October 18, 2013 Newsletter

Dear Friends,

Tangents:

Full moon tonight and an eclipse.

Today is Persons Day in Canada.  As hard as it is to believe, the fact is, until October 18^th, 1929, the Supreme Court of Canada did not consider women persons.  Britain’s Privy Council overruled the Supreme Court on this day in 1929 after five women, led by Alberta magistrate Emily Murphy challenged the rule.   Statues of the Famous Five, now stand outside the Senate.

There are no grades of vanity, there are only grades of ability in concealing it.  –Mark Twain, 1835-1910

Hitchcokean

-by Michael Symmons Roberts

The birds are taking over.  Not in rows on high wires,

chittering on roofs at passers-by, fixing a lone child

with their red-ringed, sink-hole eyes, not by massing

on our window-sills at dawn and tap-tap-tapping

with the urgency, hunger, blunt-sense of the wild,

not with a skirl and swoop like smoke cut loose from fire

but with a single egg inside each one of us,

lodged in the fold between lungs, not felt until the break, l

a petite mort when shell cracks and a song begins,

an airless, blood-borne trill, a pulse, a stretch of wing,

which may be dun wren, bird of paradise, dull rook,

and none of us can know what kind is ours,

nor even know for sure it’s there, this skitter,

this arrhythmia, this restlessness, this ache that makes

you walk out, mid-meal, steal a car and disappear.

From Drysalter, winner of this year’s Forward Prize for Best Collection.

Photos of the day

A flock of cranes flies past the rising moon in Nauen near Berlin, Germany. The cranes rest in the wetlands west of Berlin on their way from breeding places in the north to their wintering grounds in the south. Ferdinand Ostrop/AP

A cyclist rides past a mural on the side of a storage facility building in the Brooklyn borough of New York. Carlo Allegri/Reuters

Market Closes for October 18^th, 2013

International Markets

Bonds

Currencies

Commodities

Market Commentary:

Canada

By Eric Lam

Oct. 18 (Bloomberg) — Canadian stocks rose for a fourth day, extending a two-year high, as Royal Bank of Canada soared to a record close and energy producers surged on accelerating economic growth in China.

Royal Bank gained 1.2 percent as the market value of the nation’s largest lender rose past C$100 billion for the first time. Bankers Petroleum Ltd. and Advantage Oil & Gas Ltd. climbed more than 2.7 percent as oil companies advanced. H&R Real Estate Investment Trust and Canadian Apartment Properties REIT added at least 2.5 percent to pace gains among financial stocks. Athabasca Oil Corp. tumbled 9.9 percent after an Alberta court decided to allow an aboriginal group to appeal an approval of the company’s Dover oil-sands project.

The Standard & Poor’s/TSX Composite Index rose 99.64 points, or 0.8 percent, to 13,136 at 4 p.m. in Toronto. The benchmark Canadian equity gauge rose each of the four sessions in a holiday-shortened week, gaining 1.9 percent in the period for the best weekly gain since July. The index finished the week at the highest level since July 2011.

“There’s a lot of positive news pushing the markets up,” said Stephen Gauthier, chief investment officer with Fin-XO Securities Inc. in Montreal. His firm manages about C$550 million ($534.8 million). “Commodities have been holding up. The China numbers are a big plus. It’s a good continuation of the rally we had since the U.S. reached an accord on raising the debt limit.”

China’s economic growth accelerated for the first time in three quarters, with gross domestic product gaining 7.8 percent in the third quarter, matching the median estimate in a Bloomberg survey. The country is Canada’s second-largest trading partner.

U.S. Congressional leaders agreed to a deal this week to end a government shutdown and avert the threat of a default following weeks of stalemate.

Royal Bank, the nation’s largest company, jumped 1.2 percent to C$69.53, the seventh straight gain that left the stock at a record. The market value for Royal Bank climbed to C$100.1 billion, the first bank in Canada to break that mark.

Bank stocks, which have been undervalued compared with other Canadian companies, are getting a lift from good housing data, according Peter Routledge, a National Bank Financial analyst.

Toronto-Dominion Bank, Bank of Nova Scotia and National Bank of Canada also reached record highs, while the Bank of Montreal soared 1 percent to C$71.76, the highest since April 2007.

Bankers Petroleum added 3.2 percent to C$4.17 and Advantage Oil & Gas increased 2.7 percent to C$4.19 as oil producers rallied 0.9 percent as a group, for the highest close since March 2012. Crude advanced as much as 1 percent in New York before paring gains.

Nine of 10 industries in the S&P/TSX rose as trading volume was 6.4 percent below the 30-day average.

