October 16, 2013 Newsletter

Dear Friends,

Tangents:

COUNTING THE YEARS

As usual, as in the earlier dreams

I come to the whistling shores

the voice of the high-domed

crab stilled

but a chorus remains of the water creatures

of earlier times, of the birth time

and the dying time, the pity,

when we resurrect the travellers

the anchorman on our singular boat

that will take us home

-Kofi Awoonor, 1935-2013

Photos of the day

A visitor photographs part of Robert Pruitt’s ‘Safety Cones’ at the Gavin Brown’s Enterprise from New York’s stand at the Frieze Art Fair in central London. Andrew Winning/Reuters

Fallen leaves in autumn colors lies on roots in Munich, southern Germany. Matthias Schrader/AP

Market Closes for October 16^th, 2013

International Markets

Bonds

Currencies

Commodities

Market Commentary:

Canada

By Eric Lam

Oct. 16 (Bloomberg) — Canadian stocks rose a second day, extending a two-year high, as energy and bank shares rallied while U.S. Senate leaders reached an agreement to end the nation’s budget impasse and prevent a default on its debt.

Bankers Petroleum Ltd. and Legacy Oil & Gas Inc. climbed at least 4.1 percent as the price of crude advanced. Gran Tierra Energy Inc. added 4.7 percent after boosting its 2013 production forecasts. Bank of Montreal added 0.6 percent after naming a chief operating officer. Argonaut Gold Inc. dropped 6.5 percent to pace losses among metals miners. SNC-Lavalin Group Inc. sank 4.5 percent after cutting its earnings forecast for the year.

The Standard & Poor’s/TSX Composite Index rose 25.75 points, or 0.2 percent, to 12,957.21 at 4 p.m. in Toronto. The benchmark Canadian equity gauge rallied to the highest close since July 2011 yesterday and is up 4.2 percent in 2013.

“If you’re given the choice of being executed today or you can postpone it and talk about it some more three months down the road, you’re going to take the deal,” said Michael O’Brien, fund manager with TD Asset Management Inc. in Toronto. He helps manage C$216 billion ($208 billion). “For now, a lot of people are sitting on their hands. At least in the short term, once we do get a deal we will see a lift in the markets. At this point, any deal is a good deal and a sigh of relief.”

The bipartisan leaders of the Senate reached an agreement to end the fiscal impasse and to increase U.S. borrowing authority, and the Senate and House could vote on it as soon as today. The White House press secretary said President Barack Obama supports the deal.

The agreement also would end the 16-day-old government shutdown and allow the U.S. to continue borrowing, a day before its authority lapses. House Republicans today signaled that they will let it pass largely with Democratic votes.

“We fought the good fight,” House Speaker John Boehner, a Republican, said on WLW, a radio station in his home state of Ohio. “We just didn’t win.”

Nine of 10 industries in the S&P/TSX gained, with raw- materials stocks the only group to decline. Trading volume was 19 percent lower than the 30-day average.

Legacy Oil & Gas gained 4.5 percent to C$6.95 and Bankers Petroleum rose 4.1 percent to C$4.10 as energy producers advanced 0.6 percent as a group, closing at an 18-month high.

Crude for November delivery settled 1.1 percent higher in New York, reversing an earlier decline amid optimism for an end to the impasse in Washington.

Gran Tierra Energy added 4.7 percent to C$7.84 after the company increased its production forecast for the year to 21,500 to 22,500 barrels of oil equivalent a day, from 21,000 to 22,000 barrels.

Bank of Montreal, Canada’s fourth-largest lender, rose 0.6 percent to C$70.66. The stock has gained in four straight sessions and closed the highest since June 2007.

The bank named Frank Techar, formerly chief executive officer of personal and commercial banking in Canada, to the new role of chief operating officer as part of a plan to consolidate oversight of its retail businesses.

Royal Bank of Canada, the nation’s largest lender, increased 0.3 percent to C$68.40 and Toronto-Dominion Bank gained 0.3 percent to C$92.55.

Ivanhoe Mines Ltd. jumped 6.1 percent to C$2.26 after intersecting an “unprecedented” mineralization of platinum, palladium, rhodium and gold at a discovery in South Africa.

