January 15, 2013 Newsletter

Dear Friends,

Tangents:

Birthday:  Dr. Martin Luther King, Jr., January 15, 1929.

In 1955, in Montgomery, Alabama, a black woman named Rosa Parks refused to give up her bus seat to a white passenger.  She had defied segregation, which required blacks to sit in the rear of southern buses, and she was fined $14.  The incident led to a boycott of the city’s buses, and Marin Luther King, Jr., a minister who was born on this day in 1929, was chosen to lead it.  A year later the city’s buses were integrated.  King subsequently organized the Southern Christian Leadership Conference to promote civil rights and in 1964 won the Nobel Peace Prize.  By the age of 39, when he was assassinated, he had inspired millions to share his dream of equality.

Personally, I draw more inspiration from Rosa Parks, as I am sure many do….however, as you all know, this quote is on my bulletin board behind my desk:

Our lives begin to end the day we become silent about things that matter. –Martin Luther King, Jr., 1929-1968.

Photos of the day, 01.15.13

Icicles hang from a grove of orange trees in Redlands, Calif. A cold snap that has California farmers struggling to protect a $1.5 billion citrus crop has slowly started to ease, though frigid temperatures were still the norm Tuesday morning throughout the state and across other parts of the West.

Photo: Jae C. Hong/AP

Children enjoy the snow at the river Rhine bank in Duisburg, Germany. Snow and cold temperatures below zero caused traffic problems in the morning rush hours all over Germany.

Photo: Frank Augstein/AP

Market Closes for January 15th, 2013:

International Markets

Bonds

Currencies

Commodities

Market Commentary:

Canada

By Eric Lam and Leslie Picker

Jan. 15 (Bloomberg) — Canadian stocks rose for a sixth day, the longest stretch since November, as gold producers advanced as the price of the metal increased amid concerns about U.S. debt ceiling discussions.

Centerra Gold Inc. climbed 6.6 percent after its gold production forecast was almost double from last year. Barrick Gold Corp. and Goldcorp Inc. added at least 1 percent as gold rose for a second day. Manulife Financial Corp. lost 1.4 percent after Bank of Montreal analysts lowered their rating on the stock. Lululemon Athletica Inc., the Canadian yoga-wear retailer, sank 4.1 percent on the Toronto Stock Exchange after forecasting fourth-quarter sales that trailed analysts’ estimates.

The Standard & Poor’s/TSX Composite Index rose 38.88 points, or 0.3 percent, to 12,641.97 at 4 p.m. in Toronto. The benchmark gauge has gained 1.7 percent this year. Trading volume was 6.5 percent higher than the 30-day average at this time of the day.

“The one thing that’s holding up the TSX Index today is material stocks, in particular the gold sector,” Youssef Zohny, a fund manager with Stenner Investment Partners of Richardson GMP Ltd., said on the phone from Vancouver. Richardson GMP manages about C$16 billion ($16.3 billion). “We’re seeing Republicans and Democrats start to dig in with their upcoming debt ceiling fights in February and March and that’s helping gold prices today.”

U.S. Treasury Secretary Timothy F. Geithner warned yesterday of severe economic hardship should Congress fail to raise the debt ceiling that lawmakers have increased or revised 79 times since 1960, including 49 times under Republican presidents. President Barack Obama vowed he won’t negotiate over raising the government’s debt ceiling.

Centerra Gold Inc. rallied 6.6 percent to C$10. The company said 2013 gold production will be between 605,000 and 660,000 ounces, almost double its 2012 gold production of 387,076 ounces.

Barrick, the world’s largest producer of gold, gained 1.1 percent to C$34.03 and Goldcorp, the second-largest, rose 1.1 percent to C$36.83.

Gold for February delivery advanced 0.9 percent to $1,683.90 an ounce in New York. U.S. Federal Reserve Chairman Ben S. Bernanke said yesterday that while the economy is responding to monetary stimulus “there is still quite a ways to go.”

Manulife, Canada’s largest insurer, fell 1.4 percent to C$14.12. Tom Mackinnon, analyst with BMO Capital Markets, cut his rating for Manulife to market perform from outperform due to valuation after a 20 percent rally in the past two months.

