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How I use Implied Cost of Capital (ICC) as a market valuation tool

What is Implied Cost of Capital? I love the intuition behind the model although I don't use it as proxy for expected returns. I use it as a relative value measure to identify analyst/institutional sentiment between different market sectors at a point in time. The actual calculation of the measure can be somewhat complex and involved. The below equation is the common form of the ICC model. As an active trader my primary concern is practical application and implementation so I simplified an

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Why I bought back into RDC ( UPDATED 3.15.2015 )

I'm going to keep this relatively short and sweet. Back in late December 2014 I bought ( RDC ) at a cost basis of ~$20 for the following reasons: * The bulk of RDC's most critical assets are contracted through 2015 and into 2016 * Strongest balance sheet (lowest debt leverage) compared to other offshore drillers in the industry * Management team considered best in industry * Long term buyers appeared to defend the $20 share price level * At ~$20 the price to book is an absurd 0.5! Simply

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Swiss FX Shock

On January 15, 2015 the Swiss National Bank (SNB) shocked the world with a surprise break away from the Euro peg which caused a cataclysmic revaluation of the relative value of the Euro and Polish Zloty. Some context: During the summer/fall of 2011, in response to the European debt crisis the SNB stunned FX traders ~2.5 years ago when it announced it would peg it's currency to the Euro in an attempt to neutralize the Swiss Franc's (CHF) rapid appreciation due to its safe haven status. The SNB d

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Is Canada a short?

In previous blog posts, I've discussed my bearish stance on the Canadian economy as expressed through ( EWC, FXC ) due to the collapse in global oil prices. My original hypothesis was Canada is a resource/energy based economy and declining oil prices would make the 'expensive' oil produced in the oil sands less attractive economically from a producer/investment standpoint. Let's explore that thesis a little more and see if it's validated by facts. Alberta, Canada contains the 'oil sands' depos

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What I'm Watching ( Week of 12.29.14 )

This week it's simple. I'm watching/waiting for volume to reenter the market and confirm or reject last week's holiday action. Last week ( SPY, DIA, QQQ ) all traded to new 52 week highs with my short target ( EWC ) bouncing significantly in sympathy. ( OIL ) price action appears to have moderated a little in terms of downside volatility; buyers and sellers that remained haven't shown conviction one way or the other yet. There is good reason to be skeptical of last week's broad market moves.

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What I Saw ( Week of 12.15.14 )

This past week, the focus of my attention was ( EWC, OIL ) and the commodity currencies ( AUD, CAD ) and the relative value of ( USD ). First let's take a look at the updated charts I posted on Monday. Monthly Weekly Daily Clearly during this week ( EWC ) recovered some of the previous week's losses. In fact, the bounce in the market ( SPY ) and ( OIL ) led to what I believe is a short covering rally in a lot of depressed energy/commodity producers. Basic Materials ( Energy ) crushed the pe

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What I'm Watching ( Week of 12.15.14 )

Canada iShares ( EWC ) Canadian assets are facing major headwinds in the current environment. 1. The fall in global oil prices hurt producers' bottom line. Alberta is bracing for a decline in GDP into next year as a result. Click for links to articles. Quarter of new Canadian oil projects vulnerable if oil falls below US$80: IEA With oil trading below US$60, provinces brace for impact of global oil price shock The above chart shows that there are some producers' breakeven Oil price as low

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What I Saw ( Week of 12.8.14 )

Tuesday of this week I expressed a mildly bearish sentiment regarding the broad market. Based on stock market internals including weakening market participation, the duration and velocity of the near vertical bounce off of the October lows it seemed increasingly likely that we would see some profit taking and some sort of correction. Let's see if this estimation was validated by the market. I would say it looks like market participants did decide it was a good time for profit taking/risk reduct

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What I'm Watching ( Week of 12-8-14 )

How long does equity optimism last without correction? Over the weekend I examined the market internals and came away mildly bearish at these levels. Extreme optimism and lack of participation among the broad indexes make this a week ripe for profit taking and I've been aggressive with my trailing stops etc during the last 2 trading sessions. When will OIL finally bounce? Have investors finally capitulated? I'm short oil via the Inverse ETF SCO ( wish I had more size ) however this has been a

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What I Saw ( Week of 12.1.14 )

1. Do the airline stocks and oil continue to trend strongly in opposite directions? ANSWER: Simply put, mostly yes. The below chart shows the following stocks ( OIL, AAL, ALK, JBLU, UAL ) relative to the broader market ( SPY ) over the last 5 days. Out of the 4 airline stocks chosen here, only ALK underperformed the market. Using OIL as a proxy for oil, investor sentiment is still negative, and some airlines stocks are continuing to benefit from the plunging price. 2. Do we see a continuation

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What I'm Watching ( Week of 12.1.2014 )

1. Do the airline stocks and oil continue to trend strongly in opposite directions? 2. Do we see a continuation of last week's sell off in small caps and does that translate to a mini correction? 3. When risk (high beta small caps/high yield) is sold do we see a continued bid in Utilities and Consumer Staples? 4. Keeping an eye out on high yield bonds ( HYG ) and Investment grade corporate bonds ( LQD ) for clues... What are you watching this week?

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Project Update_iVC Reporting Engine

Still working industriously behind the scenes I thought to take some time and give a progress report. Good news is the iVC Reporting Engine is almost fully operational. I've been able to automate the following processes: Data Collection: I have two methods to obtain public company filings from the SEC via Python scripts. * The primary method I use leverages the excellent services of the free (for now) data provider, Quandl.com. They aggregate and distribute data from several primary sources i

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