Morning Call: Monday, June 01, 2009
Good morning. Sell in May and go away. We are now in June and the expression attributed to Peter Hodson that "the only mistake to avoid is selling stocks" is right on the money. May saw markets run hard with Technology up 5% RIM up 9% and Palm up 21%. We were really surprised at how "cool" the PRE is perceived to be and what the market is willing to pay for it. But retailing at $199 the PRE will put margin pressure on all smartphone companies.
John Maudlin once again captures the essence for us. The John Taylor quotes are self explanatory. "I believe the risk posed by this debt is systemic and could do more damage to the economy than the recent financial crisis. How can debt service payments be brought down as a share of GDP?...Inflation will do it…To bring the debt-to-GDP ratio down to the same level as at the end of 2008 would take a doubling of prices. That 100 per cent increase would make nominal GDP twice as high and thus cut the debt-to-GDP ratio in half, back to 41 from 82 per cent. A 100 per cent increase in the price level means about 10 per cent inflation for 10 years.”
The traders are shorting the bonds and buying oil, gold and commodities. Cheap money seems to be showing positive signs of imminent recovery and the latest green shoot is from China where the PMI is 53.1 in May, well above the forecast of 50.2. The US $ is down again and making one year lows versus the Euro. That will help the multinationals and commodity prices, and especially Gold and Oil.
Geithner is in China to address his biggest problem. He needs his largest creditor to keep buying his paper. The dilemma is that as rates are backing up its not stopping the US$ decline. The back up in rates risks stalling the economy. As rates go up, so will mortgage rates and thus maybe put the Kibosh on the nascent housing recovery. That can't happen, so the only alternative is to print money. We have to put a floor under the housing market. Basically it’s the one key variable. So Geithner will have a brave face and ask the question. The Chinese will promise to keep buying and will really mean NO!!!!
The UK is in even worse shape than the US but the £ is doing better than the US$. The reason is not economic but that there's an expectation of an Election that will be handily won by the Conservatives.
So in Canada, we had the coldest May on record and a really hot market.
In the US, we've got the steepest yield curve since August of ‘03. That steepness was followed by some pretty good markets, ‘till 2008.
Between that and the declining US$ and gobs of money being printed ...................................Invest your money.
P.S. the traders said that today was the day the doors came off for GM.
LIBOR: The London Interbank Offered Rate During 1984 it became apparent that an increasing number of banks were trading actively in a variety of relatively new market instruments, notably Interest Rate Swaps, Foreign Currency Options and Forward Rate Agreements. Whilst recognizing that such instruments brought more business and greater depth to the London Interbank market, it was felt that future growth could be inhibited unless a measure of uniformity was introduced. LIBOR is a daily reference rate based on the interest rates at which banks offer to lend unsecured funds to other banks in the London wholesale money market (or interbank market). LIBOR will be slightly higher than the London Interbank Bid Rate (LIBID), the rate at which banks are prepared to accept deposits.
Quote of the Day:
“The invisible hand of the market always moves faster and better than the heavy hand of government.”
-Mitt Romney
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.
