Morning Call:  Thursday, June 25, 2009

Good morning.   

At times it’s difficult to figure.  Markets took a tumble for a while because Rep Darrel Issa accused Bernanke of "knowing" about Merrill as he forced them into the arms of BAC.  Who knew?  Even Cramer defended Bernanke's integrity.  "There wasn't anything here that made you want to sell the market" said Cramer after it was over.  The FED did what seemed logical i.e. nothing.  What else can they do?  But the tension is still there and when Bernanke testifies to Congress today, Merrill will be on their mind.  A blooper would kybosh the markets.

We think that the markets will start to whistle Dixie or in this case DXY.  That's the US$ and it’s already experienced the "death cross" as its 50 day has broken down through the 200 day moving average.  On the other hand the S&P is having a "golden cross" with the 50 day going the other way.  The market does tell you what to expect.  The US$ is in long term decline as they erode the payables from the huge stimulus programs, and the resulting change in competitive advantage will drive earnings in corporate America.

The FOMC (Federal Open Market Committee) said that the contraction is slowing and that inflation will remain subdued.  They will also continue the Treasury Buy Backs.  So it’s steady as she goes and its good news for equity markets.  Though the Boxscore shows the VIX under 30 again, volatility isn't going away any time soon.

Durable Goods surprised at 1.8% against consensus of minus 0.4%.  The Fed is going to keep the "Net Interest Margins" basically unchanged.  That's the difference between what the bank pays for their deposits (these days nearly nothing) and the rate they charge for loans.  That's one way the banks can earn back their balance sheets.  The other is the steep yield curve (steepest since the end of the Tech bubble).  That by the way led to several years of spectacular market performance.

So the Dollar "Carry" will come back and for Canada that means a jolly time in the commodity square.