The shares trade at 25.1 times reported earnings, more than twice the multiple for a group of financials in the S&P/TSX, according to data compiled by Bloomberg.

Lululemon slumped 4.1 percent to C$68.24 on the Toronto Stock Exchange. The company, which has posted double-digit gains in same-store sales for 13 straight quarters, yesterday said it expects a high single-digit increase.

Revenue for the quarter will be at the “high end” of its original forecast of $475 million to $480 million, the company said. Analysts projected $489 million, according to the average of 22 estimates compiled by Bloomberg.

Celestica Inc., an electronic components manufacturer, dropped 1.6 percent to C$8.17. Gus Papageorgiou, an analyst with Bank of Nova Scotia, cut his recommendation on the stock to sector perform from sector outperform, citing its valuation relative to peers. The stock is up 23 percent since touching a three-year low in October.

US

By Rita Nazareth and Sarah Pringle

Jan. 15 (Bloomberg) — U.S. stocks advanced, rebounding from earlier losses in the Standard & Poor’s 500 Index, as a rally in retail and transportation companies overshadowed concern about discussions on raising the debt ceiling.

Consumer discretionary companies led the gains in the S&P 500 as data showed retail sales rose more than forecast in December. Dell Inc. rallied 7.2 percent, following yesterday’s 13 percent surge, as the computer maker is said to be in buyout talks. Apple Inc. and Hewlett-Packard Co. dropped at least 2.4 percent to pace losses in technology shares. Facebook Inc. retreated 2.7 percent after the company introduced a tool for searching information posted to its social network.

The S&P 500 rose 0.1 percent to 1,472.34 at 4 p.m. New York time, after falling as much as 0.5 percent earlier. The Dow Jones Industrial Average added 27.57 points, or 0.2 percent, to 13,534.89. The Dow Jones Transportation Average gained 0.7 percent to a record 5,639.64. About 5.8 billion shares changed hands on U.S. exchanges, or 5.7 percent below the three-month average, according to data compiled by Bloomberg.

“The retail data is good news for economic expansion,” said Peter Jankovskis, who helps oversee $3 billion of assets as co-chief investment officer at Lisle, Illinois-based Oakbrook Investments LLC. He spoke in a telephone interview. “It’s encouraging. We have the earnings season going on, people are on wait-and-see mode. In addition, there’s a lot of rhetoric on the debt-ceiling front. Though it’s probably a bit early to start getting concerned about that.”

Retail sales rose more than forecast in December to end 2012 on a positive note, indicating Americans may be able to rise above Washington’s budget rancor to keep contributing to economic growth. Manufacturing in the New York region contracted in January for the sixth straight month as the industry continued to face the effects of fiscal uncertainty in the U.S. and lackluster demand overseas.

With as little as a month until the U.S. runs out of money to pay its bills, President Barack Obama warned Republicans in Congress not to use the need for a debt-limit increase to force through new spending cuts. Obama insisted yesterday he won’t negotiate on raising the debt ceiling because the U.S. has no choice other than to pay for spending it has authorized. Many Republicans in Congress say a boost in borrowing authority must be linked to spending cuts.

The Treasury Department has been using emergency measures since the end of December to prevent a breach of the $16.4 trillion debt limit. In a letter yesterday to House Speaker John Boehner, Treasury Secretary Timothy Geithner said the department expects to exhaust those measures “between mid-February and early March.”

Since 1960, Congress has raised or revised the limit 79 times, including 49 times under Republican presidents, according to the Treasury Department. A failure of U.S. lawmakers to raise the nation’s debt ceiling would prompt a “formal review” of its credit rating, Fitch Ratings said in a press release today.

“The debt-ceiling concern means more uncertainty in play,” Tom Wirth, who helps manage $1.6 billion as senior investment officer for Chemung Canal Trust Co., in Elmira, New York, said in a phone interview. “Obama can’t say he won’t negotiate because he has no choice. He’s not Congress. It’s not good for the economy to have a government shutdown. It just feels like August 2011. The Congress is going to take us to the brink once again.”

