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This publication is a general market commentary and does not constitute a research report. Any reference to a research report or a recommendation is not intended to represent the whole report and is not itself a research report or recommendation. This commentary is for informational purposes only and does not contain investment advice. This publication may be wholly or partially based on industry rumour, gossip and innuendo and as such is not to be relied upon as investment advice.

Thursday February 26, 2009

S&P/TSX Composite +72.97 7932.30 Dow Jones -80.05 7270.89 S&P 500 -8.24 764.90 NASDAQ -16.40 1425.43 S&P/TSX Venture +1.38 854.97 Philadelphia SOX +5.97 205.07 Crude Oil (US$/brrl) +1.52 39.96 Gas (US$/mmbtu) +0.14 4.24 Copper (US$/lb) +0.04 1.52 Gold (US$/oz) -25.50 969.50 Nickel (US$/lb) +0.13 4.41 Palladium (US$/oz) -2.50 198.00 Platinum (US$/oz) +4.50 1048.50 Silver (US$/oz) -0.06 13.68 Uranium (US$/lb) -2.00 45.00 Canadian Dollar -0.0092 0.7957 30 Year Canada +0.08 3.684 30 Year U.S. +0.09 3.585 Volatility Index (VIX) -0.82 44.67 Will Work for Imprisonment

A jobless Taiwan man released from prison two years ago asked police to send him back so he could eat, police and

local media said Tuesday, a grim sign of hard economic times on the island. When police found the 45-year-old convicted arsonist lying on a street in a popular Taipei shopping district, he requested a return to life behind bars, nostalgic for the 10 years he had already served, the China Post newspaper reported. Wang had also contacted police separately with his request, a spokesman said. Officers who found him bought him a boxed lunch but declined to send him back to prison, the police spokesman said. “We advised him to keep looking for work,” he said. “I don’t know why he can’t find a job. Maybe employers think he’s not suitable or that he’s too old.” Taiwan is in a severe recession, with a slump in exports leading a record economic contraction in the fourth quarter of last year.

CANADA The S&P/TSX Composite advanced on Wednesday, buoyed by strength in the resource-laden materials sector and extending its rally from the previous session. Oil jumped after a U.S. government report showed a sharp drop in gasoline inventories in the world’s top consumer. Fertilizer producer Agrium (AGU) slid after launching an unsolicited offer to buy U.S. rival CF Industries for US$3.6 billion in cash and stock, in a move to expand its presence in the nitrogen and phosphate fertilizer markets. Toronto-Dominion (TD) reported a 27% drop in quarterly profit as it more than doubled provisions for bad loans, but shares of Canada’s No. 2 lender rose as the numbers beat expectations. Printing, media and telecom group Quebecor (QBR.B) posted a narrower quarterly loss on Wednesday, helped by strong results at its cable unit and in the absence of a loss from discontinued operations. UNITED STATES Stocks fell on Wednesday after U.S. President Barack Obama warned of stricter oversight for Wall Street, raising the spectre of greater regulation that investors fear could sap profits. Obama’s comments near the market close rattled investors when he said financial institutions that pose a serious risk to markets should be subject to serious government supervision. Lincoln National (LNC) tumbled after reducing its payout by 95%, while Allstate (ALL) also traded sharply lower after cutting its own payout in half. Zions Bancorporation (ZION) and Hovnanian Enterprises (HOV) led banks and builders lower as a realtors group said sales of existing homes decreased 5.3% in January to the lowest since 1997. CF Industries (CF) surged after Agrium proposed to buy the U.S. maker of nitrogen fertilizer for US$3.6 billion. Del Monte Foods (DLM) also rallied. The maker of canned fruit and Meow Mix cat food increased its full-year earnings forecast, predicting at least $0.64 a share in profit from continuing operations. Chicago Bridge & Iron Co. (CBI) tumbled after the construction company forecast lower earnings than analysts estimated, citing the global recession, and suspended its dividend to save cash. First Solar (FSLR) fell after the world’s largest maker of thin-film solar power modules said 2009 sales will be $1.9 billion at most, missing the average analyst estimate of $1.99 billion. Herbalife (HLF) was also down sharply after the seller of nutritional and weight-loss supplements forecast 2009 earnings excluding some items of $3.10 a share at most, less than the average $3.15 analyst estimate.

