July 19, 2011 Newsletter

Dear Friends,

Photo of the Day:

Performers take part in the opening ceremony of the 14^th FINA World Aquatic Championships in Shanghai. REUTERS/Issei Kato.

Market Commentary:

CANADA

Canadian stocks rose, led by energy producers, after U.S. housing starts surged and companies including Mosaic Co. beat analysts’ profit estimates.

Canadian Natural Resources Ltd., the country’s second- largest energy company by market value, gained 3.2 percent as crude oil advanced as much as 2.7 percent. Teck Resources Ltd., Canada’s biggest base-metals and coal producer, increased 2.2 percent as copper futures climbed to a three-month high. Potash Corp. of Saskatchewan Inc. rose 2.8 percent after U.S. peer Mosaic surpassed its average earnings estimate by 9.5 percent, excluding certain items.

The Standard & Poor’s/TSX Composite Index gained 78.12 points, or 0.6 percent, to 13,332.26 at 1:48 p.m. in Toronto.

“We’ve got the first positive economic surprise in a long time in housing starts this morning,” Keith McLean, who oversees C$200 million ($211 million) as a managing partner at GMP Investment Management in Toronto, said in a telephone interview. “Even the bears coming into this period were expecting earnings to be solid, but the bears were looking for negative commentary on guidance, and we’re just not seeing that.”

The S&P/TSX rallied 52 percent from the first quarter of 2009 to yesterday as at least two-thirds of S&P 500 companies topped the average profit estimate in each quarter since then, according to Bloomberg data. Since July 11, 31 of 36 S&P 500 companies and all 5 S&P/TSX companies that have reported financial results have beaten the average forecast.

Beating Estimates

Companies including Bank of New York Mellon Corp., International Business Machines Corp., Novartis AG and UnitedHealth Group Inc. reported earnings that surpassed their average analyst estimates in Bloomberg surveys since the close of trading yesterday.

U.S. builders began work on 629,000 new homes in June, the most since January, compared with a revised 549,000 in May, the Commerce Department said today in Washington. Economists had forecast a rate of 575,000, the median of 71 estimates in a Bloomberg survey. Building permits increased 2.5 percent, more than 50 of 51 forecasts.

Fifty of 67 S&P/TSX energy companies advanced as crude futures climbed.

Canadian Natural increased 3.2 percent to C$40.75. Suncor Energy Inc., Canada’s largest oil and gas producer, rose 2.3 percent to C$38.42. Nuvista Energy Ltd., a western Canadian oil and gas producer, jumped 6.8 percent to C$9.91 after soaring as much as 8.8 percent, the most intraday in a year, earlier today.

Record Gain

PetroBakken Energy Ltd., which explores for light oil in Canada, rallied a record 14 percent to C$14.15, after closing yesterday at the lowest price since it began trading in October 2009. Petrobank Energy and Resources Ltd., PetroBakken’s parent company, surged 14 percent to C$14.97.

The country’s six largest banks each advanced as the S&P/TSX Banks Index rebounded from the lowest close since January.

Royal Bank of Canada, the country’s biggest lender by assets, increased 0.9 percent to C$52.93 for its first gain since July 4. Toronto-Dominion Bank, its largest competitor, climbed 0.6 percent to C$78.77. Manulife Financial Corp. , North America’s fourth-biggest insurer, rallied 1.2 percent to C$15.75.

An index of S&P/TSX base-metals and coal stocks rose as copper gained as much as 2.1 percent. Teck advanced 2.2 percent to C$50.09. First Quantum Minerals Ltd., Canada’s second-largest publicly traded copper producer, increased 3.5 percent to C$136.64.

Potash, Agrium

Fertilizer producers climbed after Mosaic reported earnings and the U.S. said crop conditions in the country worsened last week. Potash Corp., the world’s largest fertilizer producer by market value, rose 2.8 percent to C$57.86. Agrium Inc., which also sells agricultural products, gained 2 percent to C$86.06.

The S&P/TSX Gold Index retreated the most in three weeks as the metal slipped after 10 days of gains in New York. Goldcorp Inc., the world’s second-largest producer by market value, lost 2.2 percent to C$51.63. Agnico-Eagle Mines Ltd., the fifth- largest Canada-based gold-mining company by revenue, decreased 4 percent to C$60.53. Silver Wheaton Corp., the country’s fourth- biggest precious-metals company by market value, fell 2.9 percent to C$36.93 as silver dropped.

Lake Shore Gold Corp., which operates in Ontario, plunged 14 percent to C$2.91 after cutting its 2011 production forecast by as much as 32 percent. Earlier today, the shares sank 19 percent, the most intraday since December 2008.

Forestry companies soared after the U.S. housing report indicated demand may strengthen.

