October 10, 2012 Newsletter

Dear Friends,

Tangents:

Something of note:

Chinese Ming banknote China, AD 1375.

This 14^th century banknote has the grand name ‘Great Ming Circulating Treasure Certificate’.  It was the Chinese who first printed a value on a piece of paper and persuaded everyone that it was worth what it said it was.  The whole modern banking system of paper and credit is built on this one simple act of faith. –from the FT.

The price of anything is the amount of life you exchange for it. -Henry David Thoreau, 1817-1862

And on this day in…

1813 – Giuseppi Verdi, composer, was born.

1911 – The Waters of the Pacific and Atlantic Oceans meet in completing The Panama Canal following the blowing up of the Gamboa Dam.

1966 – The Beach Boys released Good Vibrations.

1970 – The Quebec Provincial Minister of Labour, Pierre Laporte, is kidnapped by terrorists.
1973 – Spiro Agnew resigns the vice presidency amid accusations of income tax evasion. President Richard Nixon names Gerald Ford as the new vice president. Agnew is later convicted and sentenced to three years probation and fined $10,000.
photos of the day October 10, 2012

A dancer performs during Taiwan’s National Day celebrations in front of the Presidential Office in Taipei. This year marks the 101st anniversary of the founding of the Republic of China.

Pichi Chuang/Reuters

Buildings at the Gendarmenmarkt are illuminated during the opening day of the Festival of Lights in Berlin. 68 landmarks of the German capital, including boulevards, squares, towers, historical and modern buildings, are illuminated during the festival that runs till October 21.

Tobias Schwarz/Reuters

Market Closes for October 10th, 2012:

International Markets

Bonds

Currencies

Commodities

Market Commentary:

Canada

By Eric Lam

Oct. 10 (Bloomberg) — Canadian stocks fell to the lowest level in almost five weeks after Alcoa Inc. cut its aluminum outlook on weakening demand in China, the world’s biggest commodities consumer.

Niko Resources Ltd., an oil and gas explorer, slumped 8.5 percent. Enbridge Inc. retreated 1 percent. AuRico Gold Inc. surged 21 percent after selling mining properties in Mexico to billionaire Carlos Slim’s Minera Frisco SAB. Centerra Gold Inc. jumped 5.1 percent after analysts at Canaccord Genuity raised the stock’s rating.

The Standard & Poor’s/TSX Composite Index retreated 61.15 points, or 0.5 percent, to 12,212.42 in Toronto, its lowest level since Sept. 6. The benchmark equity gauge is up 2.2 percent this year. Energy and bank shares contributed the most to losses in the S&P/TSX as seven of 10 industries retreated.

“Alcoa is rephrasing what we’ve been seeing all along,” Pat McHugh, senior managing director and Canadian equity strategist with Manulife Asset Management Ltd., said from Toronto. The firm manages about $218 billion. “China is slowing down and Europe is in recession and getting worse.”

Alcoa, the largest U.S. aluminum producer, cut its forecast for global consumption of the metal by 1 percentage point on slowing Chinese demand, the company said yesterday. The International Monetary Fund said today European banks may need to sell as much as $4.5 trillion in assets through 2013 if policy makers fall short of pledges to stem the fiscal crisis, up 18 percent from its April estimate.

Niko Resources, the worst-performing stock in the S&P/TSX this year, fell 8.5 percent to C$14.93. Enbridge retreated 1 percent to C$39.46. Suncor Energy Inc. declined 1.2 percent to C$32.29 and Cenovus Energy Inc. lost 1.5 percent to C$33.68.

Crude for November delivery slipped 1.2 percent to settle at $91.25 a barrel in New York.

AuRico Gold jumped 21 percent to C$7.60, its biggest gain since November 2008. The company agreed to sell its Ocampo mine and several other projects under development in the Chihuahua and Nayarit states to Slim’s Minera Frisco for $750 million.

Slim is the world’s richest person, according to the Bloomberg Billionaires Index.

Centerra advanced 5.1 percent to C$12.38 after Steven Butler, analyst with Canaccord Genuity, raised the stock to a buy from a hold and increased his price target to C$16.50 from C$8.70 on reduced risk of government intervention at its Kumtor mine in Kyrgyzstan.

