Morning Call: Monday, May 25, 2009
Good morning. The market humour has started to return which is good. We chuckled at "Tears for Sears" and enjoyed the US bond quote about them suffering from "Gilt by Association". Except it’s not that funny really. The market has got the wind up because of the possible downgrade of UK from its AAA rating. Many are obviously jumping to the conclusion that the same fate lies ahead for the US. Their bond market is selling off hard and commodity stocks are rising because of the underlying price increases. Saudi says oil is going back to $75 and there's nary a peep. Stocks that benefit from a declining US $ are rallying. Commentators point out that 50 cents of every $ that Obama spends will have to be borrowed.
Japan's All Industrial Activity for March was down 2.4%. That is so over the top bad. They will never make it back which is staggering for the world's second largest economy. Their fault is that they didn’t spend money like a drunken sailor.
New math is in the headlines as FDIC sells BankUnited of Florida. The buyers paid $900mm for $ 12.7B of troubled assets and FDIC backstops the losses. Over the weekend 2 banks in Illinois failed, bringing the boxscore for 2009 to 36 down. And while the world worries about inflation, Goldman has a piece out about the REITS cutting Residential rents. This sets the stage for more CPI deflation as rents and owner equivalency make up 39% of the CPI.
The Bears are still well fed.
In Toronto, our market reflects those same US$ concerns. Commodities, Oil and Gas and Gold are features. So it does seem that globally there's one consistent theme. The problem with themes is of course that as soon as they're obvious, its time to change. Please review the attached chart on the US $. There was a peak on Sept 9/ 08, then a breakout pullback on October 8/ 08. There was a successful retest on December 19/08 and here we are today touching support. It’s highly unlikely that we just keep going down. So everything that was working will stop for a while. Sounds like take the money.
However stability will be good for Treasuries (well a little bit), the general market and bad for what's been working (for now).
About Stocks
The bank earnings are coming tomorrow and we are surprised by the lack of any whisper numbers yet.
We agree with CPR's Fred Green that we've never seen anything like this and coping with it is "invigorating".
Friday it seems that OTPP blew out their BCE, thus ending that saga. Please call.
We think Cramer got it right when he said that the goals of the Press and Investors are not the same.
Remember that when the US is closed that we usually go in the wrong direction.
So until we know………………………………………Stay on the sidelines
So we wait to see and get ready to…………………………….Invest the money
CRB CMDT INDEX (Bloomberg): The Spot Market Price Index is a measure of price movements of 22 sensitive basic commodities whose markets are presumed to be among the first to be influenced by changes in economic conditions. As such, it serves as one early indication of impending changes in business activity. The commodities used are in most cases either raw materials or products close to the initial production stage which, as a result of daily trading in fairly large volume of standardization qualities, are particularly sensitive to factors affecting current and future economic forces and conditions.
Quote of the Day:
“The gambling known as business looks with austere disfavor upon the business known as gambling”
-Ambrose Bierce
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
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.
