D & D Securities Inc.

Morning Call: Wednesday, June 03, 2009

Good morning.

The pending homes sales of previously owned houses was up 6.7% in April. The pending home sales index rose to 90.3 from 84.6 in March. This comes the day after the California numbers showed that the months supply of houses dropped to almost 4.5 months from a peak of 17 in early ‘08. Prices are down 50% from the peak but are now actually up for the second consecutive month. This may finally be pointing to a recess in the recession. We need housing to stabilize in order for the bank balance sheets to solidify. The market is betting on that and US banks led by BAC and JP Morgan are raising close to $20B.

We may be in the middle innings of the economic decline and recovery but the markets are looking forward to better times. We got numerous calls yesterday asking if the Don Coxe commodity super cycle was still underway and if what we've experienced was just a correction? We think so but never want to see a correction like that again. At the fulcrum of the financial crisis was too much debt and too much leverage against what turned out to be crappy assets or at least ones that couldn't be turned into cash quickly. That definition is becoming more suited to sovereign debt of most western countries. Surely that's a warning.

But as we said the market is looking ahead. More money is coming and once again we seem to simplistically follow the lead from the charts. The US $ says lower and stock indices say higher.

Cramer got caught up in the housing turn and recommended Home Depot.

Obviously even if he's only half right RONA will do better.

Two important influences on market action are shown in the charts of the CRB which has gone parabolic, suggesting its time for a pullback. The other is the US$ which looks like it's breaking down through support and the 50 day moving average is close to breaking down through the 200 day moving average (the cross of death).

It’s time to………………………….Invest the money

TED Spread: Initially, the TED spread was the difference between the interest rate for the three month U.S. Treasuries contract and three month Eurodollars contract as represented by the London Inter Bank Offered Rate (LIBOR). However, since the Chicago Mercantile Exchange dropped the T-bill futures, the TED spread is now calculated as the difference between the three month T-bill interest rate and three month LIBOR.

Quote of the Day:

“The secret of business is to know something that nobody else knows.”

-Aristotle Onassis

Ed Pennock, CFA, Managing Director
416-369-6921, epennock@dominick.ca

Graham Farrell, Institutional Equity Trading
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.