Investors also watched earnings reports. Almost 80 percent of the 30 S&P 500 companies which reported quarterly results beat analysts forecasts. Fourth-quarter profits at S&P 500 companies grew 2.5 percent, according to analysts’ estimates compiled by Bloomberg. That would be the second-slowest quarterly growth since 2009, the data show.

Today’s rally in the Dow Jones Transportation Average extended this year’s advance to 6.3 percent, compared with a 3.2 percent gain in the S&P 500. The index rose 5.7 percent last year, underperforming the S&P 500.

“The transportation sector lagged the general market last year,” Richard Weiss, who oversees $16 billion as a senior portfolio manager at American Century Investments in Mountain View, California, said in a phone interview. “It’s catching up in 2013 pretty significantly. We’re relatively optimistic on the consumer and the economy. I don’t think that anybody is arguing at this point that the consumer and the housing sector are on the mend. That’s a major driver to the U.S. and the global economy.”

Retailers had the second-best performance among 24 industries in the S&P 500. Limited Brands Inc. rose 2 percent to $46.43, Abercrombie & Fitch Co. added 2.8 percent to $50.20, and J.C. Penney Co. climbed 3.4 percent to $18.71.

Dell rallied 7.2 percent to $13.17. The third-largest personal-computer maker is discussing a leveraged buyout with private-equity firms TPG Capital and Silver Lake, a person with knowledge of the matter said yesterday. Its stock has lost 43 percent in the past five years, compared with a 3.8 percent gain by the S&P 500.

Express Inc. rallied 24 percent, the most since its initial public offering in May 2010, to $17.40. The retail apparel chain raised its outlook for the fourth quarter and full year 2012.

Three out of 10 groups in the S&P 500 retreated as phone and technology shares had the biggest losses. Apple, the world’s most valuable company lost 3.2 percent to $485.92. HP dropped 2.5 percent to $16.53. The Chicago Board Options Exchange Volatility Index, which measures the cost of using options as insurance against declines in the S&P 500, rose 0.2 percent to 13.55. The gauge ended last week at the lowest level since 2007.

Facebook fell 2.7 percent to $30.10. The Graph Search, which lets users seek people, photos and places, doesn’t look for Web-based content, Facebook Chief Executive Officer Mark Zuckerberg said at the company’s Menlo Park, California, headquarters. While Zuckerberg said the new feature could be a “business” in the future, he didn’t outline how it will make money soon.

Zuckerberg is adding services to step up revenue growth and shake off the concerns that the company doesn’t know how to make money from its user base. While Facebook has rebounded from a record intraday low of $17.55 on Sept. 4, the company is still in the early stages of generating revenue from ads placed on mobile devices.

Lululemon Athletica Inc. slid 3.9 percent to $69.47 after the Canadian yoga-wear retailer forecast fourth-quarter sales that trailed analysts’ estimates.

U.S. companies from Intel Corp. to General Electric Co. are caught in an earnings slump that shows few signs of improving until midyear as a weak global economy and gridlock in Congress weigh on profits.

Intel, the world’s largest semiconductor maker, is poised to report its biggest quarterly earnings drop in 3 1/2 years this week, based on analysts’ estimates compiled by Bloomberg.

GE, the maker of jet engines and electrical generation equipment, may post its slowest profit growth in three quarters.

The results would contribute to a predicted 2.5 percent increase in fourth-quarter earnings for the S&P 500, the second- worst showing since 2009. Without a bump from financial companies that have cut jobs, the gain would be lower at 0.4 percent. A pickup may start in the second quarter, when analysts foresee earnings rising 8.2 percent from improving employment and housing and more clarity on government spending.

“Many companies slowed down their capital spending until they saw what was going to happen with the fiscal cliff,” said Stanley Nabi, who helps manage more than $11 billion as vice chairman of Silvercrest Asset Management Group in New York. “As employment increases, more people are earning income and spending. This supports the economy. We’ll have higher profits because we’re going to have higher revenue.”

Have a wonderful evening everyone.

Be magnificent!

Where we suffer we have made it into a personal affair.

We shut out all the suffering of mankind.

Krishnamurti, 1895-1986

As ever,

Carolann

We accept the love we think we deserve.

-Stephen Chbosky, 1972-

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