August 2nd, 2011 Newsletter
Dear Friends,
Tangents:
ON THE NATURE OF UNDERSTANDING
Say you hoped to
tame something
wild and stayed
calm and inched up
day by day. Or even
not tame it but
meet it halfway.
Things went along.
You made progress,
understanding
it would be a
lengthy process,
sensing changes
in your hair and
nails. So it’s
strange when it
attacks: you thought
you had a deal.
-Kay Ryan
A democracy is always temporary in nature; it simply cannot exist as a permanent form of government. A
democracy will continue to exist up until the time that voters discover that they can vote themselves generous gifts from the
public treasury. From that moment on, the majority always votes for the candidates who promise the most benefits from the
public treasury, with the result that every democracy will finally collapse due to loose fiscal policy…
– Alexander Fraser Tytler, Scottish lawyer and writer, 1770
August 1st, 1944, Anne Frank pens her last diary entry, The Globe & Mail reminds us today. “Anne Frank’s final diary entry reveals a panache and emotional maturity beyond the author’s 15 years, It came near the end of two years that the Jewish girl and her family spent hiding from the Nazis in an apartment behind her father’s offices in Amsterdam. Just three days after she wrote it, they were discovered by the Gestapo and sent to concentration camps. The diary remained behind and Anne’s father, the family’s sole survivor, had it published after the war. For generations of readers, the document became a testament to the human desire to thrive in the face of unimaginable terror.” -Adrian Morrow
The last entry ends…
…If I’m being completely honest, I’ll have to admit that it does matter to me, that I’m trying very hard to change myself, but that I’m always up against a more powerful enemy. A voice within me is sobbing, “You see, that’s what’s become of you. You’re surrounded by negative opinions, dismayed looks and mocking faces, people who dislike you, and all because you don’t listen to the advice of your own better half.”
Believe me, I’d like to listen, but it doesn’t work, because if I’m quiet and serious, everyone thinks I’m putting on a new act and I have to save myself with a joke, and then I’m not even talking about my own family, who assume I must be ill, stuff me with asprins and sedatives, feel my neck and forehead to see if I have a temperature, ask about my bowel movements and berate me for being in a bad mood, until I just can’t keep it up any more, because when everybody starts hovering over me, I get cross, then sad, and finally end up turning my heart inside out, the bad part on the outside and the good part on the inside, and keep trying to find a way to become what I’d like to be and what I could be if . . . if only there were no other people in the world.
Yours, Anne M. Frank
Photos of the day
August 2, 2011
A boat passes a sculpture of a giant mermaid designed by German artist Oliver Voss on the river Alster in Hamburg, Germany. The sculpture, made of styrofoam and steel, will be on exhibit for ten days. Axel Heimken/AP.
In this image from House Television, Rep. Gabrielle Giffords, D-Ariz., appears on the floor of the House of Representatives Monday night in Washington for the first time since her shooting earlier this year to attend a vote on the debt standoff compromise. House Television/AP.
Market Commentary:
Canada
By Inyoung Hwang
Aug. 2 (Bloomberg) — Canadian stocks fell to the lowest level in more than eight months after a gauge of U.S. consumer spending dropped unexpectedly, fueling concern the global recovery is slowing.
Bank of Nova Scotia, Canada’s third-largest lender by assets, lost 3 percent. Extendicare Real Estate Investment Trust, which owns senior-care centers in the U.S. and Canada, plunged 19 percent, the most among Canadian stocks, after cuts to Medicare payments. Saputo Inc., the country’s largest food producer, erased 6 percent after reporting first-quarter profit that missed estimates.
The Standard & Poor’s/TSX Composite Index sank 193.31 points, or 1.5 percent, to 12,752.32 at 4 p.m. in Toronto, the lowest level since Nov. 17. Industrial and consumer discretionary companies had their steepest declines since August. Stocks extended declines after the U.S. Senate passed legislation on raising the nation’s debt limit.
“Investors are waiting for the next shoe to drop,” Irwin Michael, who helps manage C$1 billion ($1 billion) as a money manager at ABC Group of Funds in Toronto, said in a telephone interview. “It’s a bit of a hangover from what happened last week in the U.S. trying to settle the debt ceiling impasse.”
The S&P/TSX fell the most in a year last week as the U.S. reported a drop in durable-goods orders and the U.S. economy grew less than forecast in the second quarter. Lawmakers there failed last week to reach an agreement to raise the country’s debt ceiling. The U.S. House of Representatives approved a measure to do so yesterday, and the Senate voted to ratify the plan today.
The index traded at 17.9 times earnings, the lowest price- to-earnings multiple in more than a year.
The U.S. debt-limit compromise will avert a default even as it defers decisions on the nation’s finances to a bipartisan panel. It raises the national debt ceiling enough to fund the government until 2013 and threatens automatic spending cuts to enforce a goal of slashing $2.4 trillion over the next decade.
The U.S. Commerce Department figures today showed purchases decreased 0.2 percent, after a 0.1 percent gain the prior month. It was the first drop in consumer spending in almost two years.
