Morning Call: Monday, May 11, 2009
Good morning. With the stress tests successfully completed, the banks led markets higher. Contributing to the enthusiasm was an unexpected increase in US employment of 120K. The price of oil was up a couple of dollars to $58. There are green shoots everywhere and at this rate the economy will be very well into recovery by year end. Hard to believe, but possible, the Canadian jobs increased 36K, which was obviously far better comparatively than the US number. The combination had the DOW up 2% and the S&P up 19 to 929. The next point of resistance is just under 950 and then it looks like blue sky to 1100 or thereabouts.
The rational for such a move is that we got so crushed on the downside that we are just unwinding from that overly depressed level. The only thing that really does look fairly certain is the rising price of oil and with it then, the rising Loonie.
The strength of the market is that the DOW was up 2% Friday. Morgan Stanley had a raise to do out of the Stress Test and it was re-priced from $22 to $28 because of demand. This all bodes well for the rest of the group and the money they've yet to raise. No one seems to have asked what all this equity will do for the returns that the banks will earn going forward. For the moment the shorts are capitulating (those that are left) and for the longs the cash has to go in. Option expiry this Friday just adds to volatility and rebalancing for the Indexers. The media tells us that the worst is over and Harper says we are good to go.
There is one important aspect to the Stress Tests. To our knowledge this is the first time there has been a comprehensive overview of the banking Industry. It covered the jurisdiction of several disciplines/ regulators and again for the first time it was forward looking. If we are to see re-regulation of the business, this would be a terrific template. To prevent a repeat, we need to be able to dial up and dial down the risk levels. Just knowing where they are and which direction they're going would be helpful. Stay tuned.
The S&P is up 36% in 9 weeks. This is an unsustainable rate of change. There may be sectors that continue to perform like the oils but we've got to book some profits.
Let's be careful and……………………………………………….. invest the money
LIBOR: The London Interbank Offered Rate During 1984 it became apparent that an increasing number of banks were trading actively in a variety of relatively new market instruments, notably Interest Rate Swaps, Foreign Currency Options and Forward Rate Agreements. Whilst recognizing that such instruments brought more business and greater depth to the London Interbank market, it was felt that future growth could be inhibited unless a measure of uniformity was introduced. LIBOR is a daily reference rate based on the interest rates at which banks offer to lend unsecured funds to other banks in the London wholesale money market (or interbank market). LIBOR will be slightly higher than the London Interbank Bid Rate (LIBID), the rate at which banks are prepared to accept deposits.
Quote of the Day:
“My son is now an "entrepreneur." That's what you're called when you don't have a job!”
-Ted Turner
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.
