December 3, 2013 Newsletter

Dear Friends,

Tangents:

LOLA’S SECRET POTION

She crosses lint

with the common alpine bog moss.

Mum’s the word, so liquidate it.

I’m sorry.  I cannot tell you

what brand of dish soap I use.

That’s privileged information, Owen.

She crosses arabesques

with the Canary Islands yellow pages.

Have  a nice day, so liquidate it.

I’m sorry. I cannot tell you

how soft-shell crabs reinvent.

That’s privileged information, Erin.

She crosses box turtles

with a zero-coupon-bond aqueduct.

X marks the spot, so liquidate it.

I’m sorry, Lola. I cannot tell you

when alpha and beta switch.

That’s privileged information.

-Linda Kunhardt.

Photos of the day

Christmas decorations light up Paris’s Champs-Élysées down to the Arc de Triomphe, visible in the background. Christophe Ena/AP

Fresh snow surrounds the McPolin barn on the outskirts of Park City, Utah. The National Weather Service said up to 16 inches of snow could fall in Utah’s higher elevations. Tom Smart/The Deseret News/AP

Market Closes for December 3^rd,2013

International Markets

Bonds

Currencies

Commodities

Market Commentary:

Canada

By Eric Lam

Dec. 3 (Bloomberg) — Canadian stocks fell, snapping four days of gains, as industrial companies declined and Bank of Montreal reported lower-than-estimated profit.

Bank of Montreal sank 4.5 percent, the most since 2010, to pace declines among financial stocks. First Quantum Minerals Ltd. dropped 1.5 percent as copper fell to the lowest in more than a week. Maxim Power Corp. plunged 15 percent after saying Rockland Capital has terminated an agreement to buy Maxim Power (USA) Inc. Air Canada, the nation’s largest airline, lost 1.8 percent for the first decline in five days. Peregrine Diamonds Ltd. soared 52 percent, the most in four years, after finding diamonds in bulk sample testing.

The Standard & Poor’s/TSX Composite Index fell 99.70 points, or 0.7 percent, to 13,319.87 at 4 p.m. in Toronto. The benchmark equity gauge has risen 7.1 percent this year, the third-worst performer among developed markets ahead of Hong Kong and Singapore.

“The banks are down, that’s leading the market down,”  said Irwin Michael, fund manager with ABC Funds in Toronto. The firm manages about C$850 million ($796.7 million). “Bank of Montreal, the fact is it’s had a good run.”

Gauges of financial and industrial stocks tumbled 1.5 percent each, the most in the S&P/TSX. Seven of 10 industries declined on trading volume 7.7 percent higher than the 30-day average.

Bank of Montreal, Canada’s fourth largest lender, sank 4.5 percent to C$70.25, the most in almost three years. The stock had rallied 22 percent from a low on June 24 through yesterday.  The company said net income for the period ended Oct. 31 was C$1.09 billion, or C$1.62 a share, little changed from C$1.08 billion, or C$1.59, a year earlier.

“While the headline looks strong, BMO reported a C$121 million gain in wealth management that is not recurring and will not likely be treated as core in the market,” John Aiken, an analyst with Barclays Capital Inc., said in a note to clients.

Royal Bank of Canada, the nation’s largest lender, dropped 1.3 percent to C$69.56. Toronto-Dominion Bank, the second- largest, lost 0.8 percent to C$96.13.

Royal Bank, Toronto-Dominion and Canadian Imperial Bank of Commerce are scheduled to report third-quarter earnings on Dec. 5.

First Quantum Minerals lost 1.5 percent to C$17 and Copper Mountain Mining Corp. declined 1.3 percent to C$1.47 as copper for March delivery fell 0.5 percent in New York. Copper prices have retreated 13 percent this year, set for a second annual drop in three years.

Air Canada, the best-performing stock in the S&P/TSX this year with a 342 percent gain, dropped 1.8 percent to C$7.73 to pace losses in industrial shares. Canadian Pacific Railway Ltd. retreated 2 percent to C$163.17 and Canadian National Railway Co. slipped 1.8 percent to C$60.36.

Bombardier Inc. tumbled 2.9 percent to C$4.65. Continued delays with the jet manufacturer’s CSeries planes may steer orders towards competitors, said George Ferguson, analyst with Bloomberg Industries, in a report.

