December 17, 2012 Newsletter

Dear Friends,

Tangents:

December 17-23 known as Saturnalia: Roman masters served their slaves.  Saturnus is one of the most puzzling gods in Roman cult.  His festival was part of the Calendar of Numa, and its position on December 17^th, midway between Consualia and Opalia, is intelligible if we suppose, as has commonly been done, that his name Säturnus is to be connected with sätus and taken as that of a god of sowing, or of seed-corn.  Other historians derive the god from the Etruscan Satre.  There is little known of the cult of Saturn.

On this day in 1843, Charles Dicken’s A Christmas Carol was first published.  –Paul Vigna, WSJ, 12/17/12.

And also on this day in…

1777 – France recognized American independence.

1790 – Aztec calendar stone is discovered.

1903 – Orville and Wilbur Wright made the first flight in a heavier-than-air plane at Kitty Hawk, N.C.

1944 – The U.S. Army announced the end of its policy of holding Japanese-Americans in internment camps, allowing “evacuees” to return home.

1948 – The Smithsonian Institution accepts the Kitty Hawk – the Wright brothers’ plane, 45 years after its historical first flight.

1969 – The U.S. Air Force ended its “Project Blue Book” and concluded that there was no evidence of extraterrestrial activity behind UFO sightings.

1992 – Canadian PM Brian Mulroney signs historical North American Free Trade Accord (NAFTA) between the U.S., Mexico and Canada, at a ceremony on Parliament Hill.

A single day  is enough to make us a little larger.  –Paul Klee

photos of the day

December 17, 2012

Ski instructor Alberto Ronchi, dressed in a Santa Claus costume, takes a ski jump in Madonna di Campiglio in northern Italy.

Stefano Rellandini/Reuters

A herd of adult and baby elephants walks in the dawn light through Amboseli National Park in southern Kenya. Mount Kilimanjaro, the highest mountain in Africa, which is in neighboring Tanzania, is seen in the background.

Ben Curtis/AP

Market Closes for December 17th, 2012:

International Markets

Bonds

Currencies

Commodities

Market Commentary:

Canada

By Eric Lam

Dec. 17 (Bloomberg) — Canadian stocks fell as raw materials companies declined after manufacturing slumped more than forecast in the New York region, showing weakness in the industry is persisting as the year draws to a close.

First Quantum Minerals Ltd., a producer of copper in Africa, dropped 4 percent after it raised its bid for Inmet Mining Corp. to C$5.1 billion ($5.17 billion). Inmet rose 4.3 percent. First Majestic Silver Corp. plunged 10 percent after it announced a deal to acquire Orko Silver Corp. yesterday. Sun Life Financial Inc. slipped 3.9 percent after the insurer agreed to sell a U.S. annuity business to a firm owned by Guggenheim Partners LLC in a $1.35 billion deal.

The Standard & Poor’s/TSX Composite Index fell 15.37 points, or 0.1 percent, to 12,281.35 at 4 p.m. in Toronto. The equity gauge has gained 2.7 percent this year.

“Commodities are pretty flat today,” said Paul Harris, fund manager with Avenue Investment Management in Toronto. His firm manages about C$300 million. “Gold doesn’t look as great on the charts; it could go to $2,000 but people are feeling it will go lower short-term before it goes higher. Gold went from $1,500 in June to $1,800 and now it’s pulled back.”

The price of gold has fallen more than 5 percent since reaching a second-half high of $1,798.60 in October. Gold for February delivery gained 0.1 percent to settle at $1,698.20 an ounce in New York.

Yamana Gold Inc. lost 1.9 percent to C$16.90 and Goldcorp Inc., the second-largest producer of the metal, dropped 0.4 percent to C$36.33.

A Federal Reserve gauge of manufacturing in the New York region shrank more than forecast to minus 8.1 in December. The median forecast of 55 economists in a Bloomberg survey called for minus 1. Readings of less than zero indicate contraction.

Mining and bank stocks contributed most to losses in the S&P/TSX. Trading volume was 28 percent higher than the 30-day average at this time of the day.