– Canadian and U.S. Comments for Thursday Feb. 26, 2009 2


ECON 101 CANADIAN Data Today: No scheduled releases. U.S. Data Today: This morning, Durable Goods Orders (Jan) are expected to fall by 2.50%, after losing 2.60% the previous month, while Durables Ex Transportation (Jan) should fall by 2.10%, after losing 3.60% before that. Initial Jobless Claims (Feb 21) are expected to come in at 630K, up from 627K the previous week, while Continuing Claims (Feb 14) should come in at 4,981K, down from 4,987K before that. Finally, New Home Sales (Jan) are expected to fall to 325K from 331K previously. MARKET MOVERS Technical Indicators:

TSX TSX-V NYSE NASDAQ AMEX Advancers 708 410 1170 801 217 Decliners 725 465 1920 1862 260 Net -17 -55 -750 -1061 -43

Notable 52-Week Highs: La Mancha Resources LMA $ 0.57 MCAN Mortgage MKP $ 10.25

SXC Health Solutions SXC $ 26.91

Notable 52-Week Lows: Air Canada AC.A $ 1.03 AutoCanada Income Fund ACQ.UN $ 1.33 AIC Global Financial Split ASC $ 0.75 Brampton Brick BBL.A $ 4.15 Bonterra Oil & Gas BNE $ 14.16 Brick Group Income Fund BRK.UN $ 1.21 CCL Industries CCL.A $ 21.63 Cluff Gold CFG $ 0.81 SCITI Trust II CIT.UN $ 5.99 Celestica CLS $ 3.80 Cinram International CRW.UN $ 0.82 Crocotta Energy CTA $ 0.65 Coast Wholesale Appliances CWA.UN $ 1.85 Duluth Metals DM $ 0.20 diversiTrust Income Fund DTF.UN $ 6.28 ECU Silver Mining ECU $ 0.49 Eveready EIS $ 3.20 First Capital Realty FCR $ 14.80 Fairborne Energy FEL $ 2.47 FP Newspapers Income Fund FP.UN $ 4.50 Forbes Energy Services FRB $ 0.62 FirstService FSV $ 9.70 Guardian Capital Group GCG.A $ 3.00 Great Plains Explorations GPX $ 0.15 Homburg Invest HII.B $ 6.00 INSCAPE INQ $ 1.64

Inspiration Mining ISM $ 0.46 Intertape Polymer Group ITP $ 0.54 Livingston Intl Income Fund LIV.UN $ 3.74 MINT Income Fund MID.UN $ 5.36 MI Developments MIM.A $ 6.01 Mountain Province Diamonds MPV $ 0.73 Brompton Oil & Gas Income Fund OGF.UN $ 2.88 OPTI Canada OPC $ 1.07 Peyto Energy Trust PEY.UN $ 6.16 Phoenix Technology Income PHX.UN $ 4.95 Pacific Northern Gas PNG $ 11.80 Ritchie Bros Auctioneers RBA $ 18.59 Russel Metals RUS $ 11.64 Somerset Entertainment SOM.UN $ 0.91 Savanna Energy Services SVY $ 4.59 TELUS T $ 31.19 Twin Butte Energy TBE $ 0.39 Taiga Building Products TBL $ 0.18 Transcontinental TCL.B $ 7.63 Trinidad Drilling TDG $ 2.11 TransForce TFI $ 3.34 Domtar UFS $ 0.96 Canadian Satellite Radio XSR $ 0.15 TDb Split Corp. XTD $ 0.86 YM BioSciences YM $ 0.27 YIELDPLUS Income Fund YP.UN $ 4.66