SNC Lavalin tumbled 4.5 percent, the most since August, to C$42.13. Canada’s largest engineering company cut its annual profit forecast for the second time amid costs related to projects in North Africa.

Materials stocks fell 1.2 percent as a group. Argonaut Gold fell 6.5 percent to C$5.31 and Alamos Gold Inc. lost 4.1 percent to C$14.64.

US

By Nick Taborek

Oct. 16 (Bloomberg) — U.S. stocks rallied, sending the Standard & Poor’s 500 Index toward a record, as the Senate crafted a deal to end the government shutdown and raise the debt ceiling before tomorrow’s deadline.

All 10 main industries in the S&P 500 gained at least 0.6 percent, with financial shares advancing the most. Bank of America Corp. jumped 2.3 percent as lower legal expenses and loan losses helped profit rebound. Mattel Inc. and PepsiCo Inc. increased at least 1 percent as earnings topped analyst estimates. International Business Machines Corp. fell 5.8 percent in extended trading after releasing quarterly results.

The S&P 500 rose 1.4 percent to 1,721.54 at 4 p.m. in New York. The Dow Jones Industrial Average gained 205.82 points, or 1.4 percent, to 15,373.83. The Nasdaq Composite Index climbed 1.2 percent to the highest level since 2000. The Chicago Board Options Exchange Volatility Index fell 21 percent, the most in two years. About 6.5 billion shares changed hands on U.S. exchanges, 11 percent above the three-month average.

“Investors are relieved that it looks like we’re not going to go over the cliff,” Ben Hart, a research analyst at Radnor, Pennsylvania-based Haverford Trust Co., which oversees about $6 billion, said by phone. “It takes the worst case scenario off the table.”

The S&P 500 dropped 4.1 percent from its all-time high of 1,725.52 reached Sept. 18 as Congress struggled to reach agreement on a federal budget, forcing the first partial government shutdown in 17 years. The gauge has recovered 4 percent of the decline as optimism grew that a deal would be reached, and is within about four points of its record. The S&P 500 is up 21 percent for the year.

The bipartisan leaders of the Senate reached an agreement to end the fiscal impasse and to increase U.S. borrowing authority. The Senate and House plan to vote on it later today, and the White House press secretary said President Barack Obama supports the deal.

The framework negotiated by Senate Majority Leader Harry Reid and Minority Leader Mitch McConnell would fund the government through Jan. 15, 2014, and suspend the debt limit until Feb. 7, setting up another round of confrontations.

The agreement concludes a four-week standoff that began with Republicans demanding defunding of Obama’s 2010 health-care law, and objecting to raising the debt limit and funding the government without policy concessions. House Speaker John Boehner said in a statement that Republicans won’t block the Senate compromise.

With no deal, the U.S. would exhaust its borrowing authority tomorrow and the government may start missing payments at some point between Oct. 22 and Oct. 31, according to the Congressional Budget Office. Fitch Ratings put the world’s biggest economy on watch for a possible credit downgrade yesterday, citing lawmakers’ inability to agree.

Investors from Pacific Investment Management Co. Co-Chief Investment Officer Bill Gross to BlackRock Inc. Chairman and Chief Executive Officer Laurence D. Fink, who oversee $5.76 trillion, consistently dismissed the likelihood of a default.

Investors should buy three-, four- and five-year Treasuries and inflation-protected securities, Gross said on Bloomberg Television on Oct. 1. The government shutdown will end “very rapidly,” BlackRock’s Fink said Oct. 3 at an event hosted by the UCLA Anderson School of Management in Beverly Hills, California.

The S&P 500’s advance over the past week has squeezed managers who borrowed and sold shares to bet on declines lawmakers would struggle to reach a deal. U.S. companies with the most short sales have climbed 4.7 percent since Oct. 9, compared with a 3.9 percent advance for the benchmark gauge, data compiled by Bloomberg and Goldman Sachs Group Inc. show.

Hedge funds, whose bearish bets on stocks have held their returns to half the Standard & Poor’s 500 Index in 2013, helped send a gauge of manager bullishness compiled by ISI Group LLC within 0.2 point of its lowest reading in 2013 last week.

