August 16, 2012 Newsletter

Dear Friends,

Tangents:

Interesting news item today:

Scientists have found a galaxy that gives birth to more stars in a day than ours does in a year.  Astronomers used NASA’s Chandra X-Ray telescope to spot this distant gigantic galaxy creating about 740 new stars a year.  By comparison, our Milky Way  galaxy spawns just about one new star each year. The galaxy is about 5.7 billion light years away in the center of a recently discovered cluster of galaxies.

And also on this day in…

1777 – France declares a state of bankruptcy.

1812 – American General Hull surrenders Detroit without resistance to smaller British force under General Isaac Brock.

1896 – Gold discovered in the Klondike of Canada’s Yukon Territory, setting off the Gold Rush.

1948 – Babe Ruth died.

1958 – Madonna was born.
1965 – The Watts Riot ends in South Central Los Angeles after six days.

1977 – Elvis Presley died.

I don’t know anything about music.  In my line you don’t have to. –Elvis Presley.

photos of the day August 16, 2012

Horses continue running after losing their riders during the Madonna dell’Assunta (Virgin of the Assumption) ancient Palio, the famous break-neck bareback horse race run in the main square in Siena, Italy.

Paolo Lazzeroni/AP

People browse books at a giant outdoor library, an installation by Italian artist Massimo Bartolini, in the vineyard of the Saint-Peters Abbey in Ghent, Belgium.

Virginia Mayo/AP

Data from NASA’s Hubble Space Telescope shows two clusters full of massive stars that may be in the early stages of merging. The 30 Doradus Nebula is 170,000 light-years from Earth.

NASA/Reuters

Market Closes for August 16, 2012:

North American Markets

International Markets

Bonds

Currencies

Commodities

Market Commentary:

Canada

By Katia Dmitrieva

Aug. 16 (Bloomberg) — Canadian stocks rose, sending the Standard & Poor’s/TSX Composite Index to the highest level since May, after German Chancellor Angela Merkel affirmed support for the euro during a press conference in Ottawa and U.S. building permits jumped to a four-year high.

Barrick Gold Corp. climbed 3.9 percent after the company said it is in preliminary talks to sell its Africa unit to China National Gold Group Corp. Cameco Corp. added 5.2 percent as oil advanced in New York. Alderon Iron Ore Corp. rallied 6.5 percent. Energy and raw-materials companies contributed the most to gains in the S&P/TSX.

The Canadian stocks gauge rose 127.14 points, or 1.1 percent, to 12,032.58. The benchmark index has climbed 1.6 percent over the last three sessions, erasing its 2012 losses.

“Merkel came out and reaffirmed her support for the euro,” Jeff Young, who helps manage C$900 million as chief investment officer at NexGen Financial Corp. in Toronto, said in a phone interview. “People are thinking that to support the euro, that’s going to necessitate bringing down the borrowing cost for euro members, which is going to necessitate help from the ECB, which means we’re going to get quantitative easing out of the ECB. That’s the chain of thought.”

Merkel backed the European Central Bank’s insistence on austerity conditions for helping reduce borrowing costs in indebted countries, saying Germany is “in line” with the ECB’s approach to defending the euro. She said that euro-area policy makers “feel committed to do everything we can to maintain the common currency.” Merkel also hailed Canada’s budget and debt discipline as a model for the 17-nation euro area.

Oil surged on the Comex in New York, climbing above $95 a barrel for the first time in three months on signals of future U.S. economic growth and concern that Israel will strike Iran and disrupt oil supplies.

U.S. building permits reached a four-year high, increasing to an 812,000 annual pace in July. Michael Oren, Israel’s U.S. ambassador, said yesterday that Israel would strike Iran if only to delay that country’s ability to produce nuclear weapons for a few years.

Canadian Natural Resources Ltd. rose 2.3 percent to C$31.53. Cameco added 5.2 percent to C$22.

Goldcorp Inc. increased 4.7 percent to C$37.93 as the metal gained 0.8 percent on the Comex in New York. Kinross Gold Corp. rose 2.6 percent to C$8.25. Alderon Iron climbed 6.5 percent to C$2.45.

