Morning Call: Thursday, May 28, 2009
Good morning. The cross currents of higher oil prices $63.45, higher $C—$0.90 (means US$ down) and higher yields buffeted markets. We wrote in Focus that we saw a flow of Funds rally in the first half but that the risk to that rally and an economic recovery was a backing up in rates.
Here we are and it’s making the markets nervous. As the appetite for risk is increasing, the safe haven appeal of Treasuries is diminishing,just as we need that demand to complete this weeks large auctions. There's a big question mark.
The sheer size of the auctions is draining money from the stock market. The 10 year yields being up 1% is also scaring investors. Inflation talk is everywhere but we fail to see how it manifests itself. Compensation, portfolio and house prices are all down a lot. Remember the Goldman piece that says that rents are coming down hard? Rents and owner equivalency account for 39% of CPI. So where does inflation come from? Intellectually one knows its true, but how do we get there? And when?
Share issuance in the US tells a story of recovery with 3.1B shares issued in May against 1.25B in April. Prior to that there was virtually nothing. The competing forces are the drainage due to new paper versus the cash coming off the bench, the re-allocations to equity and the internally generated wealth driven by higher share prices. We are watching very closely.
Please note that the Baltic Dry closed at 3164, an 8 month high. (It went from 12k to 600 in about that amount of time). It’s encouraging but one needs to know that it’s being influenced by large Iron ore imports into China and much higher congestion in their ports. (80 bottoms vs. 10 at year end and 50 at the end of Q1).
A true moment in history is upon us. GM is going to come out of the Dow. We speculate that Apple will be the replacement. What a fitting commentary on the Changes in the US. Also an object lesson in survivorship bias.
Solar but not so Sunny Thursday
MicroPlanet (MP:V)* has announced the installation of their smart grid technology at the US Marines Corps Base Hawaii - Kaneohe Bay. The first 3-phase system is expected to be delivered in Q309. MicroPlanet’s smart grid technology allows for the dynamic voltage regulation of the incoming utility service, leading to cost savings for the business or residential consumer, through lower maintenance costs and electrical bills. As more renewable energy sources (including solar), come online, the MP value proposition becomes obvious.
The pullback is fading……………………………………. Invest the money.
(*DD Securities has acted as agent in private placement financing in the last 12 months. The firm’s principals currently own this stock.)
QID US EQUITY (Bloomberg): UltraShort QQQ ProShares is an exchange-traded fund incorporated in the USA. The fund seeks daily investment results that correspond to twice (200%) the inverse (opposite) of the daily performance of the NASDAQ-100 Index.
Quote of the Day:
“The herd instinct among forecasters makes sheep look like independent thinkers.”
-Edgar R. Fiedler
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.