“The shares offer good risk-reward at current prices,” he said in a research note today.

Kinross Gold Corp., Canada’s third-largest gold producer by sales, gained 0.7 percent to C$10.25 after saying Chief Financial Officer Paul Barry will leave the company to pursue other interests. Kinross fired its chief executive officer, Tye Burt, two months ago, replacing him with J. Paul Rollinson.

Keegan Resrouces Inc., a metals exploration company, rose 18 percent to C$3.58, the most since February 2009 after increasing its estimate for the amount of gold at the Esaase project in Ghana. The company said the site has a measured and indicated gold resource of 3.83 million ounces, compared with a September 2011 estimate of 3.64 million ounces.

Gold futures for December delivery rose 10 cents to settle at $1,765.10 in New York.

US

By Inyoung Hwang

Oct. 10 (Bloomberg) — U.S. stocks fell, sending the Standard & Poor’s 500 Index to the lowest level in a month, as Alcoa Inc.’s forecast fueled concern over corporate earnings and global economic growth.

Alcoa, the largest U.S. aluminum producer, lost 4.6 percent after cutting its outlook for global demand for the metal.

Chevron Corp. slid 4.2 percent after saying third-quarter earnings were “substantially” lower than the previous period.

Wal-Mart Stores Inc. paced gains with consumer stocks, rising to a record price after saying it had a “very strong” back-to- school season and will add U.S. stores. Yum! Brands Inc. rallied 8 percent after profit beat analyst estimates.

The S&P 500 slipped 0.6 percent to 1,432.56 in New York.

The benchmark gauge fell 1 percent yesterday, and is down 2 percent over four days. The Dow Jones Industrial Average lost 128.56 points, or 1 percent, to 13,344.97. More than 5.9 billion shares changed on U.S. exchanges today, about 1.5 percent below the three-month average.

“The fear is that this is going to be a really bad earnings season,” Hank Smith, chief investment officer at Haverford Trust Co. in Radnor, Pennsylvania, said in a telephone interview. His firm oversees $6.5 billion in assets. “If S&P 500 earnings come in better than expectations, the markets are going to view that positively. We’re off to a good start but we’ve got a long way to go.”

Alcoa unofficially marked the start of a third-quarter earnings season that is forecast to show S&P 500 profits and sales fell in unison for the first time in three years, according to analysts’ estimates compiled by Bloomberg. Per- share earnings in the S&P 500 are projected to have dropped 1.7 percent after they were little changed in the second quarter.

Global equities slumped as China car sales unexpectedly shrank for the first time in eight months. French President Francois Hollande and Spanish Prime Minister Mariano Rajoy called on nations such as Germany to honor commitments on a banking union made at the European Council in June. The International Monetary Fund said European banks may need to shrink assets if policy makers fall short of pledges to stem the fiscal crisis.

The S&P 500 briefly pared losses after the Federal Reserve said in its Beige Book business survey that the U.S. economy expanded “modestly” last month. The benchmark equity measure has retreated for the past four days as the IMF reduced estimates for global economic growth. The index has still rallied 12 percent from this year’s low on June 1 as the Fed unveiled a third round of bond purchases.

Alcoa lost 4.6 percent to $8.71. The first member of the Dow average to report results trimmed its forecast for growth in aluminum consumption this year to 6 percent from 7 percent amid slowing demand from China. The company posted third-quarter earnings and sales yesterday that exceeded analysts’ projections.

Investors sold shares of companies most tied to economic growth. The Morgan Stanley Cyclical Index, a gauge of 30 U.S. stocks, lost 0.8 percent to decline for the third straight day.

Nine out of 10 groups in the S&P 500 fell, as energy companies slumped 1.8 percent for the biggest decline. Tesoro Corp. erased 5.6 percent to $38.70. Material stocks retreated 1 percent for the second-largest drop.

