October 19, 2012 Newsletter

Dear Friends,

Tangents:

October 19^th:

McGill and Harvard face off in an 1874 American Football game:

Also on this day in…

1781 – British General Lord Cornwallis surrenders at Yorktown Virginia, bringing to an end the American Revolution.
1873 – Yale, Princeton, Columbia and Rutgers universities draft the first code of football rules.

1931 – John Le Carre, writer, is born.

1982 – John Z. Delorean is arrested in a $24-million cocaine deal.
1985 – The first Blockbuster store opens.

Act with kindness, but do not expect gratitude. – Confucius

photos of the day October 19, 2012

A woman crosses a street during a rainy day in New York.

Jim Young/Reuters

People walk around candles covered in traditional Japanese papers and bearing messages from residents in the Tohoku area, which was devastated by last year’s earthquake and tsunami, at the ‘Smile for Japan’ event in Tokyo.

Kim Kyung-Hoon/Reuters.

Market Closes for October 19th, 2012:

International Markets

Bonds

Currencies

Commodities

Market Commentary:

Canada

By Eric Lam

Oct. 19 (Bloomberg) — Canadian stocks fell for the first time in a week after regulators rejected BCE Inc.’s C$3 billion ($3.1 billion) bid to acquire Astral Media Inc. and data signaled weakening economic growth.

Astral, a Quebec specialty channel provider, slumped 15 percent for the biggest drop in at least 24 years after the Canadian Radio-television and Telecommunications Commission said the deal would place too much market power with one company. BCE slipped 1.4 percent. Niko Resources Ltd. tumbled 14 percent after the natural gas producer lowered its full-year production forecast.

The Standard & Poor’s/TSX Composite Index lost 50.14 points, or 0.4 percent, to 12,415.98 in Toronto, paring an earlier decline of as much as 0.8 percent. The benchmark equity gauge rose 1.8 percent this week, its biggest weekly gain in more than a month. Energy and bank stocks contributed most to declines on the S&P/TSX as nine of 10 industries retreated.

“The decision by the CRTC yesterday not to allow BCE to buy Astral is not very good news as far as mergers and acquisitions is concerned,” said Stephen Gauthier, a fund manager with Fin-XO Securities Inc. in Montreal. His firm manages about C$600 million. “There were also inflation numbers that were below expectations. It shows the Canadian economy is really slowing down.”

Consumer prices advanced less than economists forecast last month, suggesting Bank of Canada Governor Mark Carney doesn’t need to emphasize raising interest rates at next week’s decision. The consumer price index rose 1.2 percent in September from a year ago, matching the August pace, Statistics Canada said.

The central bank’s preferred core rate slowed to 1.3 percent from 1.6 percent in August, the least in more than a year. Economists surveyed by Bloomberg forecast total inflation of 1.3 percent and a core rate of 1.4 percent.

Astral lost 15 percent to C$39.51. BCE, Canada’s largest telecommunications company, retreated 1.4 percent to C$42.86.

“Assuming Bell moves on, we don’t see any other party stepping forward to bid on Astral in totality,” said Adam Shine, analyst with National Bank Financial, in a note to clients today. “As to any urgency to scramble a deal together, we’re not convinced anyone needs to move quickly.”

Corus Entertainment Inc., a rival television media company, sank 2.8 percent to C$22.33 after Shine cut the firm’s rating to sector perform from outperform. He trimmed his one-year price forecast to C$24 from C$26 on forecasts for lower valuations after the CRTC decision.

Cenovus Energy Inc. retreated 1.2 percent to C$34.13 as crude declined the most in two weeks. Oil for November delivery dropped 2.2 percent to settle at $90.05 a barrel in New York.

Oil drilling services companies dropped after Schlumberger Ltd., the world’s largest oilfield-services provider, said in its third-quarter earnings report that it expects lower growth in Canada in the coming quarters. Trican Well Service Ltd. dropped 3.5 percent to C$13.15 and Precision Drilling Corp. fell 1.5 percent to C$8.06.