Barrick Gold added 3.9 percent to C$35.60. China, with $3.2 trillion of foreign-exchange reserves, has urged its companies to buy assets overseas, securing energy and commodity resources to feed industries from power generation to construction. A deal for Barrick’s 73.9 percent stake in African Barrick Gold Plc is not certain, the company said.

US

By Lu Wang

Aug. 16 (Bloomberg) — U.S. stocks advanced, sending the Standard & Poor’s 500 Index to the highest level since April, as building permits jumped in July to a four-year peak and Cisco Systems Inc.’s earnings beat estimates.

Cisco rallied 9.6 percent while Sears Holdings Corp. climbed 6.5 percent as its loss narrowed. An S&P index of homebuilders soared 4.4 percent to the highest level since 2008.

Facebook Inc. dropped 6.3 percent to the lowest price since its initial public offering as the end of a lockup period freed 271.1 million shares for trading. Wal-Mart Stores Inc. fell 3.1 percent after its forecast trailed analyst estimates.

The S&P 500 rose 0.7 percent to 1,415.51 at 4 p.m. in New York. The benchmark index is less than four points from a four- year peak of 1,419.04 set on April 2. The Dow Jones Industrial Average added 85.33 points, or 0.7 percent, to 13,250.11. The Nasdaq Composite Index climbed 1 percent to 3,062.39. Volume for exchange-listed stocks in the U.S. was 5.9 billion shares, 9 percent below the three-month average.

“We’re in a situation where the economy is growing, jobs are being created, and the consumer seems to be feeling better about spending,” Jason Benowitz, who helps manage $5 billion at Roosevelt Investment Group Inc. in New York, said in a phone interview. “The fact permitting is improving in the housing market suggests the future is going to be there. On the other hand, you have to counterweight the less likely chance of further monetary easing.”

The S&P 500 Total Return index, which assumes dividends are reinvested back into the gauge’s 500 stocks, climbed to a record today even as the regular S&P 500 remained almost 10 percent below its peak in 2007.

Stocks broke out of a narrow trading range today. The S&P 500 has hovered around 1,400 for the past seven sessions, with intraday price movement averaging 0.6 percent, the smallest fluctuation over a comparable period since January 2011, according to data compiled by Bloomberg. The Dow’s price swings were less than 1 percent from Aug. 6 through yesterday, the narrowest since at least 2000, the data show.

Trading volume and volatility have dropped as vacationing traders awaited policy clues from the Federal Reserve’s summit at the end of the month and a European Central Bank meeting in September. The index has rallied 11 percent from a five-month low on June 1 amid speculation global central banks will introduce further stimulus measures.

Equities extended gains after a person familiar with the matter said Spain is about to get an emergency disbursement from a 100 billion-euro ($123 billion) bailout package. German Chancellor Angela Merkel said the ECB’s insistence on conditionality in return for help to lower borrowing costs in indebted countries matches her country’s priorities to end the crisis in the euro region.

“Everybody is seeing an emerging good story coming out of Europe,” Greg Peterson, director of investment research at Ballentine Partners LLC in Waltham, Massachusetts, which has about $4 billion in assets, said in a phone interview.

“American corporations are in great shape. Their earnings are solid and their cash at hand is excellent. I expect the solid returns to hold for the rest of the year, if not build on it.”

Building permits, a proxy for future construction, rose to an 812,000 pace, the most since August 2008, the Commerce Department said today. A Labor Department report showed jobless claims climbed by 2,000 to 366,000 in the week ended Aug. 11 while the Fed Bank of Philadelphia’s general economic index showed manufacturing in the Philadelphia region contracted in August for a fourth consecutive month.

“Today’s data is by and large neutral,” Wasif Latif, vice president of equity investments at USAA Investments in San Antonio, which oversees about $50 billion, said in a phone interview. “But when you aggregate the data that have been coming in during the summer, there does seem to be some softening going on in the economic activity, other than the bottoming that we’re witnessing in housing. That would indicate that the Fed continues to be ready to do something.”

