Morning Call: Monday, April 27, 2009
Good morning. The expected volatility is coming back into markets. It had to. We can't expect a run like we had to persist without some breathers. Of course, given the calendar this is going to feed the "Sell in May and go away" crowd. As pointed out in the papers, the seasonal trade in materials is also coming to an end. Further, everyone tells us that it’s a bad time to be in gold.
Supposedly the US banks passed the stress test. There's a story in London that Barclays passed only after they convinced the regulators that they had access to sufficient Capital. The consensus thumping results from Amex and Ford really lifted the markets.
Behind that rally were housing numbers, with new single family sales at 356K SAAR vs. 358/ Feb and 331K/ Jan. The consensus was 340K. The effect was to take the months of Inventory from 12.5 months in January to 10.7 months in March. Once we can put a bottom in on housing, the stock market will figure out the value of the banks and we can put a floor under the market. Note that the median price was only down $8K to $200K.
Added to that was Durable Goods down only 0.8% vs. consensus of -1.5% and after an increase of 2.1% in Feb. The pictures is improving. Almost good news was that 4 U.S. banks have gone bust.
Fewer problems to fix.
Specifically for Canada, the Chinese admission of gold purchases gives a lift to bullion prices now at $914. Sustainable? We don’t know. The price of oil also added another couple of dollars to $54. And while these headlines were a pleasant surprise, it was a sudden reversal in both demand and price for Moly that has caught our attention. Maybe China is going to turn the tide.
John Maudlin talks about the Fed continuing to pump money until we get inflation. We believe that he will. No Central Bank wants to fight deflation and so inflation is the lesser of the two evils. They do know, courtesy of Volker, how to beat inflation. What is not in the papers is how difficult it is to turn an inherently deflationary situation into an inflationary one. And the other reason for inflation is that it will devalue the indebtedness that the US is currently taking on.
About stocks
Schlumberger results were down to 78 from $1.09 and the stock was up 3.5%. What’s that saying?
Tim Horton's is suffering (supposedly) from a "roll up the rim" promo at country Style and free coffee at MCD. This is not a franchise we would count out.
Have not seen a break in the trend…………………………………… invest the money.
BDIY Index (Bloomberg): The Baltic Dry Index (replaces the Baltic Freight Index). A composite of Baltic Capesize, Panamax, Handysize and Supramax indices. The index is designed as the successor to the Baltic Freight Index and was first published on 1 November 1999.
Quote of the Day:
“If one does not know to which port one is sailing, no wind is favorable.”
-Lucius Annaeus Seneca
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.