CANADIAN EQUITIES OF INTEREST Listed Alphabetically by Symbol Agrium* (AGU : TSX : $46.03), Net Change: -4.27, % Change: -8.49%, Volume: 3,055,292 CF Industries (CF : NYSE : US$61.77), Net Change: 6.19, % Change: 11.14%, Volume: 17,357,548 Terra Industries (TRA : NYSE : US$23.85), Net Change: -0.97, % Change: -3.91%, Volume: 10,732,064 I'll do you one better. Agrium announced plans to acquire CF Industries for US$72.00 per share in cash and stock - total transaction value is roughly US$3.6 billion. Under the terms of the proposed transaction, holders of CF would be entitled to receive one Agrium common share and US$31.70 in cash for each CF share. Agrium's proposal is conditioned on: 1) CF's termination of its bid for Terra, 2) Negotiation of a definitive merger agreement between Agrium and CF; 3) Receipt of the necessary CF board and stockholder approvals; 4) Receipt of necessary regulatory approvals; 5) The absence of any material adverse changes to CF or its business and the continued operation of CF in the ordinary course of business; and 6) the opportunity to conduct limited confirmatory due diligence. The proposal is not subject to a financing condition. Agrium has sufficient cash resources and committed financing underwritten by a couple of Canadian Banks to fund the cash portion of the offer. Agrium expects to realize substantial annual operating synergies of approximately US$150 million from the combination within three years of closing. Agrium expects the transaction to be accretive to both earnings and cash flow in 2010 and significantly accretive on both measures in subsequent years. Are there any anti-trust issues that may derail this combination? Canaccord Adams Agriculture Analyst Keith Carpenter says this is a global market and the combined company would not alter that balance whatsoever. It’s interesting to note that, both Agrium and CF had serious discussions regarding a potential combination prior to CF's initial public offering in 2005. Bankers Petroleum* (BNK : TSX : $1.45), Net Change: 0.30, % Change: 26.09%, Volume: 8,984,232 Meanwhile in Albania...Bankers has entered into an agreement with International Finance Corporation (IFC) and the European Bank for Reconstruction and Development (EBRD) for a US$110 million credit facility. Both the IFC and EBRD will take an equal amount of the facility. The facility will be divided into three parts. The first will be for US$10 million, which is available with the preparation and finalization of its environmental remediation plan (and to be used for this purpose). The second will be for US$50 million and will be available only when Brent oil prices stabilize above US$55.00/barrel. The third will be for the remaining US$50 million and will be available when Brent oil prices stabilize above US$62.00/barrel. Bankers will also issue 16 million warrants to IFC and EBRD; each warrant will enable the parties to purchase one common share for $1.50; however, it is only upon certain conditions being met. Canaccord Adams Oil & Gas Analyst Terry Peters views the proposed financing as a positive for Bankers. Peters says that although dependent on higher future oil prices, the company has positioned itself to fast-track the pace of expansion of its significant heavy oil reserve potential in Albania. FirstService (FSV : TSX : $10.26), Net Change: 0.02, % Change: 0.20%, Volume: 102,715 FirstService – LastLoss? This real estate services company posted its fiscal 2009 Q3 results, which saw revenues decline by 7% to $417.9 million, EBITDA decrease by 24% to $29.8 million and adjusted EPS swing to a loss of $0.18 from $0.49 last year. The company posted a GAAP EPS loss of $1.36, which included a $0.62 EPS loss from discontinued operations. The company stated that there was continued resilience in its Residential Property Management and Property Services divisions, while the Commercial Real Estate Services was impacted more significantly by current economic conditions. The company has taken steps to contain costs and align infrastructure with the expected revenue levels. Residential Property Management revenues increased 15% to $144.7 million. The division's EBITDA grew 5% to $10.6 million. Revenues in Commercial Real Estate Services declined 28% to $182.1 million, while quarterly EBITDA, before a non-recurring cost containment charge, was down 59% to $9.0 million. This was negatively impacted by lower brokerage and leasing revenues in all major markets. The Company's Chicago-based U.S. mortgage brokerage and servicing operation was classified as held for sale. MAG Silver* (MAG : TSX : $5.92), Net Change: -0.33, % Change: -5.28%, Volume: 1,151,830 "Please, we've been through so much together. Call me Bob." - Sideshow Bob (The Simpsons). While the sideshow between MAG and Fresnillo's management teams continue, work at the partners' Juanicipio project has actually been getting done. However, the most recent piece of completed work, a resource estimate, came in on the dissapointing side of the reaction spectrum. On Tuesday, MAG announced the results of an independent NI 43-101 compliant resource estimate for the 44%-