The median estimate of 77 economists surveyed by Bloomberg News called for a 0.1 percent increase. Incomes grew at the slowest pace since November and the savings rate climbed.
Nine out of 10 groups in the S&P/TSX declined today.
Industrial stocks fell 2.7 percent, while consumer discretionary companies lost 2.3 percent.
Financial shares in the Canadian equity index slid 2.2 percent today, the biggest fall since June 1. Manulife Financial Corp., Canada’s biggest insurer, declined 4 percent to C$14.57. Bank of Nova Scotia declined 3 percent to C$52.54. Royal Bank of Canada, the country’s largest lender, fell 2.2 percent to C$50.29.
“People are thinking that once the economy starts to weaken, banks could be underestimating the bad loans on their books,” Michael said.
Health-care companies were the worst performers in the S&P/TSX, falling 4.2 percent as a group. Medicare, the U.S. health plan for the elderly and disabled, announced an 11.1 percent rate cut for nursing-home operators for next year. Extendicare plunged 19 percent to C$8.28, the most since October 1999.
Saputo lost 6 percent to C$42.05, the most since November 2008. The company, which manufacturers dairy and grocery products, posted profit in the first quarter of 61 Canadian cents a share excluding some items, missing the average analyst estimate by 2 cents.
Energy companies declined as the price of crude oil slumped to a five-week low. Suncor Energy Inc., Canada’s largest oil and gas producer, declined 3.7 percent to C$35.28.
Centerra Gold Inc. erased 4.5 percent, the most since March 10, to C$17.88. The mining company with operations in Kyrgyzstan and Mongolia was cut to “neutral” from “overweight” by Sabrina Grandchamps, an analyst at HSBC Securities USA Inc.
US
By Stuart Wallace and Rita Nazareth
Aug. 2 (Bloomberg) — Stocks tumbled as the Standard & Poor’s 500 Index had its biggest one-day loss in a year and erased its 2011 gain, while Treasury yields fell to the lowest levels since November, after an unexpected drop in consumer spending added to concern the economy will slide into a recession. Gold and the Swiss franc rallied.
The S&P 500 fell 2.6 percent to 1,254.05 at 4 p.m. in New York, dropping for a seventh straight day in its longest slump since 2008. The Stoxx Europe 600 Index declined 1.9 percent to an 11-month low. Yields on 30-year bonds dropped 17 basis points to 3.91 percent in the biggest decrease since May 2010. The Swiss franc advanced against all 16 major peers as 10-year Italian and Spanish bond yields climbed to euro-era records and gold set an all-time high of $1,661.90 an ounce.
Investors sought the safety of Treasuries, gold and the Swiss currency even as President Barack Obama signed a plan to raise the federal debt limit before a possible default.
Attention has shifted to weakening economic data, including today’s 0.2 percent decrease in consumer spending, the slowest growth in personal incomes since November and an index of American manufacturing sinking to a two-year low.
“We have a stubbornly slow economy,” Hank Smith, chief investment officer at Haverford Trust Co. in Radnor, Pennsylvania, said in a telephone interview. His firm manages about $6.5 billion. “The economy is stuck in a very slow growth mode, which means that it’s more susceptible to any external shocks.”
The odds of another U.S. downturn are rising amid cutbacks in spending by consumers and the government, according to five of the nine members of the panel that dates recessions. Harvard University economics professor Martin Feldstein, one of the members of committee at the National Bureau of Economic Research, said he sees a 50 percent chance that the U.S. will relapse into another recession.
“Nothing has given us much growth,” Feldstein said today in a Bloomberg Television interview on “Surveillance Midday” with Tom Keene.
Today’s retreat was the biggest for the S&P 500 since Aug. 11 and left the index down 0.3 percent in 2011 following a rally of as much as 8.4 percent through the end of April. All 10 industry groups fell today, led by declines of more than 3.4 percent in industrial and consumer-discretionary companies.
Pfizer Inc., General Electric Co. and Home Depot Inc. lost at least 4.2 percent to lead declines in all 30 stocks in the Dow Jones Industrial Average. The Dow sank 265.87 points, or 2.2 percent, to 11,866.62 for its biggest loss since June 1. The S&P 500 closed at its lowest level since Dec. 20, while the Dow ended the day at its weakest since March 18.
Archer Daniels Midland Co., the world’s largest grain processor, tumbled 6.2 percent as earnings trailed projections after corn and tax expenses rose. MetroPCS Communications Inc., the pay-as-you-go mobile-phone carrier, lost 36 percent for the biggest decline in the S&P 500 as sales fell short of analysts’ forecasts.
Two-year Treasury yields decreased five basis points to 0.32 percent and 10-year yields sank 13 points to 2.61 percent.
The difference between two- and 10-year yields shrank to 2.29 percentage points, the narrowest since November, as demand reduced the extra yield investors require to hold longer- maturity debt.
Fitch Ratings said the U.S. remains under a review as the nation’s debt burden increases at a pace that isn’t consistent with an AAA sovereign credit rating. The U.S. needs to confront “tough” choices on tax and spending against a weak economic backdrop if the budget deficit and government debt is to be cut to safer levels over the medium term, Fitch said.
