Morning Call: Friday, May 08, 2009
Good morning. One day reversals always have to grab your attention. After opening up strongly the markets went from Momentum to molasses. The beautiful green screen started to ooze red. It was noticeable how the "feel" changed. Several clients called as they noticed the shift as well.
Stress Test related concerns brought down the US banks and financials which helped bring ours down as well. Losses at Manulife and Sun were greater than expected which brought them down. It didn't help that consumer credit was down US$11B, though that's hardly a surprise because the banks aren't lending. With solvency risk basically off the table, the banks shouldn't further constrict their lending standards. But when you consider that securitizations funded half the lending (order of magnitude) and that line of business is as dead as a Dodo, then lending isn't coming back in a hurry.
The leaks were bang on and the stress test fingered BAC for $34B and GMAC for $11B. After the close Wells Fargo announced a $6B common share issue which is half of the $12B they need. If that sells out quickly and the other issues sell as well, that will put legs under the market. However if there's a hiccup, then watch out below. Earnings season is behind us, as is the stress test and one has to wonder what's left to drive the market? The buying of US bank stocks into that stress test mystified us but as we said—if the issues blow out of the door, then it’s game on again.
We are impressed how sure-footed the Obama team seems to be.
There are lots of positives in the internals and the Momentum work we do, however a pause would refresh. If we regrouped here for a while it really wouldn't hurt. We are at a very interesting point. We’ve had a huge move up for stocks and a huge move down on the quality scale. Stocks that had no bids 2 months ago are charging higher on pretty good volume.
But the volumes in this rally indicate limited Institutional participation. The Hedgies are back and trading furiously but where are the regular way guys? Given the size of the pools, the buy programs we are seeing could be more robust. Yesterday as we reversed, the stocks felt far worse than the Index move. Up until then the stocks and particularly the lower quality names,had felt a lot better than the Index.
Let's be careful and……………………………………………….. invest the money
DXY(Bloomberg): the US Dollar Index (USDX) indicates the general international value of the US$. The USDX does this by averaging the exchange rates between the US$ and 6 major currencies. The FINEX computes this by using the rates supplied by some 500 banks.
Quote of the Day:
“In line with Air Canada becoming more customer friendly, we are reminded of their motto “We’re not happy until you’re not!”
-unknown
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.
