January 22, 2013 Newsletter

Dear Friends,

Tangents:

On this day in 1970, the Boeing 747 embarked on its first regularly scheduled commercial flight. The debut voyage went from New York to London. More than 40 years later, international investigations into the battery malfunctions that grounded Boeing’s 787 Dreamliner jets in recent weeks are accelerating. -Steven Russolillo, WSJ, 01/22/13.

Birthday:  January 22^nd, 1788, Lord Byron, poet.

Thou glorious mirror, where the Almightys’s form

Glasses itself  in tempests: in all time,

Calm or convulsed – in breeze, or gale, or storm,

Icing the pole, or in torrid clime

Dark-heaving; boundless, endless and sublime-

The image of Eternity – the throne

Of the Invisible; even from out thy slime

The monsters of the deep are made; each-zone

Obeys thee; thou goest forth, dread, fathomless, alone.

-by George Gordon, Lord Byron,

from Ocean (Childe Harold’s Pilgrimage)

I’ve failed over and over and over agin in my life and that is why I  succeed.  –Michael Jordan.

photos of the day

01/22nd/2013

A man carries a crown of Peter II Karadjordjevic during a solemn ceremony after the remains of Yugoslavia’s last king were flown back to Serbia in Belgrade, Serbia. The former king fled the Nazi occupation of Yugoslavia at the start of World War II and never returned, as Communists took over at the end of the war. He died in exile and was buried at a Serbian Orthodox monastery in Libertyville, Illinois — the only European monarch buried on US soil.  Photo: Darko Vojinovic/AP

A performer dressed as a devil holds a stick spewing fireworks, during the traditional “Correfoc” (fire run) to mark the end of local festivities in Palma de Mallorca on the island of Mallorca January 21, 2013. Correfoc takes place during traditional fiestas in eastern Spain with people dancing in devil costumes lighting fireworks among crowds of spectators. Photo: Enrique Calvo/Reuters

Market Closes, January 22^nd, 2013:

International Markets

Bonds

Currencies

Commodities

Market Commentary:

Canada

By Eric Lam

Jan. 22 (Bloomberg) — Canadian stocks rose to the highest level in more than 17 months, reversing earlier losses, as producers of raw materials advanced after the Bank of Japan said it will introduce open-ended asset purchases.

Yamana Gold Inc. and Eldorado Gold Corp. rose at least 1.5 percent as the metal advanced. Nevsun Resources Ltd., which operates a mine in Eritrea, gained 4 percent after the nation’s ambassador dismissed reports of a coup. First Quantum Minerals Ltd. declined 1.9 percent as Inmet Mining Corp. rejected its hostile takeover bid and said it is in talks with third parties for another potential deal. Inmet rose 0.5 percent.

The Standard & Poor’s/TSX Composite Index gained 30.38 points, or 0.2 percent, to 12,824.63 in Toronto, climbing to its highest level since July 2011. The benchmark gauge has gained 3.2 percent this year.

“It’s a very quiet market and we’re still waiting for macro events over the next few months,” said Anish Chopra, managing director and fund manager with TD Asset Management Inc. in Toronto. The firm manages about C$204 billion ($205.2 billion). “Retail data is very modestly ahead of expectations.”

Canadian retail sales rose 0.2 percent to C$39.4 billion ($39.7 billion) in November, Statistics Canada said today, led by record car purchases. Economists surveyed by Bloomberg had forecast unchanged sales.

Raw-materials producers contributed the most to gains in the S&P/TSX as six of 10 industries advanced. Trading volume was  22 percent higher than the 30-day average.

Yamana Gold climbed 2.5 percent to C$17.96 and Eldorado Gold rose 1.5 percent to C$13.01. Gold for February delivery increased 0.4 percent to settle at $1,693.20 an ounce in New York after the Bank of Japan pledged to buy about 13 trillion yen ($145 billion) in assets a month from January 2014 and doubled its inflation target without setting a deadline.

Nevsun, which operates the Bisha gold mine in Eritrea, rallied 4 percent to C$4.39 after Araya Desta, the nation’s ambassador to the United Nations, said reports of an attempted coup of President Isaias Afwerki’s government were “nonsensical.” Agence France-Presse and other news agencies reported government forces have withdrawn from the capital.

The shares slumped the most in six months yesterday after reports of the possible coup first surfaced.