owned Juanicipio project in Zacatecas, Mexico. The total global silver content increased 12% to 266 million ounces but the silver grade declined 32% to 685 grams per tonne. While Canaccord Adams Senior Mining Analyst Eric Zaunscherb had been expecting the Juanicipio project silver content to increase with the additional infill and exploration drilling of the Valdecañas Vein, he said the dramatic decline in overall grade was unexpected and negative. Zaunscherb also stated that the decline in grade has a direct impact on the net present value of the project. Looking ahead over the next few weeks, Zaunscherb expects important catalysts including incremental exploration results and a scoping study, which may have dramatic impacts on the market. MAG's Annual General Meeting has been scheduled for March 24, 2009. Manulife Financial* (MFC : TSX : $13.68), Net Change: 0.18, % Change: 1.33%, Volume: 11,578,886 KEYWORD: COMMON. Manulife announced plans late Tuesday night to raise up to $275 million through the issue of Preferred Shares (initial dividend rate of 6.60% per annum). Come Wednesday morning, due to big demand, the company upsized its plans and increased its preferred share offering to $350 million. Including the underwriters' option, Manulife may raise up to $450 million in gross proceeds. The dividend rate on the preferred share will reset every five years at a level of 456 basis points (bps) over the then five-year Government of Canada bond (GCAN5YR) yield. The proceeds of the offering, anticipated to qualify as Tier 1 capital for Manulife, will be used primarily for general corporate purposes and the balance will be used to reduce the amount outstanding under the company's credit facility with the Canadian banks. Recall on Monday, Manulife responded to rumours of a potential capital raise by saying, in the absence of a strategic transaction, it does not intend to raise "common" share equity capital. The company recently filed base shelf prospectuses in Canada and the U.S., and this lead to many of the rumours. The Canadian shelf prospectus was for $10 billion (debt and/or equity), that was twice the size of the $5 billion shelf prospectus it was replacing. Quebecor (QBR.B : TSX : $17.28), Net Change: 0.77, % Change: 4.66%, Volume: 247,676 "You've enjoyed all the power you've been given, haven't you? I wonder how you'd take to working in a pocket calculator." -Tron. Quebec's leading cable and media company reported its Q4 results. While the company reported a loss of $343.7-million, or $5.34 a share, down from a loss of $962.6-million, or $14.96 a share, last year, the loss includes a $671.2-million writedown of goodwill tied primarily to its struggling newspaper business. For the quarter, operating income from continuing operations grew 11.5% to $310.1 million. The largest increase was in the Cable segment, which occurred primarily from new customer growth. Consolidated revenues from continuing operations rose 3.9% to $1.00 billion. Revenues increased mainly in the Cable segment. The company beat many of the key subscription forecasts of David Lambert, Canaccord Adams Telecommunications Analyst. Videotron added 24,000 new basic cable adds and 50,000 net digital cable adds, well ahead of Lambert's forecast of 8,000 and 24,000, respectively. Quebecor said plans to invest in its new wireless network are on track with previously-announced plans to invest between $300 and $500 million over four years are still on track. Questerre Energy* (QEC : TSX : $0.89), Net Change: 0.01, % Change: 1.14%, Volume: 846,325 Junex* (JNX : TSX-V : $0.89), Net Change: -0.05, % Change: -5.32%, Volume: 312,567 Gastem* (GMR : TSX-V : $0.22), Net Change: -0.03, % Change: -10.42%, Volume: 1,241,541 Forest Oil (FST : NYSE : US$14.45), Net Change: -0.40, % Change: -2.69%, Volume: 4,431,226 Talisman Energy* (TLM : TSX : $11.06), Net Change: 0.38, % Change: 3.56%, Volume: 5,417,574 We don't even know the sex of this baby yet. Earlier this week, Forest Oil released test rates from three horizontal drills (in the Quebec Utica) that were below expectations. Canaccord Adams highlights that more evaluation work is needed, and that this is VERY early stages. Currently there have been approximately 11 wells drilled into the play, and we believe that up to 20 wells may need to be drilled in order to properly assess the situation/property. Upcoming catalysts for the play include: next week (March 5) when Talisman reports its Q4 results, and may provide comments on its vertical wells in Quebec’s St. Lawrence Lowlands; and Forest is set to begin additional testing work on the horizontals (may re-stimulate the wells, will re-evaluate the frac jobs) this summer. The key excerpt from Forest's fourth-quarter press release out Monday was: "Forest drilled and completed the first three horizontal Utica Shale wells in Quebec's St. Lawrence Lowlands, which were successfully cased and fracture stimulated in four stages with rates ranging 100-800 mcf/d. Frac load flow-back was incomplete due to the lack of coiled tubing units in the area. Forest expects to continue to test its wells after the winter season is over. Although sustained rates were not as high as anticipated, the tests have allowed Forest to identify the section of the shale it intends to target in future test wells. Each of the wells were tested in different sections of the Utica Shale with an objective of gathering data on productivity to allow optimization of future completions. Furthermore, Forest proved the ability to successfully drill the wells horizontally and pump multi-stage slickwater frac jobs without major operational issues." Of note, these first horizontal wells initially tested up to four mmcf/d, with sustained rates up to 800 mcf/d (100-800 mcf/d as Forest stated).