First Majestic plunged 10 percent to C$20.29 after it announced a plan to acquire Orko for about C$387 million. As part of the deal, First Majestic will issue 17.1 million common shares. Orko, which is developing a silver project in Mexico, surged 51 percent to C$2.39.

Silvercorp Metals Inc. retreated 7.7 percent to C$5.18 and Fortuna Silver Mines Inc. sank 5.5 percent to C$4.26.

First Quantum fell 4 percent to C$20.11 after raising its bid for Inmet a second time. The company is now offering C$72 in stock and cash for each Inmet share. The bid is 2.9 percent more than the previous offer of C$70 a share.

Inmet, which is developing the Cobre Panama copper project in Panama, climbed 4.3 percent to C$72.85, suggesting investors are speculating other suitors will bid for the company.

HudBay Minerals Inc. lost 3 percent to C$10.37. Copper for March delivery slipped 0.5 percent to settle at $3.666 a pound, as inventories tracked by the London Metal Exchange jumped the most in more than four years.

Sun Life Financial Inc., Canada’s third-largest insurer, lost 3.9 percent to C$26.74. Sun Life expects the sale of the U.S. annuity business to reduce earnings by about 22 cents a share in 2013.

US

By Lu Wang and Rita Nazareth

Dec. 17 (Bloomberg) — U.S. stocks rose, giving the Standard & Poor’s 500 Index its biggest gain in about a month, as investors weighed prospects for a budget deal in Washington.

All 10 groups in the S&P 500 rose as financial companies gained the most, adding 2.1 percent. American International Group Inc. climbed 3 percent on plans to sell as much as $6.5 billion of AIA Group Ltd. shares. Hartford Financial Services Group Inc. jumped 3.6 percent as Sun Life Financial Inc.’s deal to sell a U.S. annuity unit raised the prospect for the insurer seeking to sell a similar business. Tenet Healthcare Corp. rose 1.8 percent as Deutsche Bank AG upgraded the hospital chain.

The S&P 500 added 1.2 percent to 1,430.36 at 4 p.m. in New York. The measure capped its biggest gain since Nov. 23. The Dow Jones Industrial Average rose 100.38 points, or 0.8 percent, to 13,235.39. About 6.3 billion shares changed hands on U.S. exchanges, 2.3 percent above the three-month average.

“It’s a historic tug of war: pulling on one side is the fiscal cliff, pulling the other side is continued global monetary easing,” David Sowerby, a portfolio manager at Boston- based Loomis Sayles & Co., said in a telephone interview. His firm oversees about $175 billion. “The most positive thing for the market is valuation and an accommodative Fed policy.”

The equity benchmark has lost 0.7 percent so far this quarter as President Barack Obama and House Republicans differed over how to avoid automatic deficit-reduction measures. The Federal Reserve said last week that it will buy $45 billion a month of Treasury securities starting in January to help boost growth, in addition to $40 billion a month of mortgage-debt purchases under a previous plan.

The S&P 500 is trading at 14.6 times reported earnings, compared with the average of 16.4 since 1954, data compiled by Bloomberg show. The benchmark is up 14 percent this year.

Obama and House Speaker John Boehner met for about 45 minutes at the White House today with two weeks remaining to avert more than $600 billion in spending cuts and tax increases set to start in January. The Congressional Budget Office has said a failure to avoid the so-called fiscal cliff may lead to a recession in the first half of 2013.

Obama is considering a possible budget concession on Social Security cost-of-living increases after Boehner dropped his opposition to raising tax rates for some top earners, said two people familiar with the talks. Senate Majority Leader Harry Reid, a Nevada Democrat, said today it appears the chamber will need to reconvene Dec. 26 to work on the budget.

Manufacturing in the New York region shrank more than forecast in December, showing weakness in the industry is persisting as the year draws to a close.

In Japan, the Nikkei 225 Stock Average rose to the highest in eight months after the Liberal Democratic Party returned to power on a campaign for more economic stimulus and the doubling of the nation’s inflation goal.

