Thursday, April 23, 2015

Three reasons to fire your financial advisor:

I would fire your financial advisor if he or she either, owns the shares of Tesla Motors, owns a Tesla or, even worse, owns both the shares and a Tesla.

First, the fundamentals: I see in today’s Globe and Mail that Peter Cheney drove a Tesla Model S from San Diego to Squamish, B.C, with only electricity as fuel. Well that “only electricity as fuel “claim is misleading because the Tesla batteries in reality just store energy that comes from somewhere else. Somewhere else could be electricity from solar, turbines, nuclear, hydro or a gas or coal fired power plant.

When charging your Tesla batteries, do you get to choose the energy source? Will that be ugly solar, ugly bird killing turbines that never get removed, scary nuclear, fish killing hydro dams, gas from hydraulic fracturing or dirty coal? If you believe in global warming maybe we should have fewer cars and more public transit.

Tesla skips the traditional dealer model and sells in shopping malls and online to eliminate the dealer. OK so where do you go for pre and post warrantee work?

Tesla is a small, specialty luxury car company that depends on taxpayers to survive. According to the Globe and Mail item - Jeremy Cato – “How Tesla and other EV makers benefit from taxpayer funding is frightening. At the end of the chain are subsidies for EV buyers – up to $8,500 in Ontario, Quebec and B.C., up to $12,500 in the United States. Cato also says the balance sheet is frightening. Assets barely exceeded liabilities at the end of 2014: $5.85-billion to $4.94-billion

So with the Model S you pay about 100 grand and get no dealer support, no selection of a power source, no assurance the company will survive and, what will a five year old Model S be worth on a trade-in for a BMW’ i8 or Nissan’s Leaf?

Before we look at the technical picture I should mention that today’s gasoline powered internal combustion engine is not the same thing your granddaddy used to drive. Today’s engines are smaller, with more power per litre thanks to fuel injection, direct injection, variable valve timing and turbo chargers and they emit almost zero emissions.

The technical picture is moderately poor as our chart displays a weekly plot of TESLA trading just below (not shown) its 40-week simple moving average. The money flow numbers have been flat from early 2014 to date. Most alarming is the huge bearish rising wedge formation and the subsequent breakdown. To repair some of the damage – TSLA needs to break above $125 on volume of at least 15 million shares

Thursday, April 16, 2015

Do we Sell in May – or do we stay?

All I know about seasonality is that in an uptrend – you buy-low, sell-high and then buy back even higher. In a downtrend, - you sell-high, buy-low and then sell even lower.

Now we are approaching this annual Sell-in-May thing where your advisor is supposed to call you and recommend selling out your equity portfolio “because it is May”. Quite a silly strategy and unlikely to happen today, because most of the advisors I know are very bright and highly educated. That TV ad run by Interactive Brokers depicting a “broker” to be a sleepy fungus does not represent the advisors I know.  .

Sorry – I lost my focus – anyway I am sure your advisor would suggest the current leadership from the US banking sector is very bullish. According to ALPS Portfolio Solutions Distributor, Inc the Sector SPDR Financial ETF (XLF) is a wide array of diversified financial service firms are featured in this sector with business lines ranging from investment management to commercial and investment banking.

The top six holdings of the Sector SPDR Financial ETF (XLF) are Berkshire Hathaway B (BRK.b), Wells Fargo & Co (WFC). JP Morgan Chase & Co (JPM), Bank of America Corp (BAC), Citigroup Inc (C) and Goldman Sachs Group Inc (GS)

Our chart displays two US financial bellwethers - Goldman Sachs and JP Morgan both just posting new 52-week highs. I think we stay in May. 

Wednesday, April 8, 2015

The Real Problem With Crude:

The collapse in the price of crude that began back in July 2014 has been blamed on several fundamental problems. Some experts point to US over-production due to hydraulic fracturing (also hydrofracturing), others blame Sunni vs. Shia political / crude production conflict and others blame slowing global demand.

Our chart displays the price of crude – monthly spanning about twelve years plotted above the U.S. dollar index. Note the obvious inverse relationship with each price peak in one lining up with a price trough in the other.

Note the 2008 financial price trough in crude and the respective 2008 financial price peak in the U.S. dollar – and note the current price levels marked as (A) and (B). Crude did not break below the 2008 low to “confirm” the recent dollar price break to (B). This appears to be a positive divergence setup which means that a crude price below $40 is not likely.