Research In Motion* (RIM : TSX : $51.89), Net Change: 1.33, % Change: 2.63%, Volume: 1,973,717 Research in Microsoft? The high-profile on-line business news publisher Silicon Alley Insider's senior editor says if Microsoft (MSFT) has serious plans of ramping up its mobile division, it should buy Research In Motion. Microsoft would gain RIM's awesome BlackBerry device sales and re-occurring service revenue while RIM would gain from Microsoft's cash and global reach. "Apple (AAPL) and RIM have shown that owning both the hardware and software platforms make for better mobile products," said the Alley's Dan Frommer. "And Microsoft has enough to lose – to Apple, Google (GOOG), etc. – to avoid being a weak player in what could be the next major platform war." Sears Canada (SCC : TSX : $18.00), Net Change: -0.35, % Change: -1.91%, Volume: 63,693 No tears for Sears. Total revenues for the quarter ended January 31 declined by 5.8% to $1.616 billion, with same-store sales decreasing by 6.2% compared. Operating EBITDA, before unusual items, declined 17.7% by $179.9 million and net earnings, including unusual items, decreased 19.7% to $95.5 million, or $0.89 EPS from last year's $1.11 EPS. The CEO stated that sales began to slump in October as consumer confidence began to erode. The company is focusing on new promotions as consumer confidence levels are at almost three decade lows, include its new "Budget Relief Price Drop". Sherritt International* (S : TSX : $2.10), Net Change: -0.49, % Change: -18.92%, Volume: 4,579,334 Ambatovy - sounds like a fine new (slightly more expensive) vodka. This diversified natural resource company reported Q4/08 net loss of $592.1 million, or $2.03 per share, compared to a profit of $83.5 million, or $0.36 per share, last year. The loss was primarily due to an impairment of the full amount of the goodwill of $463.3 million related to the Ambatovy Project. In total there were $571.3 million of impairment chares, and adjusting for these impairments, the company lost $0.07 per share in the quarter, which was well below the $0.09 EPS consensus profit estimate from Reuters. While investors were likely disappointed by this aspect of the results, it was likely two other data points which really displeased investors. Firstly, based on current market conditions the company may not be in compliance with one of its financial covenants in Q2/09 relating to certain short-term facilities that provide $200 million of total liquidity. The covenant states that the Debt-to-EBITDA ratio is to be less than 2.65:1. Management will attempt to renegotiate this covenant, but if unsuccessful in renegotiation, the company may be required to repay the amounts outstanding under the short-term facilities which totaled $97.1 million at February 20, 2009. Management stated that a $200 million reduction in liquidity is not expected to preclude the company from satisfying its current and long-term obligations as they come due. At December 31 the company's cash and cash equivalents totaled $500.8 million, including $65.7 million of cash held by the Ambatovy Joint Venture and $54.1 million held by the Moa Joint Venture. At year end, the company had approximately $1.6 billion (100% basis) available under its various credit facilities inclusive of approximately $1.2 billion (U.S.$1.0 billion, 100% basis), available under the Ambatovy Joint Venture limited recourse project financing. Secondly, the company also raised the estimated total cost of the Ambatovy project from $3.2 billion to $4.5 billion, with 88% of engineering and 44% of construction complete at the end of December. Sherritt is engaged in advanced discussions with its partners on a mechanism to fund the remaining equity component of the capital cost without jeopardizing Sherritt's balance sheet strength and liquidity. TD Bank* (TD : TSX : $35.85), Net Change: 0.60, % Change: 1.70%, Volume: 6,350,445 Touch Down. The banks' earnings season started with TD Bank reporting Adjusted EPS of $1.34 for Q1F09. The results were modestly ahead of the Reuters consensus EPS of $1.28, and below last year's $1.45 of adjusted EPS. The company's GAAP EPS was $0.82, compared with last year's $1.33. The bank increased its general allowance for Canadian personal and Commercial Banking and Wholesale Banking by $55 million. TD Canada Trust operations posted earnings of $584 million in the first quarter, down 2% from the same period last year. Record volume growth in the quarter was offset by compressed margins and higher loan losses, reflecting the deteriorating economic outlook. Wealth Management, including its investment in TD Ameritrade (AMTD), earned $152 million in the quarter, down 30% from the first quarter of last year, with TD Ameritradecontributing $77 million in earnings. U.S. Personal and Commercial Banking generated net income of $240 million, and $307 million in adjusted earnings, compared to $127 million in net income last year. Much of the increase was attributable to the Q3 acquisition of Commerce. The quarter saw growth in loans and deposits moderated by increased loan losses, as credit conditions worsened, and continuing downward pressure on margins. The Wholesale Banking division reported $265 million of income, a 63% increase. Wholesale Banking's performance was driven by strong interest rate and foreign exchange trading, as well as solid contributions from equity trading and investment banking.