Niko, the worst-performing stock in the S&P/TSX this year, sank 14 percent to C$12.05. The company said it will pre-pay $90 million of its $310 million convertible debt due at the end of the year and evaluate options to pay for the rest.

“We believe this update is somewhat disappointing, in particular given our anticipation of further advancement on debt repaying,” said Jared Dziuba, analyst with BMO Capital Markets, in a research note today.

US

By Nikolaj Gammeltoft and Rita Nazareth

Oct. 19 (Bloomberg) — U.S. stocks fell, giving benchmark indexes their biggest declines since June, as Microsoft Corp. and General Electric Co. results missed estimates and euro-area leaders failed to discuss aid for Spain at a summit.

Microsoft slid 2.9 percent after the largest software maker posted earnings that fell short of estimates. General Electric lost 3.4 percent as third-quarter revenue missed forecasts.

McDonald’s Corp. slumped 4.5 percent as sales growth slowed at U.S. stores. Advanced Micro Devices Inc. dropped 17 percent after announcing a plan to cut staff by 15 percent.

The Standard & Poor’s 500 Index S&P 500 retreated 1.7 percent to 1,433.19 at 4 p.m. in New York, on the 25th anniversary of the worst one-day stock crash in history. The equity benchmark trimmed its gain for the week to 0.3 percent.

The Dow Jones Industrial Average declined 205.43 points, or 1.5 percent, to 13,343.51 today. About 7.3 billion shares traded hands on U.S. exchanges, 20 percent above the three-month average.

“The market is saying not so fast,” said Quincy Krosby, a market strategist for Newark, New Jersey-based Prudential Financial Inc., which oversees $961 billion. “People have been waiting for positive earnings surprises given that expectations have been lowered enough. In addition, there’s a perception that the European problems still have to be dealt with. Europe remains a headline risk.”

U.S. stocks snapped a three-day rally yesterday after Google Inc.’s third-quarter earnings missed analysts’ estimates.

The S&P 500 has climbed 14 percent so far this year as economic data topped estimates, companies posted better-than-expected earnings and the Federal Reserve announced a third round of bond purchases.

Per-share profits trailed analyst forecasts at half of the 18 companies in the S&P 500 that released results since the close of trading yesterday. Since the start of the earnings season, profits have exceeded estimates at about 69 percent of the 117 companies in the S&P 500 that released results, according to data compiled by Bloomberg.

A European Union summit failed to discuss further financial assistance for Spain, according to French President Francois Hollande. Germany and France agreed to enforce common banking regulation for the euro area’s 6,000 lenders by the end of next year.

In the U.S., sales of previously owned homes held near a two-year high in September, restrained by a lack of supply that is pushing prices higher. Purchases of existing houses, tabulated when a contract closes, decreased 1.7 percent to a 4.75 million annual rate, matching the median forecast of economists surveyed by Bloomberg, figures from the National Association of Realtors showed today in Washington.

All 10 industry groups in the S&P 500 declined today with indexes tracking technology, raw-materials producers and industrial stocks losing more than 1.7 percent. Caterpillar Inc. tumbled 3.2 percent to $83.86.

“People got spooked when Google went negative mid-morning and that accelerated the sell-off,” Donald Selkin, the New York-based chief market strategist at National Securities Corp., said via phone. His firm manages about $3 billion of assets.

“The market had gotten ahead of itself and the news of out Spain that they will delay seeking a bailout didn’t help.”

Google lost 1.9 percent to $681.79 after rising as much as 1.7 percent earlier. Microsoft retreated 2.9 percent, the biggest since November, to $28.64. The company reported a 22 percent drop in fiscal first-quarter net income to $4.47 billion, or 53 cents a share, amid declining sales of Windows, its operating system. That missed the 56-cent average estimate of analysts polled by Bloomberg. The company also posted sales of $16 billion, missing the average estimate of $16.4 billion.