H&R REIT jumped 2.6 percent to C$21.65 and Canadian Apartment REIT climbed 2.5 percent to C$21.87 as financial stocks increased 0.8 percent.

Investors are buying into higher-yielding stocks such as REITs as bond yields have fallen since the U.S. resolution to its budget impasse, Gauthier said.

“Bonds continue to rally in the post-shutdown environment,” said Mark Chandler, head of Canadian fixed income strategy with RBC Dominion Securities Inc., in a report to clients.

Telus Corp. rallied 2.1 percent to C$35.22 and Rogers Communications Inc. added 1.4 percent to C$46.39 as telephone stocks advanced 1.4 percent as a group, the most in the S&P/TSX.

Bombardier Inc. increased 1.8 percent to C$5.08 after disclosing CDB Leasing Co., a Chinese company, is a customer with a firm order of 15 CSeries jetliners and an option for another 15 of the aircraft. The contract is worth as much as $2.07 billion.

BlackBerry Ltd., the smartphone maker looking to sell itself, rose 2.4 percent to C$8.64 for a second day of gains.

Lenovo Group Ltd., the Beijing-based computer manufacturer, has signed a non-disclosure agreement with BlackBerry and is considering a bid for the company, Dow Jones reported yesterday, citing people familiar with the situation.

Athabasca Oil sank 9.9 percent to C$6.27, the most since May. The Alberta Energy Regulator on Aug. 6 approved the company’s Dover proposal, noting in its 40-page decision that the project won’t have a direct impact on the Moose Lake area, a traditional territory of the Fort McKay First Nation.

The aboriginal group, which is surrounded by oil sands operations, had requested a 20-kilometer (12-mile) buffer around the project to protect their traditional hunting territory.

US

By Nick Taborek

Oct. 18 (Bloomberg) — U.S. stocks rose, giving the Standard & Poor’s 500 Index its best weekly gain since July, as results from Google Inc. topped estimates and speculation grew that the Federal Reserve will delay cutting monetary stimulus.

Google rallied 14 percent to surpass $1,000 a share for the first time after reporting third-quarter sales that beat analysts’ projections. General Electric Co. added 3.5 percent as demand for industrial products boosted earnings. Chipotle Mexican Grill Inc. surged 16 percent to a record as customer traffic rose. UnitedHealth Group Inc. slumped 3.7 percent, extending yesterday’s 5.1 percent slide after the insurer reported sales that fell short of analyst estimates.

The S&P 500 added 0.7 percent to 1,744.50 at 4 p.m. in New York, extending an all-time high. The gauge has rallied 2.4 in the past five days, for its biggest weekly advance since July 12. The Dow Jones Industrial Average added 28 points, or 0.2 percent, to 15,399.65. About 6.6 billion shares changed hands on U.S. exchanges, 12 percent higher the three-month average.

“People are looking at earnings but they’re also looking at what they think is going to happen next,” Sarah Hunt, an associate fund manager and analyst who helps oversee $4.5 billion at Purchase, New York-based Alpine Woods Capital Investors LLC,said in a phone interview. “After this political problem no one is expecting this to happen again in January. People are just looking for a little bit of a better economic backdrop to continue what’s been a pretty decent environment for stocks.”

The S&P 500 closed yesterday at a record of 1,733.15 after Congress ended the standoff over the federal budget and borrowing authority. The 16-day government shutdown government reduced growth by 0.3 percentage point this quarter, economists said in a Bloomberg News survey.

The slower growth and delayed reporting of economic data will prevent Fed policy makers from paring the monthly pace of asset buying until their March 18-19 meeting, according to the median of 40 responses by economists in the survey conducted yesterday and today. Economists had expected the central bank to reduce purchases to $80 billion last month, according to a Bloomberg survey before the September meeting.

The Fed stimulus has helped propel the S&P 500 up by more than 150 percent from its March 2009 low. The gauge has surged 22 percent this year and jumped to its previous intraday record of 1,729.86 on Sept. 19, a day after the central bank unexpectedly delayed tapering.

Investors will have to wait until Oct. 21 to get the next snapshot of economic activity, when data on sales of existing homes is released. The September U.S. jobs report, originally scheduled to be released on Oct. 4, will be issued on Oct. 22.

The report was delayed by the partial shutdown. October employment data will come out on Nov. 8, rather than Nov. 1.

A report today from China showed the world’s second-largest economy grew by 7.8 percent in the July-September period, accelerating for the first time in three quarters, as Premier Li Keqiang spurred factory output and investment. Industrial production advanced in September by 10.2 percent as predicted by economists.

