December 6, 2013 Newsletter

Dear Friends,

Tangents:

-by Gerard Baker, Editor in Chief of The Wall Street Journal:

Nelson Mandela (1918-2013)

“As I walked out the door toward the gate that would lead to my freedom, I knew if I didn’t leave my bitterness and hatred behind, I’d still be in prison.”

The tragic central reality of so much human conflict through history is its self-sustaining nature. Injustice breeds resentment. Resentment generates rage. Rage curdles into a lust for revenge. It takes uncommon courage to break this vicious cycle. The genius of Nelson Mandela was his immediate understanding that genuine freedom required not just the removal of the shackles that constrained him and his fellow blacks under apartheid. True liberation meant discarding the mental chains that tied them—and the rest of us—to the instantly gratifying but ultimately destructive pursuit of vengeance. But reason does not always bend to the will. The greatness of Mr. Mandela resided in his character: the extraordinary moral strength to subordinate the natural urge for revenge to the greater good of reconciliation. South Africa is a better nation because of this remarkable man’s leadership. The world is a better place because of his example.

We remember his life and legacy, reflect on his own his words, share the tributes of leaders around the globe and, finally, take a look at a South Africa that must go on without him.

Photos of the day

A well-wisher holds his child up for a photograph in front of a poster of Nelson Mandela on which others have written their messages of condolence and support, in the street outside his old house in Soweto, Johannesburg, South Africa. Flags were lowered to half-staff and people in black townships, in upscale mostly white suburbs and in South Africa’s vast rural grasslands commemorated Nelson Mandela with song, tears, and prayers. Ben Curtis/AP

People watch as a United Launch Alliance Atlas 5 rocket, carrying a classified payload from the U.S. government’s National Reconnaissance Office, lifts-off on Thursday night at the Vandenberg AFB, California. Gene Blevins/Reuters

Market Closes for December 6^th,  2013

International Markets

Bonds

Currencies

Commodities

Market Commentary:

Canada

By Eric Lam

Dec. 6 (Bloomberg) — Canadian stocks rose, for the biggest gain in a month, on signs economic growth is strengthening after employers added more workers than forecast and the U.S. jobless rate reached a five-year low.

Royal Bank of Canada climbed 1.3 percent after analysts at TD Securities recommended buying the shares. Bombardier Inc. climbed 2 percent after reporting a deal to sell 30 aircraft to a China-based company. Precision Drilling Corp. added 4.5 percent after tumbling the most in two years yesterday after its biggest shareholder sold its stake in the oilfield services company.

The Standard & Poor’s/TSX Composite Index rose 80.32 points, or 0.6 percent, to 13,280.72 at 4 p.m. in Toronto, the biggest gain since Nov. 8. The benchmark equity gauge fell 0.9 percent in the past five days, its third straight weekly drop and the biggest since June.

“The numbers out of the States were pretty impressive, and maybe now good news is actually good news,” said David Cockfield, a fund manager with Northland Wealth Management in Toronto. His firm manages about C$225 million ($212 million).

“There’s been reports suggesting the U.S. is running out of steam, well this is a strong vote in the other direction.”

Investors have been scrutinizing economic data to anticipate when the Federal Reserve will begin to taper its $85 billion monthly bond-purchasing program.

Canada’s jobless rate held at 6.9 percent, the lowest since 2008 for a third month in November, and employment rose by 21,600 as companies added part-time workers. American payrolls rose by 203,000, ahead of the median economist projection for 185,000 additions. The U.S. unemployment rate fell to 7 percent.

Bombardier climbed 2 percent to C$4.69, the biggest increase in three weeks, as industrial stocks advanced 1.3 percent. Six of 10 industries rose in the benchmark Canadian equity gauge on trading volume that was 16 percent lower compared with the 30-day average.

Bombardier reported late yesterday Nantong Tongzhou Bay Aviation Industry had signed a letter of intent to acquire 30 of its Q400 NextGen series aircraft. Based on the list price for the Q400, a firm order would be valued at about $995 million, the company said in a press release.

Bank of Nova Scotia added 1 percent to C$63.98. Canada’s third-largest lender posted a 12 percent increase in quarterly profit as contributions from its takeover of ING Groep NV’s Canadian business led to record earnings in domestic consumer lending.

Royal Bank, the nation’s largest lender, rallied 1.3 percent to C$69.05 after Mario Mendonca, an analyst at TD Securities, raised his rating for the stock to buy from hold.

The stock has eight buys and nine holds, according to data compiled by Bloomberg.

Canadian Western Bank increased 3.2 percent to C$37.77 for a third day of gains. On Dec. 4, the lender reported quarterly earnings of 65 Canadian cents, exceeding the average estimate of 62 cents from a Bloomberg survey of analysts. The stock has gained about 9.2 percent since then, reaching a record.

Precision Drilling advanced 4.5 percent to C$9.75. The stock tumbled 9.1 percent yesterday, the most since August 2011.

Alberta Investment Management Corp. sold its entire stake in the company, Chief Executive Officer Leo De Bever said in a phone interview with Bloomberg News.

