Morning Call: Wednesday, June 10, 2009
Good morning.
The banks gave up gains and offset other gains to hold the market flat. Oil made north of $70 and copper closes in on $2.40 which helped sector stocks and the C$ (closed at $90.65). It was so quiet that one would almost think that summer's here.
Signs of the New Normal are everywhere: Tarp money ($70B) is being repaid and the US taxpayer is making a profit. That's akin to selling your winners. The New Normal is that the government is a huge partner and even if they sell some they're going to be around forever (a long time). That the airlines complain about video conferencing is the New Normal. Wireless is growing and that the US will lose 8mm landlines this year is another New Normal. And as we said Oil above $70 and the C$ above 90 is worrying many economists but that's the New Normal.
A data point of note is from Australia where they point to the $400B Chinese stimulus having a big positive impact as evidenced by Copper prices at 8 month highs and Aluminum at 6 month highs. We recently attended the Dynex AGM. In the last year, they've been 75% acquired by CSR Times Electric. Times makes electric railway locomotives. Their guidance was for 15% top line growth and they've the backlog to prove it. China is in a different place and looking like a "V" recovery. Another New Normal.
We believe that the back up in Yields along with higher oil and commodity prices speaks to economic recovery. By the time we have firm data points it may be time to be a seller. To continue the rally in markets we need to have stability in the Financials and especially the banks. The slope of the yield curve (very very Steep) will allow the banks to earn their balance sheets back into shape. If housing can hold or improve, then we've got the formula in place. The 10yr Treasury went out at 1.96% and we expect today’s $11B of 30yr to go just fine. Couple this with increased driving in the US and we've got a strategy of being long the Financials, the Oils and the Commodities. The C$ has to go higher in that scenario.
We believe that the back up in Yields along with higher oil and commodity prices speaks to economic recovery. By the time we have firm data points it may be time to be a seller. To continue the rally in markets we need to have stability in the Financials and especially the banks. The slope of the yield curve (very very Steep) will allow the banks to earn their balance sheets back into shape. If housing can hold or improve, then we've got the formula in place. The 10yr Treasury went out at 1.96% and we expect today’s $11B of 30yr to go just fine. Couple this with increased driving in the US and we've got a strategy of being long the Financials, the Oils and the Commodities. The C$ has to go higher in that scenario.
So to re-iterate………………… Invest the money.
XLF US (Bloomberg): Financial Select Sector SPDR Fund is an exchange-traded fund incorporated in the USA. The Fund’s objective is to provide investment results that, before expenses, correspond to the performance of the Financial Select Sector. The Index includes financial services firms whose business’ range from investment management to commercial and business banking.
Quote of the Day:
The only reason a great many American families don't own an elephant is that they have never been offered an elephant for a dollar down and easy weekly payments. ~Mad Magazine
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.