5N Plus* (VNP : TSX : $5.24), Net Change: -0.17, % Change: -3.14%, Volume: 366,247 First Solar* (FSLR : NASDAQ : US$107.65), Net Change: -30.03, % Change: -21.81%, Volume: 14,157,232 The solar sector's Scottie Pippen and Michael Jordan. First Solar, which was getting pummelled during yesterday's trading session, is 5N Plus' major customer – explaining the weakness in 5N Plus' shares as well. First Solar, one of the largest players in the global solar market, actually reported an excellent quarter, but it was the poor Q1 guidance and a co-investment that disappointed investors. Canaccord Adams believes that First Solar's decision to co-invest in a customer project and defer US$200 million of 2009 revenues may have surprised the Street. For the fourth-quarter, First Solar's revenues of US$433.7 million beat consensus of US$410.4 million and our US$363.4 million estimate. Earnings were even stronger at US$1.61, compared to consensus of US$1.30 and our US$1.12. The company also reported that its average costs were below US$1 per watt – a significant PV milestone. First Solar continues to execute flawlessly in a difficult market, a testament to the company’s differentiated cost structure and operational performance. However, limited visibility in 10%-15% of its customer contracts and a decision – which we agree with – to co-invest in a large German PV installation may “surprise” the Street. In our view, the solar market is going through a difficult transition in the near term, brought about by the collapse of the Spanish market, which grew to 1x the rest of the market last year and has essentially gone to zero, in our view. However, the majority of the company’s exposure remains in Germany (which continues to ramp), and First Solar is arguably one of the best positioned companies in the U.S. utility market, which we believe will become the next wave of growth. We feel First Solar remains the best positioned solar company to capitalize on these trends – boding well for 5N Plus. U.S. EQUITIES OF INTEREST Listed Alphabetically by Symbol U.S. Dollar Index (DXY : 87.91), Net Change: 1.01, % Change: 1.16% "Yewwww say wreesheshon raiku hwee say wreesheshon!" – Hattori Hanzo (Kill Bill Vol.1). If you believe the U.S. dollar is way overvalued, consider that the economies overseas aren't any hotter. Japan's trade deficit widened to its largest level on record last month, seeing exports plunge 45.7%. This is the "brashest, boldest, and bloodiest" (as one critic described Tarantino's Kill Bill Vol. 1) contraction that the home town of O-Ren Ishii and Gogo Yubari has ever seen. Save them, Uma! The Ukraine saw its long-term foreign currency rating lowered to CCC+ (seven levels below investment grade) and can be downgraded further. Weakness in Eastern European financial markets are said by some to be headed for disaster, which would hurt the German banking sector. The largest economy in Europe is, according to Deutsche Bank, likely to drop by 5% this year. Homebuilders In this week's episode of House...Sales of U.S. existing homes dropped 5.3% in January from December to an annualized rate of 4.49 million unit sales, according to the National Association of Realtors. That was the slowest sales rate in a dozen years. The median sales price plummeted to $170,300 from $199,800 a year ago and $175,700 in December, 2008. That a 14.76% year-over-year and a 3.07% sequential drop, showing January's weakness was double the average monthly decline witnessed in the past 12 months. Two days ago, the S&P Case-Shiller 20-home index figures were released, showing December was the worst year-over-year drop in prices on record. Apple (AAPL : NASDAQ : US$91.16), Net Change: 0.91, % Change: 1.01%, Volume: 27,791,362 iUpgrade. Canaccord Adams has upgraded Apple, based primarily on the prospect of new iPhone deals driven by device launches in the coming quarters. Thus far, we have been only marginally impressed by the iPhone due mainly to a lack of segmentation. That is about to change, in our opinion. We see three potential iPhone updates emerging in 2009: 1) a 32G version; 2) a lower-cost handset targeted for China and India; and 3) a new smaller form factor also likely before year end. We believe that forthcoming iPhone deals will more than offset expected declines in Macs and iPods resulting from the consumer spending slowdown. It may seem odd to upgrade a consumer stock in what we see as a near-consumer depression, but we believe Apple’s niche volumes of roughly 10 million Macs per year are reasonably stable, while new iPhones and potential netbooks would propel pro-forma earnings to at least $7.00 per share in F10. Although Apple did not officially attend the Mobile World Congress in Barcelona last week, the company created a great deal of buzz behind the scenes. Based on our conversations, we believe that Apple has initial orders for millions of units of a new low cost iPhone developed for emerging geographies. We believe that iPhone volumes (including new form factors) will likely translate into a near 25 million unit run rate by year end.