Canadian Natural Resources Ltd. declined 0.8 percent to C$30.19. Philip Skolnick, an analyst with Canaccord Genuity, lowered his rating to hold from buy as the company is exposed to risk from the wide differential between the Canadian oil price and benchmark West Texas Intermediate and Brent crude prices.

“This is the most exposed name in the group,” he said in a note to clients today.

First Quantum, which took its cash and stock bid directly to Inmet investors on Jan. 9 after two earlier offers were rebuffed by the board, slipped 1.9 percent to C$20.92. Inmet today recommended investors reject First Quantum’s C$5.1 billion bid as it undervalues the company, the company said in a statement. Inmet has also approached third parties interested in “considering alternative transactions” for the company and its assets.

First Quantum also lacks the experience developing a mine the size of Inmet’s Cobre Panama copper project in Panama, the company said. Inmet climbed 0.5 percent to C$71.29.

US

By Sarah Pringle

Jan. 22 (Bloomberg) — U.S. stocks rose, following five- year highs for the benchmark indexes last week, after better- than-forecast earnings from companies including Travelers Cos. and Freeport-McMoRan Copper & Gold Inc.

Travelers rose 2.2 percent after fourth-quarter profit beat estimates. Freeport-McMoRan rallied 4.6 percent as copper sales rose more than anticipated and costs fell. DuPont Co. advanced 1.8 percent after fourth-quarter profit beat estimates as demand climbed for plastics used in autos. Google Inc. jumped 4.8 percent after the close of regular trading as it posted higher fourth-quarter earnings.

The Standard & Poor’s 500 Index rose 0.4 percent to 1,492.51 at 4 p.m. in New York. The Dow Jones Industrial Average advanced 62.51 points, or 0.5 percent, to 13,712.21. About 6.2 billion shares changed hands on U.S. exchanges, or about in line with the three-month average.

“This country is on the verge of an explosion of greatness,” David Tepper, the hedge-fund manager who runs the $15 billion Appaloosa Management LP, said today in an interview with Stephanie Ruhle on Bloomberg Television’s “Market Makers.” “The key is to be long equities this year.”

The S&P 500 has risen 4.7 percent in January for the best start to a year since 1997. The benchmark gauge surged to the highest level since December 2007 last week as companies including General Electric Co. and Goldman Sachs Group Inc. reported better-than-estimated earnings. Some 72 percent of the 76 companies in the benchmark index that have released results so far exceeded projections, according to data compiled by Bloomberg. Analysts on average forecast growth of 3.8 percent in fourth-quarter profit, the data show.

Sales of U.S. existing homes unexpectedly fell 1 percent to a 4.94 million annual rate last month, figures from the National Association of Realtors showed today in Washington. The median forecast of 79 economists surveyed by Bloomberg called for sales to increase to a 5.1 million rate. The reading was still the second-highest since November 2009.

In Asia, the Bank of Japan made its strongest commitment yet to end two decades of stagnation, shifting to Federal Reserve-style open-ended asset purchases. The BOJ pledged to buy about 13 trillion yen ($145 billion) in assets a month from January 2014 and doubled its inflation target without setting a deadline.

Tepper said he’s bullish on U.S. stocks as the economy is set to grow by as much as 3 percent this year. He said investors should own stocks because they’re historically inexpensive, U.S. companies have little debt, interest rates are low, credit is fully valued and the major risks to the global economy, such as a debt crisis in Europe, have diminished.

“Whatever happens in the near-term, there is nothing to suggest the path of least resistance is not higher over the intermediate and longer-term,” Jeffrey Saut, who helps oversee about $350 billion as chief investment strategist at Raymond James & Associates in St. Petersburg, Florida, wrote in a note to clients today. “Therefore, I would accumulate favored stocks, as well as the indices, on any ensuing pullbacks.”

Google rose 4.8 percent to $736.75 as of 4:58 p.m. in New York. The owner of the world’s largest search engine reported higher profit as advertisers boosted spending to reach consumers during the holiday shopping season.

International Business Machines Corp. added 4 percent to $203.97 after the close of regular trading. The world’s biggest computer-services provider forecast profit that exceeded analyst estimates as the company shifts to data analysis and cloud computing.

Materials producers in the S&P 500 rose 0.9 percent, the most among 10 industries in the benchmark equity gauge. All groups advanced except for consumer-staples shares.