“The numbers out of China are supporting markets today after recent disappointing data,” Plassard said. “While sentiment is still positive, the rally may be short-lived as the debt-ceiling issue will come back to haunt us again soon.”

In the absence of U.S. economic reports, investors have been watching third-quarter corporate earnings. Thirteen S&P 500 companies released results for the period today. Analysts have raised their forecasts for profits and now forecast an average increase of 2.5 percent for all companies in the gauge, according to estimates compiled by Bloomberg today. That compares with an expected gain of 1.4 percent as of Oct. 11.

Earnings at the 100 companies that have reported so far grew by an average of 4.4 percent, while sales gained 2 percent.

Some 70 percent of the companies have topped analysts’ profit estimates, while 56 percent have beaten on sales.

Gains in the S&P 500 have averaged 1.1 percent in the first four weeks of earnings seasons since 2003, according to data compiled by Bloomberg. That’s about twice the usual four-week gain in the index.

“My concern would be on a very short term basis that some companies are going to use the drama of the past couple of weeks as a pretext to lower the bar,” Matthew Kaufler, a portfolio manager at Federated Investors Inc. in Rochester, New York, said by phone. His firm oversees $363.8 billion. “Even if there is some weakness to forward guidance, I think that’s going to get shrugged off and we’re going to finish the year pretty strong.”

The Chicago Board Options Exchange Volatility Index, the gauge of S&P 500 options prices known as the VIX, sank 3.3 percent to 13.04 today, the lowest since August 14. The gauge plunged 17 percent in the past five days for the biggest weekly decline since March.

Nine out of 10 main industries in S&P 500 advanced, with technology and industrial companies rising at least 1.1 percent to pace gains.

Google surged 14 percent to a record $1,011.41. The owner of the world’s biggest search engine said revenue, excluding sales passed on to partner sites, of $11.92 billion exceeded the average analyst as the number of promotions sold via mobile, video and other services made up for shrinking advertising prices.

Google’s rally helped the Nasdaq 100 Index gain 3.7 this week, for its highest close since Oct. 23, 2000.

General Electric added 3.5 percent to $25.55 for the biggest gain in the Dow. The company’s earnings beat analysts’ estimates as industrial sales climbed, led by demand for jet engines and drilling equipment, and rising orders pushed its backlog to a record.

Morgan Stanley advanced 2.6 percent to $29.69. Earnings beat analysts’ estimates as equity-trading revenue jumped the most among the biggest Wall Street firms and the wealth- management profit margin climbed.

Chipotle Mexican Grill surged 16 percent, the most since May 2007, to a record $509.74. The chain is spending more on marketing and traditional advertising to help maintain revenue growth that was the fastest among restaurant chains in the S&P 500 last year.

Amazon.com Inc. rallied 5.8 percent to $328.93 to close at a record. UBS AG analyst Eric Sheridan raised his rating on the stock to buy from hold, saying he expects revenue growth to accelerate in the fourth quarter.

Schlumberger Ltd. gained 2.8 percent to $93.99 as the world’s largest oilfield-services provider said quarterly net income climbed to $1.7 billion, or $1.29 a share, from $1.4 billion, or $1.07, a year earlier.

Baker Hughes Inc. gained 7.3 percent to $55.55 as the oil services provider reported third-quarter profit that beat analyst estimates and said it expects “solid, profitable” international growth in 2014.

UnitedHealth dropped 3.7 percent to $68.76, a three-month low. Shares in the largest U.S. health insurer yesterday fell the most in more than two years after the company reported worse-than-forecast results.

Home Depot Inc. slid 1.4 percent to $74.69 and Lowe’s Cos. sank 2.8 percent to $47.66. Cleveland Research analyst Eric Bosshard cut his estimates for both retailers’ third-quarter same-store sales growth, citing moderating demand.

Intuitive Surgical Inc. slumped 5.7 percent to $376.52. The maker of surgical robots said third-quarter net income declined to $156.8 million, or $3.99 a share, from $183.3 million, or $4.46, a year earlier. Revenue dropped 7.2 percent to $499 million. That fell short of the average estimate of $525.9 million from 18 analysts compiled by Bloomberg.

Have a wonderful weekend everyone.

Be magnificent!

To expect something is to look for something pleasant.

Searching for the pleasurable is a form of denial.

You cannot expect anything, because the expectation is within you,

and what you are waiting for is dependent on external forces.

Swami Prajnanpad, 1891-1974

As ever,

Carolann

Leave the gun.  Take the cannoli.

-Mario Puzo and Francis Ford Coppola.

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