlikely that there will be any meaningful information on plans for capital. In other words, no change in dividend payouts is likely.

So during this period, when there are so many details to assess, it may be important to keep three big picture things in mind.

First, overall price/earnings multiples are not at the cheap levels seen 6 to 9 months ago.  Indeed, multiples are approaching more normal levels (about 13 times) which means for share prices to rise further, we need earnings to grow. Most analysts don’t expect any meaningful increase in profit until 2011.

Second, price-to-book valuations are also back to more normal levels, again suggesting modest upside potential.

However, the third point is that dividend yields remain attractive relative to government bonds. The group average yield is 4%, still handsomely above the 3.4% provided by 10-year bond yields. Adjusted for the dividend tax credit (and the potential for growth in those payouts some time down the road), banks will likely continue to remain the focus for most Canadian investors as a source of stability and income in their portfolios.

So during this period when it is easy to drown in the detail, these three items (shown graphically in today’s Stock $ense) can be useful touchstones for broad valuation dynamics. Remember, traders react quickly (and sometimes wrongly) to bank earnings as they are released. Having a baseline valuation for reference may help you from being whipsawed during this sometimes most volatile of periods for Canadian banks.

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Posted by Michael Hainsworth on November 20, 2009

The Massachusetts Institute of Technology is working to solve one of the biggest problems associated with alternative energy: storing it. And it's got the attention of French oil giant Total SA. Because the wind doesn't always blow, the seas are sometimes calm and the sun doesn't always shine, researchers have been focusing on how to store electricity generated by wind, water and solar farms.

And now M.I.T. Professor Donald Sadoway may have made a massive breakthrough. He scrapped the concept of the battery and started fresh. This new battery is in liquid form. Its prospects are huge for grid-level storage -- so much so, Total is spending $4 million over five years on an M.I.T. joint venture.

The commercial possibilities are big enough that Sadoway won't say what the low cost, widely available liquid metal is. But the economies of scale are such that the M.I.T. big brain is boasting this could make blackouts a thing of the past.

If successful, it would be a massive boon to the aluminum industry. Smelters require large amounts of consistent electricity -- and often are located in remote regions with poor infrastructure.

M.I.T. is also looking at the possibility of thinking small: giving individual homes the ability to be off-the-grid regardless of the weather.

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Posted by Michael Hainsworth on November 19, 2009

Here's a look at a rumoured delay to a rumoured product from Apple that may or may not exist, depending on who you talk to.

Wired is reporting the magazine sized tablet Apple denies it's working on has been delayed until late next year. The screen isn't good enough for Steve Jobs and friends -- moving from a typical LCD based screen seen in today's iPhones to an OLED screen. The advantage that organic light emitting diode screens have is they're paper thin, flexible and lightweight.

Wired is citing Digitimes -- which reports Apple will release two tablets at launch -- one with the traditional screen at 10.6-inches and the other with the higher quality, lightweight 9.7-inch screen. The devices will reportedly cost as much as $1,700 US at retail. If broken down into a multi-year contract like the iPhone, it'd be closer to $400 for the ability to download books, magazines and websites wirelessly like an oversized smartphone.

Wired Magazine may have a reason to trust quoting Digitimes. Wired is a Conde Nast publication. The France-based publisher is reportedly in the process of revamping all of its publications so they're tablet-compatible.

Since the June 7th 2007 launch of the first iPhone, Apple's shares are up more than 62 percent.

A tablet would be targeted squarely at the digital book market -- the one currently dominated by the Kindle from Amazon.com.

Amazon shares are also up 62 percent since its launch November 19, 2007.

A battle is brewing for your e-book dollar -- and while Amazon.com has a 2-year lead selling digital pages, Apple's iTunes music store already has the infrastructure necessary to sell books and is doing so to a small degree already with the App store division for iPhone.

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Posted by Michael Hainsworth on November 18, 2009

A warning flag was raised today by America's biggest luxury homebuilder.

