Good morning. A late day rally erased losses in Toronto and saw the Dow up 50. The S&P had been under 900 and we spoke to clients who were thinking of going back to the buy side if there was another 20 points of downside. Greenspan turned it around as he voiced the opinion that housing was near bottom and the financials should get better. The median house price is down14% (down 60% in Ft. Meyers) and the inventory of unsold homes dropped 100K to 3.7mm. The sale of existing homes dropped 6.8% y/y to SAAR 4.59mm and dropped 3.2 % sequentially (Quarter/ Quarter). Foreclosed houses sell 20% below the comparables which adds to affordability. We have received an offer in the mail from a big 5 bank of a 3% mortgage for a one year term. That's right here in Toronto. That's affordability!!
Cramer likes BMO adding that they are stern in Canada and we don't screw up. The Pimco Canadian Manager marvels that Tier 1 capital which trades globally at 25 to 50 cents, trades in Canada at a premium. The Bank preferreds are the most subordinated debt and thus most susceptible to annihilation in a crisis (his words). DBRS says they're considering a downgrade. One of our bond friends warns us that the Royal has a $15B shelf registration. That’s what they think!!
We were waiting for the retail sales and instead of flat they're down 0.4%. Disappointing! Tomorrow we will see Walmart's numbers. Stay tuned. The conventional wisdom is that the American consumer has pulled back and is now going to be a saver going forward into the foreseeable future. After the excesses of the 80's (Bonfire of the Vanities and ABBA's outfits) she was done. But she came back again and we went over the top in the 90's. When it was over things had changed permanently. Back to saving, NOT! In this century we've had more bling (The Notorious Mr. Big) than in all our history but now that's behind us, never never to return again. Don't think so. The Mall is the local religion and once we start to go forward again, we think the American consumer will be back and spending and spending like before.
The US $ has broken its 200 day MA and so has to be viewed with concern. It will help the reported numbers from many Multi-Nationals listed on the NYSE. We only expect a sustained decline in the US$ after the crisis is behind us. Short term it will help commodity prices and push the Canadian $ higher. Watch the price of copper oil and gold very closely.
We've been told to expect the US deficits to grow to between 10% and 15% of US.GDP. Scary stuff, as is the drop in Chinese exports of 22%. For now though everybody has a vested interest in continuing the game, but like all games, they don't last forever.
We've also heard that some of the players in the GM bankruptcy have substantial CDS positions. So it’s if you lose, you win!!!!
Daily we watch very carefully, but for now we…………………….Take the money
VIX Index (Bloomberg): The Chicago Board Options Exchange SPX Volatility Index reflects a market estimate of future volatility, based on the weighted average of the implied volatilities for a wide range of strikes. 1st and 2nd month expirations are used until 8 days from expiration, the 2nd and 3rd are used. A.K.A “the Fear Index”.
Quote of the Day:
“No enterprise is more likely to succeed than one concealed from the enemy until it is ripe for execution.”
-Niccolo Mackiavelli
Ed Pennock, CFA, Managing Director
416-369-6921, epennock@dominick.ca
Kris Fisher, Institutional Equity Trading
416-369-6924, kfisher@dominick.ca
416-369-6921, epennock@dominick.ca
Kris Fisher, Institutional Equity Trading
416-369-6924, kfisher@dominick.ca
Graham Farrell, Institutional Equity Trading
416-369-4208, gfarrell@dominick.ca
416-369-4208, gfarrell@dominick.ca
The above note is prepared by an Institutional Salesperson based on morning meeting comments and general Institutional desk discussion and should not be construed as a research report or a solicitation. For information purposes only. D&D Securities, its clients, and principals may have positions in these securities.