General Electric lost 3.4 percent, the most since Nov. 9, to $22.03 after reporting third-quarter revenue that fell short of the average analyst estimate as the decelerating global economy eroded demand for equipment from medical scanners to jet engines.

McDonald’s had its largest drop since 2009, falling 4.5 percent to $88.72. The world’s largest restaurant chain by sales reported third-quarter profit fell 3.5 percent. Sales at U.S.stores open at least 13 months rose 1.2 percent in the quarter, marking the slowest growth in 11 quarters. Analysts projected an increase of 1.7 percent, according to 21 estimates compiled by Consensus Metrix.

Chipotle Mexican Grill Inc. plunged 15 percent to $243 for the second-biggest loss in the S&P 500. The burrito chain criticized by hedge fund manager David Einhorn fell after posting third-quarter profit that trailed analysts’ estimates on slowing store sales growth.

AMD had the biggest drop in the benchmark index for American equities, losing 17 percent to $2.18, its lowest level since 2009. The second-largest maker of processors for personal computers said that the job cuts will save $190 million next year, enabling the company to break even on quarterly revenue of $1.3 billion. AMD also forecast fourth-quarter sales that will miss analysts’ estimates.

Apple Inc. slipped 3.6 percent to $609.84. Shares of the iPhone maker have fallen 13 percent from an all-time high of $702.10 on Sept. 19, driving the stock below its average price in the past 100 days for the first time since July. The shares are still up 51 percent this year.

Intel Corp., the world’s largest semiconductor maker, lost 1.9 percent to $21.27, while Cisco Systems Inc., the largest maker of networking equipment, retreated 3 percent to $18.04.

SanDisk Corp. surged 2.7 percent to $44.02. The maker of flash memory for mobile devices reported quarterly profit and revenue that beat analysts’ estimates on strong retail sales and high demand for mobile devices.

Capital One Financial Corp. added 6 percent to $60.75. The sixth-biggest U.S. bank by deposits rose after reporting a 45 percent increase in third-quarter profit that topped analysts’ forecasts.

A quarter century after the worst one-day stock crash in history, measures to prevent a repeat are failing to keep investors from losing confidence in the market.

The 23 percent plunge in the Dow on Oct. 19, 1987, came amid signs of a slowing economy, the threat of higher taxes and concern among individuals that trading was rigged for insiders.

Today’s investors have pulled $440 billion from U.S. equity mutual funds since 2008 and sent trading to the lowest levels in at least four years, retrenching after the worst financial crisis since the Great Depression and the May 2010 stock crash, data compiled by Bloomberg and the Investment Company Institute show.

Trading in an exchange-traded fund tracking the Chicago Board Options Exchange Volatility Index has jumped more than any other U.S. ETF this year, drawing investors betting that stocks will decline after the biggest rally in three years.

Trading in the fund, which is designed to return twice the daily performance of VIX short-term futures, has surged since September on speculation it will rebound from a 96 percent plunge this year. Demand is increasing for securities that move in the opposite direction as the S&P 500 amid political gridlock in Washington and a European debt crisis. The VIX rose 14 percent, the most since July, to 17.06 today.

“There’s a very high probability of a major pullback over the next six months, which would lead to a spike in volatility,” Steven Ayer, managing director and partner at Chicago-based HighTower Advisors, said yesterday in a phone interview. His firm manages about $25 billion. “It could come from the U.S. election and the fiscal cliff, it could come out of Europe and it could come in the form of another slow-down in economic growth. All of this could derail this liquidity high market. Take your pick.”

Have a wonderful weekend everyone.

Be magnificent!

One person is not another person.

What is he, then?  He is unique.

Swami Prajnanpad, 1891-1974

As ever,

Carolann

The mind is not a vessel to be filled

but a fire to be kindled.

-Plutarch, 46-120 AD

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