July 26, 2013 Newsletter

Dear Friends,

Tangents:

Mick Jagger turns 70 years old today!

Today is the anniversary of the unveiling of the Vimy Ridge Memorial on July 26^th, 1936.  It took 11 years to build and honors the 11,285 Canadian soldiers killed in France during the First World War, their final resting places unknown.

And also on this day, in 1945, British Prime Minister Winston Churchill lost the general election to the Labour Party’s Clement Attlee.  Churchill tendered his resignation.

After hearing the news of Labour’s election, James Agate, Ego, July 26^th, 1945, reported:

I rang up the head waiter at one of my favourite restaurants and said, “Listen to me carefully, Paul.  I am quite willing that in future you address me as ‘comrade’ or ‘fellow-worker’, and chuck the food at me in the manner of Socialists to their kind.  But that doesn’t start until tomorrow morning.  Tonight I am bringing two friends with the intention that we may together eat our last meal as gentlemen.  There will e a magnum of champagne and the best food your restaurant can provide.  You, Paul, will behave with your wonted obsequiousness.  The sommelier, the table waiter, and the commis waiter will smirk and cringe in the usual way.  From tomorrow you will get no more tips.  Tonight you will all be tipped royally.”  The head waiter said, “Bien, m’sieu.”   That was at a quarter-past six.  At a quarter-past nine I arrived and was escorted by bowing menials to my table, where I found the magnum standing in its bucket, and three plates each containing two small slices of spam!  Who would have thought a head waiter to have so much wit in him?

Photos of the Day –July 26th, 2013

Two girls walk past beach huts built in 1911 on the North Bay in Scarborough, northern England. Nigel Roddis/Reuters

Hot air balloons, including a 115-foot-tall flying lighthouse, are inflated during the 31st annual QuickChek New Jersey Festival of Ballooning in Readington Township, N.J. Mel Evans/AP

Market Closes for July 26^th, 2013

International Markets

Bonds

Currencies

Commodities

Market Commentary:

Canada

By Eric Lam

July 26 (Bloomberg) — Canadian stocks slid for a fourth day, the longest stretch in seven weeks, as commodities fell after China ordered companies to cut excess production capacity.

Advantage Oil & Gas Ltd. lost 5.9 percent as crude posted a weekly decline. Dundee Precious Metals Inc. retreated 2.8 percent as the price of gold slipped. Celestica Inc., an electronics manufacturer, surged 6.3 percent after second- quarter profit topped analysts’ estimates. Canfor Corp., a lumber and paper producer, jumped 7.3 percent for the biggest gain in two years on better-than-expected earnings.

The Standard & Poor’s/TSX Composite Index fell 21.24 points, or 0.2 percent, to 12,647.90 at 4 p.m. in Toronto. The gauge fell 0.3 percent this week, the first decline in five weeks. Trading volume was 25 percent lower than the 30-day average.

“We’re waiting for more earnings,” said Irwin Michael, a fund manager with ABC Funds in Toronto. His firm manages C$800 million ($778 million). “Oil is lower and copper is down. People are a little nervous.”

Six of 10 industries in the S&P/TSX retreated, led by a 0.9 percent decline in oil and gas producers. The S&P/TSX Energy Index slumped to a two-week low as 42 of 58 stocks fell.

China ordered more than 1,400 companies in 19 industries to cut excess production capacity this year. Steel, ferroalloys, electrolytic aluminum and cement are among areas affected, the Ministry of Industry and Information Technology said this week.

Advantage Oil & Gas slumped 5.9 percent to C$3.70 and Canadian Natural Resources Ltd. retreated 4.5 percent to C$32.20. Crude for September delivery dropped 0.7 percent to settle at $104.70 a barrel in New York. Oil fell 3.1 percent this week for the first weekly drop in more than a month.

Dundee Precious Metals sank 2.8 percent to C$5.21. Gold for December delivery declined 0.6 percent to settle at $1,321.90 an ounce in New York.

First Majestic Silver Corp. lost 1.7 percent to C$13.32 and Silver Wheaton Corp. slipped 0.5 percent to C$23.76 as silver fell 1.9 percent.

