Today’s market take from D&D Securities

This market insight from Ed at D&D Securities seemed very worthy of sharing with the rest of you:

D&D Securities Company

Morning Call: Tuesday, May 12, 2009

Good morning. Markets gave up ground across the board with technology doing the least worst. The S&P came off a 7 month high because of concern about how much money the banks (COF and BAC) might try to raise in order to repay the government. Sliding commodity prices didn’t help as oil, copper and gold all fell but not really that much. Oil was off a couple and closed down only 13 cents. The back up in 10 year treasury yields from December at 2.2% to today 3.2% is a worry because, as we said in Focus ‘09, at some point it might be enough to choke off the recovery.

There’s healthy debate as to which letter best represents the economic recovery and we think none do it. In London they worry of the similarities to 1929. The worst market we had ever seen prior to this one was in 1974. It took no prisoners and everything you did was wrong. It went on for what seemed like forever. And then we turned in 1975 and had a multi year recovery. The DOW closed in 1973 at 1035 and then in 1974 it was 615. Year end 1975 it was 635 and then by 1976 we closed at 1008. We had regained virtually 100% of the loss and were up 63½%. From then on for most of the rest of the decade, we had chop but really went nowhere. Will history repeat? We think so and thus what we are calling for now is for that pullback or “mid course correction”. Not too big, not too long. We are trying to bridge the divide between long term players and those that trade every day. Incompatible but both valid strategies and we have clients in both camps.

Cramer had some interesting thoughts including the 5 things that could go wrong.

They include worrying about Obama turning negative on the markets. Is inflation the worry or is it deflation? Will the unemployment numbers turn and will higher gasoline prices sap the American Consumer?

We also chuckled when he talked about investing in mines and advised not to invest anywhere where you wouldn’t take your kids. He liked Canada.

Lastly he said buy Schlumberger and sell Freeport both of which we agree with. The FCX is just a trade though!

The Microsoft bond issue of $4B is 4X oversubscribed. That says something about an improved corporate bond market but it says way more about MSFT. They’ve no other debt and $25B in cash, gobs of cash flow and a huge market capitalization. Sounds like the banker got to Balmer, with the advice to raise money when you don’t need it. Take the money.

The OMB report suggests that Fannie Mae and Freddie Mac may be wound up. These were such political cash cows for the individuals in Congress that we are very skeptical. Winding them up would rid the mortgage market of a significant distortion but we as we said: We are from Mississauga.

So we look for quieter markets. A bit more of a pullback and yet expect that oil prices will work slowly higher. Go Loonie.

Nuclear Tuesday

UX has uranium up $5 to $51. It may mean that Lehman product may have sold. Its 454K lbs which isn’t such a big deal. World events are coming together and there’s demand again. But where’s the new production? Makes the Denison exploration news that much more interesting.

Uranium is “on” again and as our favourite source said, “Where else would you put your money?”

We are watching very closely, but for now……………………….Take the money

MRM