AIG climbed 3 percent to $34.95. The insurer plans to sell out of AIA Group, exiting the business from which it was formed in Shanghai in 1919. AIG is selling about 1.65 billion shares in Hong Kong-headquartered AIA at HK$29.65 to HK$30.65 each, according to a term sheet obtained by Bloomberg News.

Hartford advanced 3.6 percent to $22.05. Sun Life struck a deal to sell its U.S. annuity business to a firm owned by Guggenheim Partners LLC shareholders for $1.35 billion.

The Guggenheim deal shows “there are potential buyers out there for these troubled books of business, which could open up opportunities for Hartford,” said Randy Binner, an analyst at FBR Capital Markets, in a note to investors today.

Tenet climbed 1.8 percent to $31.18. The hospital chain was raised to buy from hold by Deutsche Bank, which said the company’s 2013 growth will “stand out.”

Compuware Corp. surged 13 percent to $10.76. Elliott Management Corp., which owns 8 percent of the software maker, offered to acquire the company for $2.3 billion, or $11 a share.

An index of homebuilders rallied 4.5 percent, the most since Oct. 3, as all its 11 members gained. A Wells Fargo & Co. monthly survey of homebuilding sales managers showed that 1 percent of respondents lowered prices in November, the fewest in seven years. Lennar Corp. climbed 4 percent to $38.80. D.R. Horton Inc. added 5.1 percent to $19.69 while PulteGroup Inc. gained 5.3 percent to $18.04.

Smith & Wesson Holding Corp. led a decline in stocks of firearms makers amid talks about gun control following last week’s elementary school shooting that left 20 children dead.

Smith & Wesson dropped 5.2 percent to $8.66, after a 4.3 percent loss on Dec. 14. Sturm Ruger & Co. slipped 3.5 percent to $44.

J.C. Penney Co. fell 1.6 percent to $20.64, ending a seven- day, 20 percent gain. The department-store company is “resuming a more aggressive promotional stance” to boost store traffic, said Brian Nagel, an analyst with Oppenheimer & Co. While the strategy may help strengthen its cash holdings, the recent stock rebound might not prove sustainable, Nagel said in a note today.

Clearwire Corp. slumped 14 percent to $2.91. The company’s board agreed to a sweetened, $2.97-a-share takeover bid from its wireless partner Sprint Nextel Corp., which is now offering $2.2 billion to acquire the portion of Clearwire it doesn’t already own. Shares of money-losing Clearwire jumped above $3 last week after Sprint made an initial $2.90-a-share offer, a sign that investors were anticipating a higher bid.

The U.S. budget debate is holding stocks hostage, as chief executive officers prepare to cut capital spending for the first time since 2009 should President Obama and Congress fail to reach an accord.

Expenditures by S&P 500 companies will fall 1.3 percent in 2013 after three years of growth, according to more than 10,000 analyst estimates compiled by Bloomberg. Companies from Verizon Communications Inc. to Rockwell Collins Inc. said they don’t plan to boost investment amid concern political leaders will fail to agree on a plan to avert the fiscal cliff.

Bears say CEO pessimism will sap the rally and note that the last time capital spending declined was at the end of 2008, just before stocks slumped to a 12-year low. Bulls point out that estimates for corporate spending show any decline will be limited and say the improving U.S. economy will lift equity valuations, now 12 percent below the 58-year average, Bloomberg data show.

“In an environment where the economic and political outlook is highly uncertain, it is hard for executives to make investment decisions,” Abi Oladimeji, who helps oversee $4.3 billion as head of investment strategy at Thomas Miller Investment Ltd. in London, said in a telephone interview on Dec. 12. “The danger is that we see policy errors, which could undermine equity markets and the broader economy.”

Have a wonderful evening everyone.

Be magnificent!

We do not progress from error to truth, but from truth to truth.

Thus we must see that none can be blamed for what they are doing, because they are,

at this time, doing the best they can.  We learn only from experience.

Swami Vivekananda, 1863-1902

As ever,

Carolann

The truth is always the strongest argument.

-Sophocles, 496-406 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