Potash Corp. of Saskatchewan Inc. fell 0.6 percent to C$38.14, extending losses for a fourth day. Raymond James Financial Inc. analyst Steven Hansen lowered his rating for the stock to market perform from outperform.

Yesterday, the fertilizer producer cut its earnings forecast and reported profit that missed analysts’ estimates after a drop in potash prices.

Celestica soared 6.3 percent to C$10.40. The company said third-quarter earnings may reach 17 cents to 23 cents a share, compared with analysts’ estimates for 20 cents a share.

Canfor, based in Vancouver, rallied 7.3 percent to C$21.45, the biggest gain since July 2011. The company posted second- quarter adjusted profit of 61 Canadian cents a share, topping the 38-cent average of eight analysts surveyed by Bloomberg.

Lumber production and shipments increased during the quarter.

US

By Lu Wang

July 26 (Bloomberg) — U.S. stocks rose, with the Standard & Poor’s 500 Index erasing losses in the final 30 minutes of trading, as investors weighed corporate earnings and consumer confidence before central-bank meetings next week.

Starbucks Corp. jumped 7.6 percent after reporting profit that beat estimates. Amazon.com Inc. advanced 2.8 percent as Oppenheimer & Co. lifted its stock-price projection. Expedia Inc. sank 27 percent on disappointing sales and profit. Zynga Inc. plunged 14 percent after abandoning plans to enter online gambling and forecasting earnings that fell short of estimates.

The S&P 500 climbed 0.1 percent to 1,691.65 at 4 p.m. in New York, reversing an earlier drop of 0.8 percent. The benchmark index finished the week down less than 0.1 percent, snapping a four-week rally. The Dow Jones Industrial Average added 3.22 points, or less than 0.1 percent, to 15,558.83. About 5.36 billion shares changed hands, or 16 percent below the three-month average.

“The market has been so used to the pace of accommodation and any reduction in the accommodation could be a slight drag in the short term,” Anastasia Amoroso, a global market strategist at JPMorgan Funds, said in a phone interview. The firm manages about $400 billion. “The market is in the process of an adjustment to rising rates, coming to the realization that rising rates do not mean the death of equities.”

Consumer confidence unexpectedly increased in July to the highest level in six years as Americans’ views of their finances improved, according to the Thomson Reuters/University of Michigan final index of U.S. consumer sentiment. The measure advanced to 85.1 in July from 84.1 at the end of June.

Economists in a Bloomberg survey called for 84, according to the median projection after a preliminary reading of 83.9.

Consumer prices in Japan excluding food rose 0.4 percent in June, more than economists estimated and the biggest jump since 2008, damping speculation the country will need to expand stimulus. In China, the government directed more than 1,400 companies in industries from steelmaking to papermaking to cut excess capacity by year-end.

The S&P 500 is up 5.3 percent this month, heading for its biggest monthly advance since October 2011. The gauge fell in June, after seven successive months of gains, as investors examine economic data for clues on when the Fed will start to reduce its $85 billion of monthly bond purchases.

Support from central banks and better-than-estimated earnings have driven the S&P 500 up as much as 151 percent from its March 2009 low to record highs. The Fed has said economic data will determine the timing and pace of any reduction in its bond-buying.

The Fed will start trimming its purchases in September, according to a Bloomberg survey of economists. Fed Chairman Ben S. Bernanke said last week it is “way too early to make any judgment” as to whether policy makers will start tapering purchases in September. The Fed’s Open Market Committee next meets to review policy on July 30-31.

Investors will watch next week’s data on U.S. gross domestic product and the monthly labor report, as well as monetary policy announcements by the Fed and the European Central Bank, to gauge the market outlook.

U.S. economic growth probably slowed to 1 percent in the second quarter from the 1.8 percent pace in the previous period while employers added 185,000 workers in July, down from 195,000 in June, economists surveyed by Bloomberg forecast. The ECB is likely to leave its benchmark rate at a record low of 0.5 percent, according to the median estimate of economists in a Bloomberg survey.