West Fraser Timber Co., Canada’s largest forestry company, increased 4.2 percent to C$48.99. Canfor Corp., its biggest domestic peer, jumped 11 percent, the most intraday in 23 months, to C$11.86 a day after at least three analysts raised their ratings on the company. Sino-Forest Corp. (TRE), the Hong Kong- and Toronto-based company fighting a short seller’s assertions of financial manipulation, climbed 14 percent to C$4.02 after tumbling 13 percent yesterday.

-Matt Walcoff (Bloomberg)

US

Stocks surged, sending the Standard & Poor’s 500 Index to its biggest gain in four months, and Treasuries rallied amid optimism lawmakers were moving closer to a deal that would cut the U.S. budget deficit and avoid default. Oil helped lead gains in commodities and the dollar fell.

The S&P 500 jumped 1.6 percent to 1,326.73 at 4 p.m. in New York, its biggest gain since March 3. The S&P GSCI Index of 24 commodities advanced 1 percent as oil surged 1.6 percent to $97.50 a barrel. Ten-year Treasury note yields lost six basis points to 2.87 percent and the Dollar Index, a gauge of the currency against six major peers, slipped 0.4 percent.

Stocks added to an early advance and Treasuries climbed after President Barack Obama endorsed a deficit-cutting proposal by a bipartisan group of senators known as the “Gang of Six.” Earlier gains in global equities were triggered by higher-than- estimated results at companies from International Business Machines Corp. to Coca-Cola Co. and Novartis AG. “We’re getting positive news flow on two fronts today: the political front related to the national debt ceiling and we have the reports coming out of the earnings season,” Keith Wirtz, who helps oversee $18 billion as chief investment officer for Fifth Third Asset Management in Cincinnati, said in a telephone interview. “IBM’s release is one of the tone-setters for this week. A good earnings season might put a floor in this stock market.”

The S&P 500 erased yesterday’s 0.8 percent slide and rebounded from a three-week low. S&P 500 technology shares climbed 2.7 percent as a group, the most in a year, to lead gains among all 10 of the index’s main industries.

Earnings Season

IBM jumped 5.7 percent to an all-time high of $185.21 to lead gains in the Dow Jones Industrial Average, which surged 202.26 points, or 1.6 percent, to 12,587.42 in its first gain of more than 200 points this year. Coca-Cola Co. climbed 3.3 percent, Wells Fargo & Co. added 5.7 percent and Harley-Davidson Inc. rallied 8.9 percent after each reported higher-than- estimated results.

Goldman Sachs Group Inc. lost 0.7 percent after the fifth- biggest U.S. bank by assets reported second-quarter profit that trailed analysts’ estimates. Goldman Sachs was one of only five S&P 500 companies to post quarterly results that trailed estimates since the reporting season started. Per-share earnings have topped analysts’ estimates at 31 of the 36 companies in the S&P 500 that released earnings since July 11, according to Bloomberg data.

“Profits are finally shining through some of the daunting headlines and investors are taking notice,”Jack Ablin, chief investment officer for Chicago-based Harris Private Bank, which oversees $55 billion, said in a telephone interview. “IBM was a big one,” he said. It sent “a strong signal that companies can still thrive in an uncertain economic environment.”

Housing Starts

All 12 stocks in an S&P gauge of homebuilders advanced after U.S. housing starts increased more than forecast in June to the fastest pace in five months. Work began on 629,000 houses at an annual pace, up 14.6 percent from the prior month, figures from the Commerce Department showed. Housing starts were projected to rise to a 575,000 annual rate

News Corp.  shares rallied 5.5 percent. Chairman and Chief Executive Officer Rupert Murdoch told U.K. lawmakers that he wasn’t responsible for the phone-hacking scandal at the company’s News of the World newspaper, saying that the blame lies with the “people that I trusted to run it.”

Thirty-year U.S. bonds rallied, sending their yield down 13 basis points to 4.18 percent, after Obama endorsed a bipartisan deficit-cutting proposal as “broadly consistent” with his administration’s approach. The plan to shave about $3.7 trillion from the debt over 10 years put forward by the senators is “a very significant step,” Obama said. While the administration hasn’t yet had a chance to review the Senate proposal in depth, “we’re in the same playing field,” he said.

Deficit Plan

“We don’t have any more time to posture,” Obama said in remarks at the White House. Time is running out to raise the debt limit before Aug. 2, when the Treasury Department has said the U.S. risks going into default, a step that would roil financial markets, he said.

Cotton and corn rallied at least 1.5 percent to help lead gains in 18 of 24 commodities tracked by the S&P GSCI Index amid concern that hot, dry weather will hurt crop output. Gold futures lost $1.30 to settle at $1,601.10 an ounce after reaching an intraday record of $1,610.70 an ounce yesterday following a 10-day streak of gains, the longest rally since 1980.

Inyoung Hwang; Michael Regan (Bloomberg)

“The future belongs to those who believe in the beauty of their dreams.”

-Eleanor Roosevelt

As Always,

 Kyle, for Carolann.