“A filing with Canadian authorities to extend flight testing to May 2015 suggests service entry may not occur in 2014 as previously scheduled,” Ferguson said.

Maxim Power plunged 15 percent to C$2.87, the most since 2008, following the termination of the sale of Maxim Power (USA), Inc.

The Calgary-based thermal and electric energy developer had agreed to sell its U.S. unit to Patriot Power Holdings LLC, an affiliate of Rockland Capital in August. Rockland terminated the agreement due to an outstanding regulatory proceeding with the Federal Energy Regulatory Commission, Maxim said in a release.

Legacy Oil & Gas Inc. advanced 2.5 percent to C$6.25 after Chief Executive Officer Trent Yanko said his company was a “very attractive acquisition target” in an interview with Bloomberg.

Suncor Energy Inc. rose 1.8 percent to C$37.58 and Crew Energy Inc. added 5.1 percent to C$5.94 as crude for January delivery surged the most since September after TransCanada Corp. said it will begin operating the southern leg of its Keystone XL pipeline to the Gulf Coast in January.

Peregrine Diamonds soared 52 percent to 64 Canadian cents, the biggest gain since September 2009, after reporting a diamond grade of 2.7 carats a tonne from testing at its Chidliak project in Nunavut. The testing recovered about 600 carats of commercial-size diamonds, including a “significant portion” of gem diamonds, the company said in a statement.

USA

By Nick Taborek and Callie Bost

Dec. 3 (Bloomberg) — U.S. stocks declined for a third day, as investors assessed reports on car and retail sales before economic data this week that may offer clues on when the Federal Reserve will reduce stimulus.

Ford Motor Co. lost 2.9 percent, as carmaker stocks slipped amid November sales reports. Amazon.com Inc. slid 2 percent to pace declines among retailers even as online Cyber Monday sales surged to a record. Krispy Kreme Doughnuts Inc. plunged 20 percent after quarterly revenue missed analysts’ estimates.

Apple Inc. rose 2.7 percent to the highest in a year after buying data-analytics firm Topsy Labs Inc.

The Standard & Poor’s 500 Index declined 0.3 percent to 1,795.15 at 4 p.m. in New York. The Dow Jones Industrial Average dropped 94.15 points, or 0.6 percent, to 15,914.62, its first close below 16,000 since Nov. 20. About 6.3 billion shares changed hands on U.S. exchanges, 3.8 percent above the three- month average.

“It’s really a mixed picture right now,” Dan Veru, the chief investment officer who helps oversee $4.5 billion at Palisade Capital Management LLC, said in a phone interview from Fort Lee, New Jersey. “In the absence of any bigger data, investors are grasping for these little bits of micro data in trying to develop a conclusion. Any market that’s appreciated as much as the stock market has this year is going to be vulnerable to sell-offs.”

U.S. stocks fell yesterday as data showing manufacturing unexpectedly rose last month bolstered the case for the Fed to start curbing stimulus. Central-bank policy makers meet Dec. 17-18 after minutes of their last meeting in October showed officials may reduce the $85 billion in monthly bond buys should the economy improve as anticipated.

The Commerce Department will release data tomorrow on new home sales and the central bank will publish its Beige Book, which provides policy makers anecdotal accounts of business activity from the Fed districts. Reports on third-quarter gross domestic product and November non-farm payrolls are also due this week.

“There’s trepidation building with the employment numbers coming on Friday,” Quincy Krosby, a market strategist for Newark, New Jersey-based Prudential Financial Inc., which oversees more than $1 trillion, said by phone. “There’s nervousness that maybe the Fed takes a more hawkish tone at its December meeting if the jobs numbers are stronger than consensus estimates.”

The S&P 500 has added 26 percent this year, challenging 2003 for the best annual gain in 15 years, after the Fed refrained from trimming its monthly bond purchases and corporate earnings have surpassed estimates.

The rally has pushed valuations higher, with the gauge trading for about 16.9 times its companies’ reported earnings, up 19 percent from the beginning of the year when it traded at 14.2 times profit.

“For the coming months, markets will be hesitating, and we expect volatility amid expectations of Fed tapering,” Guillaume Duchesne, an equity strategist at BGL BNP Paribas SA in Luxembourg, said by telephone. “The rebound in equity markets has been quite impressive, particularly in the U.S., so we expect some pause.”