Deckers Outdoor (DECK : NASDAQ : US$55.38), Net Change: -1.75, % Change: -3.06%, Volume: 619,230 Still f-UGG-ly. Lazard & Co. highlighted Deckers ahead of its Q4 report today, expecting strong earnings. The firm believes their EPS estimate of $3.87 is beatable, as their checks confirm that there has been virtually no slowdown in the core UGGs classic and Cardy styles. Lazard thinks operating margin held steady at 28.7% due to full-priced selling of core UGG styles over the holidays, in contrast to an extremely promotional environment. In a normal environment, the firm would expect management to raise guidance after a Q4 beat. In this case, however, Deckers is in a tough position. Despite the fact that its business is outperforming, if it beats and guides 2009 EPS to consensus of $8.05, it could be seen as delusional for believing that it can report an earnings increase in a deep economic recession. If it plays conservative (management has typically under-promised) and guides EPS below the Street, some investors will claim victory, saying the UGGs “fad” is over, and punish the stock. Even though this seems like a lose-lose, Lazard remains very constructive on the stock. DineEquity (DIN : NYSE : US$6.67), Net Change: 0.77, % Change: 13.05%, Volume: 1,785,622 The International House of Pancakes – a summer vacation alternative. The operator of Applebee’s and IHOP was serving some tasty treats to the market, reporting fourth-quarter earnings ahead of expectations, and easing concern over its debt load with better free cash flow and cost management. Fear has been weighing on DineEquity, with investors betting that the company would come closer to violating debt covenants, though executives hope the company’s latest results can allay some concern. The company cut down on labour, food and beverage costs, which helped improve margins at its company-owned Applebee’s restaurants to 10.7% in its latest quarter, up from 7.9% a year ago. Its free cash flow for fiscal 2008 also jumped to $94.8 million, higher than its October estimate of a range from $68-82 million. Also, after paying down $500 million in debt over the past year, DineEquity expects to remain in compliance with debt covenants through 2009. But analysts say the macroeconomic picture still remains troubling for DineEquity and other dining chains as consumers reel in their spending.While DineEquity reported sharply higher revenue Wednesday, the company said it saw a “significant contraction of consumer spending” in the second half of last year. Del Monte Foods (DLM : NYSE : US$7.52), Net Change: 0.97, % Change: 14.81%, Volume: 5,797,416 How do you like them pineapples? Del Monte was lookin’ pretty sweet after posting a 14% increase in fiscal third-quarter net income amid rising margins and new-product volume. The canned- and pet-food company earned net income of $60.5 million, up from $53.3 million a year earlier, as revenue for the quarter ended January 25 rose 8.4% to $942.3 million. Del Monte says it benefited from price and new-product volume increases, through existing-product volume declined amid the price hikes. Management said the price increases and cost reductions were critical in helping to combat the industry’s inflationary pressures, adding that Del Monte is now able to recoup some of the margin contraction experienced over the last few years. In the consumer-products segment, which includes Contadina and the namesake brand, revenue rose 3.4% as earnings climbed 15%, helped by cost reductions. The pet-food segment, which features Kibbles ‘n Bits and Meow Mix, posted a 15% increase in revenue as earnings rose 16%. Analysts note that consumer-staples companies like Del Monte have been holding up better than the makers of more discretionary products, as consumers eat at home more often. Still, the sector overall has felt the pain of weaker consumer spending, inroads from less expensive store brands and pantry de-stocking. Even behemoths like Wal-Mart Stores (WMT) are slowing orders as they work down inventory. Going forward, Del Monte boosted its fiscal-year outlook, now seeing fiscal-year net from continuing operations of $0.64-0.68 a share and revenue increasing 9-11%, up from a December call for $0.60 on sales growth of 8-10%. Herbalife* (HLF : NYSE : US$14.52), Net Change: -3.81, % Change: -20.79%, Volume: 3,875,402 Hope they got pills for this kind of thing. Herbalife reported in-line EPS for Q4 on slightly lower revenue while the revenue guidance fell 10 pennies to $2.90-3.10. However, Q1/09 guidance is expected to be well below consensus, as revenue is expected to fall 15-17% vs. consensus expectations of a 3% drop. EPS of $0.58-0.62 is below consensus of $0.78 and Canaccord Adams' $0.76 estimate. Most surprising was the significant decline in new sales leaders in every region except Asia. Business momentum has softened significantly as measured by recruiting, impacting Canaccord Adams' confidence in the new forecasts. Herbalife is one of the largest direct sellers in the world of health and wellness products, nutritional supplements and personal care products. Besides the recent study that criticized some of the long-standing beliefs of the benefits of taking multivitamins, people tend to worry less about their appearance when they busy worrying about making ends meet. The speed of the sales downturn clearly reflects this. MF Global (MF : NYSE : US$4.32), Net Change: 0.76, % Change: 21.35%, Volume: 6,643,010 Sexy. MF Global, the derivatives broker that wants to become a prime dealer, is offering to buy back $210 million in convertible



