However, from a real contrarian point of view, it might not be that crazy.

Here’s why.

The Greek stock market has lost 93.3% from its top in late 2007 to its recent low. Yes that’s correct: 93.3%!

Chart: Prorealtime.com

When we look at the Dow Jones in 1929, we can see a similar move: From the top in 1929 to the bottom in 1932, the Dow Jones lost 89.48%… So Greece has declined even more than the Dow Jones in the GREAT DEPRESSION!

Chart: Prorealtime.com

When we overlay both charts, we see striking similarities between the two indices:

Chart: Prorealtime.com

So if this pattern holds, we could expect the Greek market to drop another 30% before a MAJOR turn takes place (perhaps a “GREXIT” (referring to a Greek Exit of the Eurozone) combined with a huge devaluation of the new “Drachma”? This would boost Greek exports and could be the beginning of the end of the Greek mess…

Greece’s unemployment shot up to 21.9 per cent in March, rising sharply from the 15.7 per cent rate in March 2011 and up from 21.4 per cent in February.
So yes, it looks like “Hellas” is going to “Hell”

However, when we have a look at the Unemployment in the US during the Great Depression, we can – again – see striking similarities:

Let’s think positive: How much worse can it get than during the Great Depression?!?

Greece is missing €60 Billion in taxes. Is that good news No, Maybe not the fact that it is MISSING it, but imagine if Greece could suddenly collect all (or part of) these taxes and invest it in the Economy!

Now how “badly” did Greek stocks perform actually?

Let’s have a look at some ratios:

“Greece” measured in Gold shows us that in 1999, people were willing to give 25 ounces of Gold for 1 “Greece” stock. Now they are only willing to give 0.31 ounces for that same stock. Clearly times have changed…

Chart: stockcharts.com

Greece vs the SP500: only 0.37 shares of the SP500 needed to buy 1 “Greece” stock, versus an historical average of around 1.5-2 stocks…

Chart: stockcharts.com

Greece vs the MSCI World index (excl. USA): showing a dramatic underperformance:

Chart: stockcharts.com

Now let’s have a look at Greece vs the other “PIIGS”:

Greece vs Spain: 0.075 “Spain” shares needed to buy 1 “Greece” stock vs an historical average of 0.3 shares…

Chart: stockcharts.com

Greece vs Italy: 50% below the historical average:

Chart: stockcharts.com

Now let’s have a look at Greece’s neighboring country Turkey:

This looks like a “Pennystock” doesn’t it?

Chart: stockcharts.com

Speaking about neighboring countries, please have a look at this stunning chart of Spain vs Portugal:

Looks like a lot of money has been made going Long Spain, Short Portugal:

Chart: stockcharts.com

One thing is sure, Greece won’t “disappear”. There will always be people living in Greece. This means that there will always be a Greek Economy. Sure it can change dramatically, and will unlikely be the same as it was 10 years ago, but one day or another Greece will start to grow again.

When that day comes, the Greek market will have rallied by several %. It’s always hard to catch a falling knife as you never know where the bottom will be, but one thing is sure: compared to the rest of the world, Greece looks like a nice opportunity to me for contrarians.

There’s only one catch here: If you buy stocks now and Greece devaluates its currency (after exiting the Eurozone), you could lose a lot of money due to the currency devaluation.

I wonder if there will be other “contrarians” (the John Templeton-likes) who will follow me…

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Special_Report_-_HomeBuilders

The markets closed the week lower:
- The SP500 was down 1.68% on the week.
- The AEX was down 3.61% on the week.
- The DAX was down 6.29% on the week.
- The Eurostoxx 50 was down 6.62% on the week.

That’s a huge difference between the SP500 and the German DAX index or the broad Eurostoxx 50. A big part of that can be explained by the strength of the USD recently. A 6%+ drop in one week is not nice when you are fully invested. We were lucky enough to stay out of the general markets, and even had the chance to make some money in Mining Stocks.
The big drop in general equity markets over the last couple of weeks also gives us the opportunity to buy some stocks at bargain prices.

Let’s start off with a chart of the German DAX index. While price makes lower lows, the RSI sets higher lows on a daily basis.
This causes Positive Divergence. If the DAX would rally above the red resistance line, we could easily see 6000+ points on the DAX pretty soon. Most people are expecting a double dip scenario right now. And although we can’t rule out a double dip, it often pays to be a contrarian. We all know by now what happens when everybody expects something to happen. Usually, it doesn’t happen. Combine this potential falling wedge with the positive Divergence, and we have a good cocktail for higher prices.

As I showed you in one of the previous posts, I got the following chart in my inbox. It shows that historically, the DAX index was cheap when the Price/Earnings Ratio was below 10.

I calculated the Dividend yield of the DAX index myself, and got a result of slightly above 4%, so I corrected the following chart with my own calculation for 2011. Anyway, we can see that over the last 50 years, the DAX index often bottomed out when the dividend yield was above 4% (assuming the data in the chart are correct). Will this time be different?

The fact that the German DAX index looks pretty cheap, based on P/E ratios and Dividend Yield, made me dig deeper into German Stocks. One sector that has been hit hard in 2011 is the Nuclear Energy sector, mainly due to the earthquake in Japan, causing a (near) meltdown of nuclear reactors. This caused Germany to revise its Nuclear Energy program. Of course this has had a very bad impact on the share price of Utility stocks such as E.ON and RWE for example.

RWE is one of Europe’s five leading electricity and gas companies and it is the #1 power producer in Germany, #3 in the Netherlands, and #3 in the UK.

When we look at the price performance of RWE compared to the Dow Jones 600 Utilities Index since 1992, we can see a strong correlation between the two. However, RWE under performed dramatically as of recently.