Toll Brothers warns the U.S. Federal Housing Authority is creating another crisis in the lending industry. Speaking at a builder's conference sponsored by UBS in New York, CEO Robert Toll issued this claim:

"Yesterday's subprime is today's FHA. It's a definite train wreck and the flag will go up in the next couple of months: Bail us out. Give us more money."

The Federal Housing Authority insures 1-in-5 American mortgages -- with as little as 3.5-percent down. The FHA's insurance reserve ratio is at the lowest level in history: 0.53 percent. It's legally mandated to maintain a ratio of at least 2 percent to protect the insurance fund from default. And more than 8 out of every 100 loans it insures were in default as of September. The homebuilding industry is being warned that more steps are needed to shore-up the agency.

Toll Brothers has good reason to keep an eye on the FHA. Around 8 percent of the mortgages the builder closed in the past quarter were under the federal banner. Toll Brothers stock is up 19 percent since this time last year -- but still down 30 percent over the last three years.

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Posted by Michael Hainsworth on November 17, 2009

The hottest toy under the Christmas tree for adults this year may be the netbook computer.

IDC Canada reports demand for the small, low-power and inexpensive laptops helped the PC market rebound in Q3. The research firm reports 1.7 million of them were shipped during that quarter -- up 3.6 percent over the same period a year ago. It's also putting downward pressure on the price of higher end laptops. A netbook can cost as little as $200 dollars versus $850 dollars for the cheaper high-end laptop. Gartner Group, meantime, reports worldwide PC shipments totalled almost 81 million in the last three months, and the netbook was a key driver for growth.

The netbook is powered by Intel's latest low-end and high-margin Atom processor. Typically, these are chips that aren't powerful enough to play video games or high definition video; but they're just fine for surfing the web, checking email or writing a report.

Microsoft had to put on hold plans to migrate the world to the 64-bit Windows operating system -- since the low end Atom chip still uses the old fashioned 32-bit processor for number crunching. But Windows-7 ships with both, and is far more effective on a notebook than the previous Vista operating system was.

Nokia is jumping on the netbook bandwagon. It has its own small form factor laptop with one key difference: it has built-in 3G cellular wireless networking.

Dell is considered the go-to company for netbooks today. Dell shares are up 51 percent in the last year.

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Posted by Michael Hainsworth on November 13, 2009

Here's a look at what is being called the biggest launch in history across all forms of entertainment. Activision Blizzard is making the boast, it says Call of Duty: Modern Warfare 2 raked in an estimated $310 million US in North America and the U.K. alone.

I had a chance this morning to play the game and it was the most stressful video game experience I've ever had. (FOR VIDEO CLICK HERE:) Look at the intensity. And at this point, I'm winning. This time around players must avoid killing civilians. There's a level so graphic, you're offered a chance to skip it altogether. Another level is nothing more than surveying the wounded in a mash unit.

The world's biggest video game publisher sold 4.7-million copies in the first 24 hours. But that hasn't made Activision the best performing player in the game space. Take-Two Interactive and its Grand Theft Auto franchise takes the top spot. THQ, with its movie based games takes third spot. And the former top player in the industry, Electronic Arts, lags with a less than a 13-percent gain year to date over criticism it's only re-releasing sports games.

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Posted by Pat Bolland on November 13, 2009

I was recently interviewed for a Queen’s University student publication called Coach’s Corner (I coach women’s varsity lacrosse) in celebration of Movember ... a month to raise awareness of prostate cancer ... of which I am a survivor.

Here's the interview:

Describe your first experience growing a moustache.

I grew a beard during football season (we won the national championship that year) when I was on the Queen's cheerleading team ... I guess in part to hide my identity ... lol ... At the end of the season, I chopped it down to a Fu Manchu. Nobody liked it, so I shaved it off.
 
How long have you had your current moustache?

1987 ... shortly after my first son. I had grown a beard again, but this time trimmed it to the current handlebar. My grandmother said that it reminded her of her father and asked that I keep it for a while. She died a short time later, so I keep it in her memory.

Have your kids ever seen you without a moustache?