Technology, commodity and industrial companies rose the most among 10 S&P 500 industry groups, jumping at least 0.9 percent. The Morgan Stanley Cyclical Index climbed 1.6 percent to the highest level since May as investors snapped up shares most tied to economic swings.

The S&P gauge of computer and software makers advanced 1.5 percent. Microsoft Corp. gained 1.9 percent to $30.78 while International Business Machines Corp. added 1.2 percent to $200.84.

Cisco surged 9.6 percent, the most in a year, to $19.02. The biggest maker of computer-networking equipment reported profit and sales that topped analysts’ estimates as job cuts kept costs in check and price reductions attracted customers.

Sears climbed 6.5 percent to $60.29. The retailer controlled by hedge fund manager Edward Lampert reported a smaller second-quarter loss, helped by reduced inventory costs.

All 11 members of the S&P Supercomposite Homebuilding Index advanced. PulteGroup Inc. jumped 6.4 percent to $13.60, KB Home added 5.5 percent to $10.89 and Toll Brothers Inc. increased 5.6 percent to $32.16.

Home Depot Inc., the largest U.S. home-improvement retailer, rose 2.4 percent to $56.31, the highest level since 2000. Smaller rival Lowe’s Cos. gained 2.3 percent to $27.45.

GameStop Corp. climbed 5.5 percent to $17.98 for the biggest increase since April 2011. The largest video-game retailer boosted its dividend by 67 percent and said it will buy back stock after reporting a drop in second-quarter earnings.

Facebook sank 6.3 percent to $19.87, the lowest close ever. The world’s largest social network freed up 271.1 million of its shares today, boosting by 60 percent the number that could be traded and adding to concerns that have weighed on the stock since the company’s May IPO.

Early Facebook investors such as DST Global Ltd., Goldman Sachs Group Inc., Elevation Partners and Accel Partners get a green light today to start selling part of their holdings, Menlo Park, California-based Facebook has said in filings.

Wal-Mart fell 3.1 percent to $72.15. The world’s largest retailer said profit this year may be $4.83 to $4.93 a share amid slowing sales growth in the U.S. The average estimate of analysts was for profit of $4.93.

Agilent Technologies Inc. tumbled 8.2 percent to $37.15. The maker of scientific-testing equipment cut its full-year forecasts, citing slowing economic growth and delays in order deliveries from customers. Profit for the current fiscal year will be no more than $3.08 a share, Agilent said. Analysts, on average, estimated $3.23.

Perrigo Co. slipped 6.6 percent to $108.93. The generic over-the-counter drugmaker reported fourth-quarter sales of $831.8 million, trailing the average analyst estimate of $854 million in a Bloomberg survey.

Idenix Pharmaceuticals Inc. plunged 30 percent, the most in two years, to $5.84. A trial of the company’s hepatitis C drug was placed on hold because of heart failure concerns raised in a competitor’s study of a similar medicine, Idenix said.

A possible stalemate around U.S. fiscal tightening and a slowing economy will pull stocks down this year, even as equities may gain in the longer term, Goldman Sachs Group Inc.’s chief U.S. equity strategist said.

“The uncertainty that is very significant relating to the fiscal cliff and the budget issues and the tax policy for next year are unlikely to get resolved in the very near term,” New York-based David Kostin said in a radio interview today on “Bloomberg Surveillance” with Tom Keene. Still, “if you are looking where you are buying the market now, on a long term basis, it is attractive.”

Have a wonderful evening everyone.

Be magnificent!

It is necessary that this be the aim of our entire life.

In all of our thoughts and actions,

we must be conscious of the infinite.

Rabindranath Tagore, 1861-1901

As ever,

Carolann

One cool judgment is worth a thousand hasty counsels.

The thing to be supplied is light, not heat.

-Woodrow Wilson, 1856-1924

Carolann Steinhoff, B.Sc., CFP, CIM, FCSI

Senior Vice-President &

Senior Investment Advisor