Freeport-McMoRan added 4.6 percent to $35.19 as fourth- quarter earnings topped analysts’ estimates. Metal volumes were better than expected because of higher production in North and South America, Freeport said. Copper and gold sales increased from a year earlier when the company’s Grasberg mine in Indonesia, its biggest operation, was affected by a strike. The Phoenix-based mining company agreed last month to buy two energy companies for $9 billion.

DuPont gained 1.8 percent to $47.82. The biggest U.S. chemical company by market value said profit excluding one-time items was 11 cents a share, beating the 7-cent average of 10 estimates compiled by Bloomberg. Sales in 2013 will climb to $36 billion from $34.8 billion, DuPont said, topping the $35.9 billion average of 17 analysts’ estimates.

Travelers, the only insurer in the Dow, rallied 2.2 percent to $77.95 after profit beat estimates on higher income from its investment portfolio, increased sales and a benefit from reserves. Travelers’ fourth-quarter profit fell 51 percent as superstorm Sandy boosted claims costs.

Insurance stocks rallied 1.6 percent as group, the most among 24 industries in the S&P 500, to the highest level since September 2008.

The Dow Jones Transportation Average, which includes 20 members, rallied 1.1 percent to 5,757.44, a record high. Delta Air Lines Inc. jumped 2.9 percent to $14.01. The Atlanta-based carrier plans to cut seating capacity as much as 4 percent while working to curb labor and fuel costs that crimped fourth-quarter earnings.

Johnson & Johnson slumped 0.7 percent to $72.69. Profit for 2013 will be $5.35 to $5.45 a share, the company said in a statement. The guidance missed the $5.49 average of 23 analyst estimates compiled by Bloomberg. Worldwide consumer sales declined in 2012 to $14.4 billion, a 2.9 percent decrease caused by a negative currency impact.

Boeing Co. fell 1.2 percent to $74.16 after saying it will suspend deliveries of 787 Dreamliners while working to meet a U.S. Federal Aviation Administration directive to ensure the plane’s lithium-ion batteries are safe.

Dell Inc. climbed 2.2 percent to $13.12. The company is getting closer to clinching a leveraged buyout with Silver Lake Management LLC, and Microsoft Corp. is planning to provide part of the funding, people with knowledge of the matter said.

Silver Lake and Dell are negotiating a price in the range of $13.50 to $14.25 a share, said one of the people, who asked not to be named because the talks are private. Microsoft is discussing contributing about $2 billion for the deal, which could be announced this week, the person said. Microsoft retreated 0.4 percent to $27.15, erasing earlier gains.

International investors are the most bullish on stocks in at least 3 1/2 years, with close to two-thirds planning to raise their holdings of equities during the next six months, according to a Bloomberg survey.

As the global financial and business elite gather in Davos, Switzerland, for their annual forum, 53 percent of respondents to the Bloomberg Global Poll also say equities will offer the highest return in the next year. That’s a 17 percentage point jump from the last poll in November and the most since the quarterly survey of investors, analysts and traders who subscribe to Bloomberg began in July 2009.

With 72 percent of corporate earnings exceeding analysts’ estimates, it may be difficult for U.S. stocks not to reach a record in 2013.

The S&P 500 is less than 5 percent below the all-time high in October 2007. Profits in the benchmark gauge are forecast to exceed $1 trillion this year, or 31 percent more than when the gauge peaked, according to more than 11,000 analyst estimates compiled by Bloomberg. Even if the price-earnings ratio, now 9.8 percent below the six-decade mean, doesn’t expand, the S&P 500 is poised to recover fully from the financial crisis that began almost six years ago.

“Corporate America has done an incredible job post- recession,” Leo Grohowski, BNY Mellon Wealth Management’s New York-based chief investment officer said in a Jan. 16 phone interview. His firm oversees $179 billion. “It’s not going to be a return to the ’80s and ’90s where we had people retiring from their day jobs to become day traders. I wouldn’t revert to the historic P/E ratio kind of environment. But the good news is I don’t think we need that to reach a record.”

Have a wonderful evening everyone.

Be magnificent!

Give with faith, and never without faith.

Give with dignity.  Give with humility.  Give with joy.

And give with understanding of the effects of your gift.

Taittiriya Upanishad

As ever,

Carolann

If you have made mistakes, even serious

ones, there is always another chance for you.

What we call failure is not the falling down,

but the staying down.

-Mary Pickford, 1892-1979

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