Not that they remember. They were pretty young. I'm almost afraid to shave it though ... a buddy shaved his, only to discover he had a curled upper lip. He grew it back right away.

What does your moustache-grooming regiment entail?

I trim it occasionally. The daily routine involves glue ... the white glue that comes in a lipstick-style container. I use it to curl the stache. I used to use moustache wax, but under hot TV lights it often drooped on one side. One hot summer day on Queen Street in Toronto I saw a punk guy, all leather and such, but also sporting a spiked tomahawk pointing straight up. I asked him what he used ... "White LePages glue ... works great and it washes-out a night"... I've never gone back.
 
Under what circumstances would you shave your moustache?

Wow ... hard to say ... it's part of my job and identity. CNBC even had it insured when I worked there. Perhaps a charity ... if they raised enough money.
 
Who's moustache do you admire?

Burt Reynolds ... it defines his smirk.

What is the best/worst comment you've received about your moustache?

It tickles ... usually from young nieces and nephews that are afraid to kiss their uncle.

Who has the better moustache -- Tom Selleck or Burt Reynolds?

Why's my name not included in the list? ... lol

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Posted by Niall McGee on November 12, 2009

Canadian companies are making fewer American acquisitions this year, according to figures compiled by Crosbie & Company. That's despite the increased purchasing power the strong Canadian dollar offers.

Sixty deals worth $10 billion have been announced year-to-date, compared with 129 transactions worth $13 billion in the same period last year.

So why hasn’t the strong loonie spurred more Canadian buyouts of American firms? Ed Giacomelli, managing director with Crosbie & Company, says the loonie has little impact on whether Canadian firms pull the trigger on deals. 

And he says this holds true whether the loonie is strong or weak versus the American dollar. (The loonie was languishing when I first came to Canada in 1998. Back then some were asking whether Canada should abandon the loonie entirely and adopt the greenback instead.)

Giacomelli says the health of the American economy and the state of the individual company being acquired are much bigger preconditions for getting cross-border deals done. 

 Another misconception, according to Giacomelli, is that American firms buy more Canadian companies than vice versa. While the big buyouts of Canadian companies garner a lot of press, he says the numbers tell a different story. Not only do Canadian firms consistently buy more American companies, he added, the dollar value is also higher.

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Posted by Michael Hainsworth on November 6, 2009

The man widely credited with inventing the cellphone says today's devices are too complicated.
 
In April of 1973 Martin Cooper placed the first ever cellphone call from a New York City sidewalk. The man from Motorola called his rival at Bell Labs on the 2.5 pound phone. At the time the brick had a talk time of 35 minutes and took 10 hours to recharge.
 
Today's typical smartphone incorporates a camera, a GPS navigation system, email and video games. The 80-year old Cooper is quoted by the London Telegraph as saying that when you create a universal device that does all things for all people, it does not do any things well. Cooper believes the future is a number of specialized devices that focus on one thing. Cooper has been particularly unimpressed with Apple's iPhone.
 
Since Apple's iPhone first hit stores June 29th, 2007, Apple shares are up 58.9-percent.
 
In the same time, Motorola stock is down 49.6-percent.
 
Motorola has found smartphone religion with Google's Android operating system. Its first handset was launched today by Verizon. C-net News reports the response has been underwhelming -- with only a handful of lineups across the country. A stark contrast to the around the block lineups for the iPhone more than 2 years ago.
 

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Posted by Niall McGee on November 6, 2009

Losing Opel may be a huge personal disappointment for Magna International founder and chair Frank Stronach, but shareholders have little to gripe about.

The stock is up more than 20% since GM pulled the plug on the sale of Opel to the Ontario auto parts company. 

Late Thursday, the company also reported earnings which were a lot better than the Street expected. 

Co-CEO Don Walker shrugged off any talk of buying another auto manufacturer during the conference call.

The focus he says is on the core parts business.

One analyst is still lukewarm on Magna though.