The Chicago Board Options Exchange Volatility Index, the gauge of S&P 500 options known as the VIX, rose 2.3 percent to 14.55, the highest level in six weeks. The measure has gained for six straight sessions, its longest rally since May 2012.

Five of 10 main S&P 500 industries retreated today, with financial stocks and producers of raw materials falling at least 0.9 percent to pace losses.

Carmakers and parts suppliers fell the most among 24 S&P 500 industries as Ford forecast today that its North American production will slip 1.8 percent in next year’s first quarter amid rising inventories.

Automakers entered their year-end sales push last month with their biggest supply of cars and trucks in eight years. If buyers don’t absorb enough supply, more automakers, including General Motors Co. and Chrysler Group LLC, may need to follow Ford in trimming output to avoid margin-slicing discounts.

Sales at Ford and GM exceeded or met analysts’ estimates for November. Ford fell 2.9 percent to $16.56 and GM dropped 2.5 percent to $38.14.

An S&P index of retailers lost 0.8 percent, extending yesterday’s 0.7 percent drop, even as online sales on Cyber Monday rose 21 percent from a year ago for a single-day record.

The gain comes after online spending increased 15 percent to a record $1.2 billion on Black Friday, according to research by ComScore Inc. Still, because of an in-store slump, total purchases during the four days beginning with the Nov. 28 Thanksgiving holiday fell for the first time since 2009, according to a survey commissioned by the National Retail Federation.

Amazon slid 2 percent to $384.66 and Ross Stores Inc. lost 1.9 percent to $73.25 for a fourth day of declines.

Abercrombie & Fitch Co. rallied 5.8 percent to $35.99 for the biggest gain in the S&P 500. Engaged Capital LLC, which owned 400,000 shares as of Aug. 30, recommended the clothing retailer consider selling itself or begin searching for a new chief executive officer to replace CEO Michael Jeffries, whose contract expires Feb. 1.

Krispy Kreme plunged 20 percent, the most since April 2011, to $19.59. The company reported third-quarter revenue of $114.2 million after yesterday’s market close, missing the average analyst estimate of $115 million.

Yum! Brands Inc., the owner of KFC and Pizza Hut, fell 2.7 percent to $75.61. The company posted a surprise gain in same- store sales in China last month as promotions lured diners to its fried-chicken chain. KFC same-store sales in China rose 16 percent in the first 10 days of the month, driven by a “Half Priced” bucket promotion, while they were down 8 percent in the last 20 days of November as the offer ended.

Apple rose 2.7 percent to $566.32, the highest since Dec. .04, 2012. The iPhone maker paid more than $200 million for Topsy, people with knowledge of the deal said, giving the world’s most valuable company new tools to spot trends as they emerge on Twitter Inc.’s social network.

Separately, UBS AG raised its recommendation on the stock to buy from neutral, or hold, and increased its price estimate for the shares to $650 from $540.

Tesla Motors Inc. jumped 17 percent, the most since May, to $144.70. The carmaker’s Model S, the electric car being investigated for a possible U.S. recall, was cleared of any safety defect in a review by Germany’s transportation regulator.

OncoMed Pharmaceuticals Inc. surged 98 percent to a record $27.70. The drug developer that first sold shares to the public in July signed a $177.25 million agreement with Celgene Corp. on as many as six potential cancer medicines. The shares of the Redwood City, California-based company had declined 18 percent from the initial public offering through yesterday.

Pacific Investment Management Co.’s Bill Gross, manager of the world’s biggest bond fund, said the unprecedented cash added to the financial system by central banks is raising the risk of a slide in global asset prices.

“Investors are all playing the same dangerous game that depends on a near perpetual policy of cheap financing and artificially low interest rates in a desperate gamble to promote growth,” Pimco’s Gross wrote in his monthly investment outlook posted on Newport Beach, California-based Pimco’s website today.

The Fed, Bank of Japan, European Central Bank and Bank of England “are setting the example for global markets, basically telling investors that they have no alternative than to invest in riskier assets or to lever high-quality assets,” he said.

Have a wonderful evening everyone.

Be magnificent!

Truth resides in the heart of every man.

And it is there that he must seek it, in order to be guided by it so that,

at the least, it will appear to him.

But we do not have the right to force others to see the Truth in our way.

Mahatma Gandhi, 1869-1948

As ever,

Carolann

The key is to keep company only with people

who uplift you, whose presence calls forth

your best.

-Epictetus, AD 55-13.

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