Equity valuations have climbed 16 percent this year, with the S&P 500 trading at 16.1 times reported earnings, close to the highest level since May 2010, data compiled by Bloomberg show.

Investors are also watching company earnings reports. Of the 260 companies in the S&P 500 that have posted quarterly results so far, 73 percent have exceeded analysts’ estimates for profit and 57 percent have topped sales projections, data compiled by Bloomberg show.

“Fundamentals have been good, but the fundamentals from here are not going to support a run higher,” Timothy Hoyle, the director of research at Radnor, Pennsylvania-based Haverford Investments, which oversees about $6 billion of assets, said in a phone interview. “Earnings are coming in through efficiencies, lower expenses, and lower interest costs. We don’t still see end market demand in the economy and that’s what’s going to take to get the stock market to make a leg up.”

The Chicago Board Options Exchange Volatility Index, or VIX, dropped 1.9 percent today to 12.72. The equity volatility gauge, which moves in the opposite direction as the S&P 500 about 80 percent of the time, is down 29 percent this year.

Five of 10 main industries in the S&P 500 gained. Health- care and telephone companies rose the most, climbing at least 0.4 percent. Commodity stocks fell more than 0.3 percent for the worst performance.

Starbucks rose 7.6 percent to a record $73.36. Chief Executive Officer Howard Schultz’s push into food is starting to pay off, driving traffic into U.S. stores and lifting sales and profit. The world’s largest coffee-shop operator posted third- quarter earnings of 55 cents a share, higher than the 53 cent profit forecast by analysts, and raised its projection for fiscal 2013 profit.

Amazon climbed 2.8 percent to an all-time high of $312.01.

Jason Helfstein, an analyst with Oppenheimer, raised his share- price estimate for the world’s largest online retailer to $367 from $325, citing better-than-estimated growth in gross profits and stable sales during the second quarter. Amazon reported a surprise net loss yesterday.

Activision Blizzard Inc. surged 15 percent to $17.46, the highest level since September 2008. The company and a management group led by Chief Executive Officer Bobby Kotick agreed to buy out parent Vivendi SA’s controlling stake in the biggest U.S. video-game publisher for $8.17 billion.

Cliffs Natural Resources Inc., the worst-performing stock in the S&P 500 so far this year, jumped 7.2 percent to $19.71.

The largest iron-ore producer in the U.S. posted second-quarter earnings of 82 cents a share, surpassing the average analyst estimate of 59 cents. Revenue in the period also topped forecasts and Cliffs increased its capital-expenditure outlay for 2013 to $1 billion from no more than $850 million.

Tesla Motors Inc. gained 4.3 percent to $129.39 after Deutsche Bank AG analyst Dan Galves boosted his rating on the stock to buy from hold. He said shares of the electric-car maker could more than double in the next three to four years, citing a rise in U.S. orders and lowered concern over quality issues after a Consumer Reports review.

Expedia sank 27 percent to $47.20 for the biggest retreat in the S&P 500. The online travel agency posted second-quarter earnings, excluding some items, of 64 cents a share, falling short of the 81 cents analysts predicted on average.

Zynga plunged 14 percent to $3.01 after abandoning plans to enter the online-gambling business in the U.S. The maker of the social-networking game “FarmVille” also forecast third-quarter sales and earnings that fell short of analysts’ estimates as fewer users access its titles on Facebook Inc.’s website.

Vertex Pharmaceuticals Inc. slumped 7.9 percent to $80.71.

The company said U.S. regulators placed a partial clinical hold on its trial of a drug for hepatitis C after patients receiving a high dose of the medicine showed signs of potential liver toxicity.

Have a wonderful weekend everyone.

Be magnificent!

How is this dream to be broken,

how shall we wake up from this dream

that we are little men and women,

and all such things?

Swami Vivekananda, 1863-1902

As ever,

Carolann

Wisdom doesn’t automatically come with old age.

Nothing does – except wrinkles.  It’s true, some wines

improve with age.  But only if the grapes were good

in the first place.

-Abigail Van Buren, 1918-2013

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