Deutsche Bank is keeping its "hold" rating on the stock despite the events of the past few days. The bank's concerns include the long-term impact of Magna’s attempt to buy Opel, as well as the lingering impact of the run Magna took at Chrysler a number of years ago.

Deutsche Bank also points out it may take some time for relationships with its customers to normalize. It says customers are likely to take into account Magna’s multiple attempts to become an automaker in their future sourcing decisions. If Magna ever becomes a carmaker it will be competing with it own customers.

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Posted by Mark Bunting on November 3, 2009

For over two years, Warren Buffett roamed the wilds of the financial landscape stalking prey.

But the world's most successful investor wasn't looking to mount a mouse head on his wall. He wanted an elephant's. After all, he had a $24-billion US cash pile at his disposal.

So when Buffett, the big game hunter, finally pulled the trigger, it was like he put a foot on his prize catch, posed for the cameras and exclaimed, "It's an all-in wager on the economic future of the United States."

Once accused of missing out on the tech boom, Buffett looked to yesterday’s still thriving mode of transportation for today’s big deal. Berkshire Hathaway’s offer for rail operator Burlington Northern Sante Fe values the company at $44 billion including debt.

But, why a rail company, at this time?

Buffett has always been a long-term thinker. He's never cared much for the daily permutations of the markets or economy. Buffett believes the U.S. will again prosper once the rubble of the financial crash has been cleared. In explaining the deal, he says: "Our country’s future prosperity depends on its having an efficient and well-maintained rail system." And Buffett plans to have his newest acquisition provide a large portion of that system. In a television interview after the deal was announced he said: "We'll have more people moving more goods 10, 20, 30 years from now."

Burlington is the largest rail company in the U.S. operating 32,000 miles (51,500 kilometres) of track with 67,000 locomotives. It's the largest transporter of grain and ships fertilizer, with annual volumes that could cover all of Kansas. The company also transports a significant amount of clean coal.

Another selling point for Buffett is that, as energy prices rise, Burlington could gain business because rail companies will incur lower costs for diesel fuel than trucking companies. That has helped rail operators during the recession maintain reasonable pricing power.

Berkshire Hathaway is still sitting with about $20 billion in cash but Buffett says his company won't be making any huge deals for a while. That's because, like a lion basking in the shade after a good meal, Buffett has satiated, for now, his desire for an elephant.

 

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Posted by Michael Hainsworth on November 2, 2009

Some call it "voodoo” but others call technical analysis a key component to making a buy, sell or hold decision. 

Recently on Market Call, a viewer requested advice on how to learn more about the art of this black science. We turned to Jeff Parent, past president of the Canadian Society of Technical Analysis for his recommendations on books and courses across the country.

Jeff advises viewers to consider joining the CSTA, stating that membership is “very reasonable and we have a great library.” Many of the events are held at no charge. There’s a conference scheduled for November 6th-7th at the Toronto Board of Trade's downtown centre that Jeff considers a “must attend event” for anyone interested in the subject. The CSTA offers conferences and courses elsewhere, as well. Jeff offers an overview of the Technical Analysis Course and suggests that anyone who has an interest in expanding on that program, the U.S. Chartered Market Technicians program is a great place to turn to.

Jeff also points Market Call viewers to Equis.com. It offers resources at this free site.

Viewers wishing to do some not-so light reading are advised to browse Books For Business either online or in person at 120 Adelaide Street West in Toronto and recommends a series of tomes including Technical Analysis of Stock Trends by Edwards & Magee, Technical Analysis of Stock Trends by John Murphy or Trading Systems and Methods by Perry J. Kaufman.

Our guest technical analyst also advises viewers of this “classic” Trade Your Way to Financial Freedom by Van Tharp, too. If you’re a student of the markets, the psychology of trading When Supertraders Meet Kryptonite by Art Collins and a historical view from Edwin LeFevre titled Reminiscences of a Stock Operator are recommended reading.  Parent points out all these books are in the CSTA library.

Jeff Parent, Associate Portfolio Manager at Quadrexx Asset Management can be reached parent@quadrexx.com.
 

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