President Obama signed a debt-limit compromise that prevents a U.S. default on the day the Treasury had warned the nation’s borrowing authority would expire, ending a months-long debate that reinforced partisan divisions over federal spending.
The Senate voted 74-26 for the measure, which raises the nation’s debt ceiling until 2013 and threatens automatic spending cuts to enforce $2.4 trillion in spending reductions over the next 10 years. It won backing from 45 Democrats, 28 Republicans and one independent. The House passed the plan yesterday.
The S&P 500 capped a 3.9 percent weekly loss on July 29, its worst slump in a year, as the Commerce Department reported gross domestic product rose a less-than-forecast 1.3 percent annual rate in the second quarter following a 0.4 percent gain in the prior quarter that was less than previously estimated.
Investors also looked ahead to the government’s employment report at the end of the week. The nation is forecast to have added 85,000 jobs in July, according to the median estimate of economists surveyed by Bloomberg, and the unemployment rate is projected to hold steady at 9.2 percent.
“Maybe we’ll get a positive number on Friday, but I wouldn’t be shocked if we got a negative one, and I don’t see any strong job growth at all for the next few months until we get a little bit of momentum in terms of final demand,” David Kelly, the chief market strategist at JPMorgan Funds, said in a Bloomberg Television interview. “You need to have sustained growth of one-and-a-half percent even to produce positive payrolls.”
Fourteen stocks fell for each that gained in the Stoxx Europe 600 Index. Pandora A/S plunged 65 percent as the Danish maker of charm bracelets cut its forecast and Chief Executive Officer Mikkel Vendelin Olesen quit. Metro AG, Germany’s largest retailer, slid 7.5 percent as earnings missed estimates.
The Swiss franc strengthened more than 2.6 percent to a record 1.08467 per euro and appreciated 2.2 versus the dollar.
The Dollar Index, which tracks the U.S. currency against those of six trading partners, rose 0.3 percent.
The yield on the Italian 10-year bond jumped as much as 25 basis points to 6.25 percent, driving the extra yield investors demand to hold the securities instead of benchmark German bunds to as high as 3.84 percentage points, a euro-era record. The Spanish 10-year yield surged as much as 26 basis points to 6.46 percent, also the highest since the euro was introduced in 1999.
Finance Minister Giulio Tremonti led a meeting of Italy’s stability committee and determined that the recent turmoil on Italian financial markets reflects “international uncertainty.”
“Analysis has shown that despite the efforts to progressively reduce the budget deficit, there are tensions in Italian markets deriving from international uncertainty,” the committee said in a statement after the meeting in Rome.
Credit-default swaps tied to Spain’s debt surged 15 basis points to 405 and Italy’s jumped 25 to 358, according to CMA.
The Markit iTraxx SovX Western Europe Index of contracts on 15 governments jumped 13 basis points to 291, approaching the record closing price of 306.5 set July 18.
“In this U.S.-versus-Europe ugly contest, it’s hard to decide where to start from,” analysts at BNP Paribas wrote in a research note. “The economic slowdown is blatantly obvious in the large drop in U.S. manufacturing. And the issue of a U.S. downgrade remains open. Things are looking less comfy in Europe too, with Italy spreads again under severe pressure.”
The Standard & Poor’s GSCI index of 24 commodities lost less than 0.1 percent for a fifth straight decline. Crude oil fell to a five-week low, dropping 1.2 percent to $93.79 a barrel. Sugar lost 2.8 percent and gasoline slipped 1 percent. Corn surged the most in three months, jumping the exchange limit of 30 cents, or 4.4 percent, to close at $7.1575 a bushel.
A government report showed adverse weather eroded U.S. crop conditions. Soybeans had the biggest gain in almost three weeks, and wheat jumped to an eight-week high.
The Australian dollar slid 1.6 percent versus the greenback and the yen after the central bank kept its benchmark interest rate unchanged, citing an “acute sense of uncertainty in global financial markets.” Reserve Bank Governor Glenn Stevens held the overnight cash rate target at 4.75 percent in Sydney for a record eighth-straight meeting.
The MSCI Emerging Markets Index of equities lost 2 percent, the steepest drop since May 23. South Korea’s Kospi Index fell 2.4 percent, the most since May 23. The Shanghai Composite Index declined 0.9 percent after an official Xinhua News Agency website said China may boost borrowing costs next week. The Bombay Stock Exchange Sensitive Index dropped 1.1 percent after Reserve Bank of India Governor Duvvuri Subbarao said yesterday that interest rates would have to rise further.
Have a wonderful evening everyone.
Be magnificent!
I am proud to tell you that I belong to a religion in whose sacred language,
the Sanskrit, the word exclusion is
untranslatable.
-Swami Vivekananda, 1863-1902
As ever,
Carolann
The stories of past courage can teach, they can
offer hope, they can provide inspiration. But
they cannot supply courage itself. For this each
man must look into his own soul.
-John F. Kennedy, 1917-1963