D&D Securities "The Morning Call"

This courtesy of D&D Securities Company

“Morning Call: Tuesday, March 10, 2009

Good morning. Stocks traded in a narrow band and were mainly down because of earnings fears for the banks and the gold price fell. It’s healthy to be having the debate about bank dividends in public but hardly instills confidence. The debate about dividends might look to the past. They used to have regular dividends and regularly (read quarterly) declare “specials”. That would make it so much easier to cut today.

The other concern for the banks is going to be rising “Non Performing Loans” (NPL’s). Stay tuned you will hear a lot more about those.

Canadian bank boards will discuss cutting. They aren’t ready to move yet but look at Jamie Dimon of JPM. Cut the dividend and see the stock rally as the implication is for faster capital build on the balance sheet. No guts no glory!

The market got whacked when Buffet commented that the economy “had fallen off a cliff” in September. He’s right and that’s hardly news. We find the contrast interesting. Buffet is front and centre and urging “Joe the Plumber” to be buying stocks and is worrying about inflation. Berkshire Hathaway stock had a horrible year. In Canada, Prem Watsa demurs such public admonishments and worries about deflation. Fairfax had a great year and we all wished we owned it.

Financial Innovation left transparency behind. Wall Street’s ingenuity focused on concealing the risk. Maudlin has written a great piece on risk and the unwinding of risk. Looks like it hasn’t fully played out yet. We are still focused on financial risk but that will play out to other sectors. Companies exposed to the vagarities of commodity prices are exposed. Small wonder the TSX is at 5 year lows.

India is at risk of being downgraded to junk which is important. They are an important source of demand for commodities and higher costs of borrowing will affect that.

The US$ remains strong as the weakness in the US economy is of less concern than the decline of Japanese exports, the Euroland sclerosis and bank default risks and the UK’s collapsing financial services. The UK is really a conundrum. Furiously printing money should lead to inflation but Central Bank purchases of bonds (gilts) is driving prices up. The bond buyers are hoping that the inflation never comes while the currency markets are not nearly so sure.

Today’s market looks to rally. Vikram Pandit says Citi is having the best quarter since 2007. Profitable!!

Gartman is also turning positive, liking things as disparate as Alcoa, Suncor and GE. Interestingly the insiders at GE haven’t sold in months but now are unanimously on the buy side, including a 50k share buy by Inmelt.

Many oils have rallied to their 50 day moving average which suggests rotating to others that are laggards. However SU is a leader and has broken out with a booming “on balance volume” (OBV).

Nuclear Tuesday:

Finally U3O8 is trading with 600k lbs transacting at $43.50. That’s the UX price indication. The bid/ asked looks like $39 to $44 and feels like the pressure is off.

It could be the time again to invest the money…………………………….in resources.”

MRM