Chevron slipped 4.2 percent to $112.45 after the company said earnings dropped in the third quarter from the previous period amid lower oil output because of Hurricane Isaac, falling crude prices and weaker U.S. refining returns. Oil and natural gas output declined 4 percent to the equivalent of 2.518 million barrels a day in June and July from 2.624 million for the entire second quarter. Chevron also said a shuttered crude-processing unit at a California refinery won’t resume operations before the end of the year.

H&R Block Inc. retreated 5.4 percent to $16.67. The largest U.S. tax preparer hired Goldman Sachs Group Inc. to advise on alternatives for its bank. The Kansas City, Missouri-based company is considering dropping its designation as a savings and loan holding company after the Fed proposed rules requiring such firms to keep additional capital.

Monster Beverage Corp. erased 5.5 percent to $53.63. The largest U.S. energy drink maker by sales volume was cut to hold from buy by Stifel Nicolaus & Co. analyst Mark Astrachan, who cited greater-than-anticipated deceleration in revenue growth through the first quarter.

Cummins Inc. slid 3.4 percent to $87.79. The maker of engines said it expects to cut as many as 1,500 jobs by the end of 2012 and lowered its forecasts for revenue and profit.

Caterpillar Inc., the world’s largest construction and mining equipment maker, fell 1.9 percent to $83.16.

MetroPCS Communications Inc. sank 3.8 percent to $12.04.

Sprint Nextel Corp. is holding off on an immediate counterbid for MetroPCS to gain time to scrutinize the carrier’s planned combination with T-Mobile USA Inc., said people familiar with the situation.

Wal-Mart rose 1.7 percent, the most in the Dow, to a record $75.42 after the world’s largest retailer said in an investor community meeting it had a “very strong” back-to-school season that will continue into the holiday period. The company also said it will add 205 U.S. locations in 2013 and 240 in 2014.

McDonald’s Corp., the biggest restaurant chain, gained 0.3 percent to $92.40.

Costco Wholesale Corp. added 1.9 percent to $101.56. The largest U.S. warehouse-club chain posted fiscal fourth-quarter profit that topped analysts’ estimates as low prices drove sales. Earnings in the quarter ended Aug. 31 were $1.39 a share.

Analysts projected $1.31, the average of 25 estimates compiled by Bloomberg.

Third-quarter earnings at the eight food and consumer- staples retailers in the S&P 500 increased 8 percent, according to analysts’estimates.

“One should look toward consumer companies as a beacon of light for improved earnings in this quarter, but the overall theme that will be echoed from management will be of a more conservative nature,” Chad Morganlander, a Florham Park, New Jersey-based fund manager at Stifel Nicolaus & Co., which oversees about $138 billion in client assets, said by phone.

“It’s going to be a deceleration from previous quarters.”

Yum jumped 8 percent to $70.99. The owner of the Taco Bell and KFC fast-food chains reported a 23 percent increase in third-quarter net income as sales climbed in the U.S. and China.

Profit excluding some items was 99 cents a share, compared with the 97 cent average of 22 analyst estimates compiled by Bloomberg.

Apple Inc., the world’s most valuable company, climbed 0.8 percent to $640.91 after four straight losses that extended the iPad maker’s retreat from a record high on Sept. 19. to 9.4 percent.

FedEx Corp. rose 5.2 percent to $89.99 after setting a goal to boost profit by $1.7 billion within three years, primarily by cutting costs, as customers shift to slower and cheaper deliveries from overnight shipments.

True Religion Apparel Inc. surged 22 percent to $25.71. The maker of the namesake designer jeans said it will explore strategic alternatives, including a possible sale. The board has formed a special committee to consider options after receiving interest from third parties about a possible transaction, Vernon, California-based True Religion said today in a statement.

Have a wonderful evening everyone.

Be magnificent!

The real ornament of woman is her character, her purity.

Mahatma Gandhi, 1869-1948

As ever,

Carolann

A thankful heart is not only the greatest virtue, but

the parent of all the other virtues. –Cicero, 106 BC-43 BC

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

Senior Vice-President &

Senior Investment Advisor

Queensbury Securities Inc.,

St. Andrew’s Square

Suite 340A, 730 View St.,

Victoria, B.C. V8W 3Y7