D & D Securities Inc.

Morning Call: Monday, May 04, 2009

Good morning. The S&P got to the point of break out and retreated. It still closed at 877 which was the target. But as a side bar comment, if you're Canadian it was actually down because of the US$ decline. More on that later.

What we've experienced is an old fashioned Inventory Cycle but not like anything we've ever seen before. The credit seize-up had companies selling inventory at any price, just to get liquidity at any price. They also jettisoned jobs as fast as they could. The result was less cash usage and a tighter balance sheet. The jobs lowered costs and resulted in better than expected quarterly numbers. Looking back Abbie Cohen says that the S&P was 40% undervalued at the bottom. No wonder it made no sense.

What we saw Friday was the market switching gears from defensive to buying the economically sensitive. The Michigan survey at 65.1, as well as the Chinese PMI got us going (53.5 with new orders up 2 to 56.6). The US market had an ABC quality about it as Alcoa, Boeing and Caterpillar had big moves. We bought Copper and Oil (which got to $53 despite the horrible inventory numbers) and coal stocks. The losers were the safe havens of gold, treasuries and the US$. The PCE (Personal Consumption Expenditures) numbers buried in the GDP showed a 1.5% increase, a real cause for optimism and reason to re-focus.

So this rally is now beating the participants. There's manager confusion coupled with performance anxiety. There are still shorts who don't know what to do. The flow of funds into equities has been persistent beyond belief. We are experiencing the best markets since 1975. And that's important because as clients have asked if there was any historic resemblances, the answer was always 1974. The rally has brought back the Hedgies in the form they started out as i.e. fast and nimble traders, with short term strategies, big bets and the “Churn to Earn” is back.

So the markers to follow are gold, the Treasuries and especially the US$. These are typical Hedge investments and have all the depth and volatility that they require. They will trade to the points on the chart as people wait to see the outcomes before they bet again. In the stock markets, the other internals are that the Ted Spread is down to 86 and the VIX is 35. It’s so set-up that we feel like we are sitting on top of that "Wall of Worry".

The Swine flu is far from a pandemic and its influenza on the market is waning.

Berkshire Hathaway dropped by 33% as Buffet talked about changing his focus from the portfolio to the company.

So its "Sell in May” but don't go away …………..….………… invest the money.

SSO US (Bloomberg): Ultra Standard and Poor’s 500 ProShares is an exchange-traded fund incorporated in the USA. The Fund seeks daily investment results that correspond to twice (200%) the daily performance of the Standard and Poor’s Index.

Quote of the Day:

“Informed decision-making comes from a long tradition of guessing and then blaming others for inadequate results.”

-Scott Adams

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

Kris Fisher, Institutional Equity Trading
416-369-6924, kfisher@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.