When we look at the performance since January 1st 2011, we can clearly see the under performance of RWE.
The Dow Jones Utilities Index seems to be forming a Bear Flag, and a break down would spell even lower prices.

However, when we look at RWE alone, we can see a VERY oversold position:

- the Weekly RSI is now at 17.15, the lowest it has ever been
- the 2-weeks RSI is now at 19.10, the lowest it has ever been
- the Monthly RSI is now at  21.08, the lowest it has ever been

Price is now
- 46.37% below its 52 weeks Exponential Moving average, compared with -37.43% in 2003
- 58.83% below its 200 weeks Exponential Moving average, compared with -48.30% in 2003
- 59.14% below its 400 weeks Exponential Moving average, compared with -46.34% in 2003

Just like the DAX, RWE is forming Positive Divergence, as Price is making lower lows, while the RSI is making higher lows.

When we look at the dividend yield of RWE, we can see a very stable dividend throughout the years.

Its dividend policy targets a regular payout ratio of 50% to 60% of recurrent net income. This figure is calculated by subtracting from net income the non-operating result which is affected by one-off effects and major non-recurrent effects on the financial result, taxes, and income from discontinued operations.

From the table below, we can see that the lowest estimate for Recurrent Net Income for 2011 is €2.085 Billion. Let’s assume analysts are still too positive, and correct this number by 25%, we get €1.56 Billion. As the payout ratio is 50-60% of recurrent Net Income, we can expect at least € 780 Million to be paid out to shareholders. As there are 523.4 million Common shares and 39 million Preferred Shares outstanding, that amounts to a total of 562.4 Million Shares. When we divide the €780 Million by the number of shares outstanding, we get a dividend of €1.39 per share. At today’s prices, that is a yield of 6.13%.
That is the worst case scenario, whereby we assume that the analyst estimates for Recurrent Net Income are 25% too high!
So when we apply an extremely pessimistic scenario for RWE, we would still get a yield of 6.13%!

We can see that RWE has had strong positive Earnings per share, even in 2008-2009 during one of the worst financial crises of the last 100 years!

In my opinion, analysts are usually late-comers. See the headlines of recent analyst reports, and decide yourself: Would you be positive about this stock after reading these headlines? Of course not! No one would. Especially therefore I like this stock so much. When everybody hates a stock, it is often time to Buy.

And to give you an example of how wrong analysts can be, see the chart below, with the High, Average and Low price targets for RWE. The Lowest price target was €33, when the stock price was slightly below €40. Right now it is trading at €22.68, or even 30% lower than the Lowest estimate…

The only thing that bothers me, is the huge Net Debt position, but the company will work on that by selling assets and selling treasury stocks.

Summary:
RWE looks EXTREMELY cheap, based on Technical indicators. It is also trading at an extremely low Price/Earnings (about 7x EPS). The company pays a stable dividend, and even in the worst case scenario, whereby the Dividend would be cut from €3.50 to €1.39, we would get a dividend yield of over 6% at current prices.

This is a stock that looks like a bargain to me, both Long term and Short term.
However, potential further declines in stock markets can make any stock cheaper than your wildest imaginations.
If the markets bottom here, we can expect RWE to make a huge jump. It could possibly go as high as €34-€35 before year end if markets start to recover. That would be an increase of about 50% from current prices.

We will add this stock to our Long Term Value Portfolio, and we might take a position on Monday with our Trading Portfolio.

Below you will find a chart of the Swiss Franc index. We can see that it is going nearly vertically the last couple of days.
The RSI is extremely oversold, and the MACD is sky high. This is going to end very, very badly.
If this parabola bursts, expect similar moves to silver in the beginning of may, and to any bubble when they burst.

Chart courtesy stockcharts.com

The following chart shows the USD/CHF since 1975.
We can see that price is now 11.03% below the 50 days Exponential Moving Average, as the Price Oscilator indicator shows us.
Only in September 1978, it was a bit lower. That was the only time. You know what happened afterwards? Price rose from 1.45 to over 2.90 over the next 7 years.

Chart created with Prorealtime Charting Software

The following chart also shows the USD/CHF exchange rate, but now with the PPO(1,100), which shows us that price is now 14.59% below its 100 days Exponential Moving Average. Again, the only time this happened, was in September 1978.

Chart created with Prorealtime Charting Software

The following chart also shows the USD/CHF exchange rate, but now with the PPO(1,200), which shows us that price is now 19.48% below its 200 days Exponential Moving Average. This happened only twice before (in February 1978 and in September 1978).

Chart created with Prorealtime Charting Software

The Swiss Franc is EXTREMELY overbought, based on the charts above. This so-called safe haven is thus becoming a “Dangerous safe haven” in my opinion.

We could make similar charts for the Japanese Yen.

Last but not least, please have a look at the following chart, which compares the price action of gold from early 2008 until today with the price action of gold from early 2006 until early 2008. Do you see the similarities?

Chart created with Prorealtime Charting Software

If the Swiss Franc Bubble bursts, keep an eye on gold…

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In this report, we will have a look at the Global economy, commodities, stocks, and interest rates…

Click here to see the original article.

Second of all, here is a chart of the gold-to-silver ratio:

Chart courtesy stockcharts.com

Now let’s have a look at Silver in 2006, when it also made a parabolic move:

Chart courtesy stockcharts.com

Here is the current situation:

Chart courtesy stockcharts.com

Although silver is not as stretched above its 50 days Moving Average as in 2006, it is as stretched above its 200 DMA as in 2006.
Also, the RSI is very high, but not as high as in 2006, so we MIGHT see 1 or 2 more days to the upside, but then we might get a Deja Vu of 2006.
For those of you who want to know what happened on April 20th 2006, here is a chart:

Chart courtesy stockcharts.com

Chart created with Prorealtime

If we would reach $48, we think this would be a good time to take profits in the Silver market.