notes for more than their price in the market. Specifically, the company offered $620 per $1,000 of the principal amount on the 9% notes due 2038, representing a slight premium to the bond’s recent market price. Raymond James said they liked the decision, which “reduces the firm’s debt burden while also demonstrating its improving cash position.” The broker sold convertible preference shares and convertible senior notes last year to help repay a $1.05 billion bridge loan. If you’ll recall, a $141 million trading loss and confusion over its debt financing with the preference and convertible shares shook investor confidence in 2008 and led to the departure of its chief executive officer. “Retiring the debt at a discount is clearly another positive aspect of the transaction, particularly given the debt was issued just this past summer,” RayJay added. “We continue to be impressed with the steps taken by the new management team to right the ship.” MF earlier this month said it is in discussions with the Federal Reserve Bank of New York to become a prime dealer that underwrites government-bond auctions. Know that the Treasury Department and Fed officials want to ensure there are enough firms bidding at auctions to keep borrowing costs low after the total number of dealers dropped last year to the lowest amount since the network was formalized in 1960. Wynn Resorts (WYNN : NASDAQ : US$21.75), Net Change: -4.05, % Change: -15.70%, Volume: 7,665,551 Coming up with a pair of twos when the expectation was for a flush. The casino operator's fourth-quarter results, which widely missed estimates, were met by analysts slashing their targets and ratings. Investors also decided to jump ship. Late Tuesday, Wynn posted a fourth-quarter loss of $1.49 per share and said revenue fell 14% to $614.3 million. Adjusted earnings were $7.6 million or seven cents per share. The Street was looking for a profit of 44 cents per share on revenue of $703.5 million. The Las Vegas-based company also warned that Las Vegas remains difficult as visitors continue to spend less and some cancel trips. In Sin City, gambling revenue for the fourth quarter was cut nearly in half, falling to $90.7 million while other revenue fell 17% to $171.9 million with the hotel's average daily rate falling form $298 to $281 and occupancy plunging from 94.3% to 79.7%. Revenue-per-available room was off more than 20%. "Starting in October, we experienced a dramatic deceleration in business from the casino and non-gaming departments," the company said in the earnings report. "The Thanksgiving to Christmas period has traditionally been one of the weakest times of the year in Las Vegas but the fourth quarter of 2008 was substantially worse than during the prior year as consumers chose to stay at home and significantly reduced their leisure budgets." COFFEE BEAN – Bernanke says the SEC is evaluating restoration of up-tick rule, says may have been beneficial in present crisis. (Reuters)



GO FIGURE

Jones Montier at SocGen wrote a strategy piece based solely on the subject of happiness. Here are his top ten suggestions for improving happiness, according to research studies. For the full report, visit greenlightadvisor.com (you may want to subscribe to their email blasts. They are very good). Don’t equate happiness with money. People adapt to income shifts relatively quickly, the long lasting benefits are essentially zero.

Exercise regularly. Taking regular exercise generates further energy, and stimulates the mind and the body. Have sex (preferably with someone you love). Sex is consistently rated as amongst the highest generators of happiness. So what are you waiting for? Devote time and effort to close relationships. Close relationships require work and effort, but pay vast rewards in terms of happiness. Pause for reflection, meditate on the good things in life. Simple reflection on the good aspects of life helps prevent hedonic adaptation. Seek work that engages your skills, look to enjoy your job. It makes sense to do something you enjoy. This in turn is likely to allow you to flourish at your job, creating a pleasant feedback loop. Give your body the sleep it needs. Don’t pursue happiness for its own sake, enjoy the moment. Faulty perceptions of what makes you happy, may lead to the wrong pursuits. Additionally, activities may become a means to an end, rather than something to be enjoyed, defeating the purpose in the first place. Take control of your life, set yourself achievable goals. Remember to follow all the rules. THE LAST DROP: The whole cast of “Slumdog Millionaire” came out to see the Oscars. Slumdog won best picture, which everyone seemed to know was going to happen. It was the big favourite going in. They’re saying the only way it could have possibly lost is if it had picked Sarah Palin as a running mate.

– Jimmy Kimmel * Canaccord Capital and its affiliated companies may have a Corporate Finance or other relationship with the company and may trade in any of the Designated Investments mentioned herein either for their own account or the accounts of their customers, in good faith and in the normal course of market making. The authors have not received, and will not receive, compensation that is directly based upon or linked to one or more specific Corporate Finance activities, or to coverage contained in the Morning Coffee.

Morning Coffee

Economy & Finance

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