Equities have surged in 2013 as the Federal Reserve maintained efforts to stimulate the economy by holding interest rates near zero percent and purchasing $85 billion of bonds each month under a program known as quantitative easing.

The rally in 2013 has been the broadest in at least 23 years, with S&P 500 companies extending the streak of quarters in which they have avoided an earnings contraction to 15 and valuations holding below historic averages. Of S&P 500 members, 443 are up so far in 2013, data compiled by Bloomberg show. The next-closest year was 1997, when 436 companies had advanced and the index was quadrupling.

Profits for companies in the index probably increased 1.4 percent during the third quarter while sales rose 2 percent, according to analysts’ estimates compiled by Bloomberg. Some 22 companies in the S&P 500 are due to post results today.

U.S. economic growth remained “modest to moderate” as consumer spending maintained gains and business investment grew, the Fed said today in its latest Beige Book business survey.

Four of the 12 Fed districts reported slower economic growth while eight others said the expansion held steady amid “uncertainty” stemming from the U.S. fiscal deadlock.

The report provides policy makers anecdotal accounts from the Fed districts two weeks before they meet to set monetary policy.

The Chicago Board Options Exchange Volatility Index, the gauge of S&P 500 options prices known as the VIX, dropped 21 percent to 14.71, the biggest decline since August 2011, after surging 16 percent yesterday. The gauge is down 18 percent for the year.

Financial, health-care and phone companies rallied more than 1.7 percent today. The Dow Jones Transportation Average climbed 1.4 percent to a record, as 19 of its 20 members advanced.

FedEx Corp. surged 2.7 percent to a record $123.26, adding to yesterday’s 4.1 percent advance. The operator of the world’s largest cargo airline authorized a buyback plan of as many as 32 million shares, its biggest repurchase program ever.

Bank of America jumped 2.3 percent to $14.56. Chief Executive Officer Brian T. Moynihan, 54, has said the “lion’s share” of costs tied to disputed mortgages are behind his bank after booking more than $45 billion tied to his predecessor’s 2008 takeover of Countrywide Financial Corp. after third-quarter profit beat estimates.

JPMorgan Chase & Co. surged 3.2 percent to $54 and Goldman Sachs Group Inc. advanced 2.9 percent to $162.25 for the biggest increases in the Dow.

KeyCorp gained 2.4 percent to $12.14 and PNC Financial Services Group Inc. advanced 1.9 percent to $73.87 after both banks beat third-quarter profit estimates. The KBW Regional Banking Index rose 1.3 percent as 48 out of 50 members gained.

Mattel climbed 1 percent to $41.97. The world’s largest toymaker topped estimates as sales of Barbie and American Girl gained. The company has been trying to boost sales amid lackluster growth of the toy industry in the U.S., the company’s largest market, as kids spend more time using electronic devices.

PepsiCo increased 2.1 percent to $82.27. The food and beverage company that investor Nelson Peltz wants to split up topped estimates as sales of snacks gained in the U.S. and Latin America.

Abbott Laboratories jumped 6.5 percent to $35.90 for the biggest gain in the S&P 500. The provider of health-care diagnostics and medical devices reported third-quarter results that surpassed analyst estimates and raised its dividend by more than half. Revenue rose 2 percent to beat company estimates on increased demand for diagnostic tests. Abbott spun off its drug business into a new company earlier this year.

Stanley Black & Decker Inc., the maker of power tools and electronic security systems, tumbled 14 percent to $76.75 for the largest drop in the S&P 500. The company cut its full-year earnings outlook on slower-than-anticipated improvement in margins in its security business and weakness in emerging markets, as well as uncertainty created by the U.S. government shutdown.

IBM fell 5.8 percent to $175.99 as of 5:01 p.m. in New York. After the close of trading, the largest technology consulting company reported its sixth straight quarter of falling sales amid sluggish demand for computer hardware and the decline of one-time growth markets.

Have a wonderful evening everyone.

Be magnificent!

There is no master, there is no instructor,

there is no person to tell you what you must do.

Krishnamurti, 1895-1986

As ever,

Carolann

Peace is when time doesn’t matter

as it passes by.

–Maria Schell, 1926-2005

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