MEG Energy Corp. rose 3.1 percent to C$30.58 and Crew Energy Inc. jumped 2.6 percent to C$6.21. The price of crude rose 0.3 percent to $97.65 a barrel in New York for a sixth day of gains.

Thompson Creek Metals Co. increased 4.4 percent to C$2.40 to snap five days of losses. Fraser Phillips, an analyst at RBC Capital Markets, said in a research report that he met with CEO Jacques Perron yesterday and was told the company has enough cash in its balance sheet.

“Our analysis clearly suggests that recent concerns about the balance sheet are overblown and the shares should recover some of the ground they have lost over the past two trading sessions,” Phillips said in a report to clients yesterday.

USA

By Nick Taborek and Callie Bost

Dec. 6 (Bloomberg) — U.S. stocks rose, halting a five-day slide for the Standard & Poor’s 500 Index, as investors weighed better-than-forecast jobs growth to gauge the strength of the economy and timing of Federal Reserve stimulus cuts.

Intel Corp. gained 2.3 percent after Citigroup Inc. advised investors to buy the stock. Rite Aid Corp. added 2.3 percent after November sales at stores open more than a year rose more than analysts’ estimated. J.C. Penney Co. dropped 8.7 percent after disclosing that regulators asked for information about its finances.

The S&P 500 gained 1.1 percent to 1,805.09 at 4 p.m. in New York. The advance trimmed the index’s drop this week to less than 0.1 percent, the first weekly slide in two months. The Dow Jones Industrial Average rose 198.69 points, or 1.3 percent, to 16,020.20. About 5.8 billion shares changed hands on U.S. exchanges, 5 percent below the three-month average.

“It appears that the market is getting increasingly comfortable with a taper scenario that parallels an incrementally stronger economy,” Jim Russell, who helps oversee $112 billion as a senior equity strategist for U.S. Bank Wealth Management, said by phone. “The higher number could more easily be accepted because the market had traded down, anticipating what was likely to be a stronger number today, and of course we got that.”

The 203,000 increase in payrolls followed a revised 200,000 advance in October, Labor Department figures showed today. The median forecast of 89 economists surveyed by Bloomberg called for a 185,000 advance. A report Dec. 4 from the ADP Research Institute indicated companies boosted payrolls in November by the most in a year.

The pickup in employment, combined with faster wage gains and more hours, provides American workers with the means to spend and signals companies are confident that demand will improve. The jobless rate fell to a five-year low of 7 percent.

A separate report today showed consumer spending rose more than forecast in October, a sign the biggest part of the economy is gaining momentum from a firming employment.

Household purchases, which account for about 70 percent of the economy, climbed 0.3 percent after a 0.2 percent increase the prior month, the Commerce Department reported today.

The Thomson Reuters/University of Michigan preliminary December consumer sentiment index rose to 82.5 from 75.1 in November, a report showed today. Economists forecast an increase to 76, according to the median estimate in a Bloomberg survey.

“This morning’s data on jobs doesn’t change the overall picture on the job market,” John Canally, economic strategist at LPL Financial Corp., said in a phone interview from Boston.

His firm oversees about $414.7 billion. “This wasn’t a slam dunk report saying the Fed will taper in December. It’s the taper-no taper game, and this was the no-taper reaction.”

The S&P 500 had fallen five straight sessions after closing at a record Nov. 27, its longest slump since September, as improving economic data fueled speculation the Fed will start paring its $85 billion in monthly bond purchases sooner than projected. The index has still surged 27 percent this year, challenging 2003 for the biggest annual gain in 15 years.

The Fed says it will consider slowing the pace of stimulus if the economy improves in line with its forecasts. In a Nov. 19 Bloomberg Global Poll, 80 percent of investors said they expected the central bank to delay a decision until at least March 2014. Policy makers next meet Dec. 17-18.

Data yesterday showed the economy expanded in the third quarter at a faster pace than initially reported, led by the biggest increase in inventories since early 1998. A separate report showed applications for U.S. employment benefits unexpectedly decreased last week.

Bill Gross, manager of the world’s biggest bond fund, said the pace of jobs growth last month signals there is a 50 percent chance the Fed will taper this month.

“It’s at least 50-50 now,” Pacific Investment Management Co.’s Gross said in a radio interview on “Bloomberg Surveillance” with Tom Keene and Mike McKee. “There was some logic for a January starting point, but it’s clear the Fed wants out.”

The monetary stimulus has helped propel the S&P 500 higher by as much as 167 percent since a bear-market low in March 2009.

The rally has pushed valuations higher, with the gauge trading for about 16.8 times its companies’ reported earnings, up 18 percent from the beginning of the year when it traded at 14.2 times profit.

The Chicago Board Options Exchange Volatility Index, the gauge of S&P 500 options known as the VIX, plunged 8.6 percent, the most since Oct. 16, to halt a record-tying eight-day rally that added 23 percent to the measure.

All 10 main S&P 500 groups advanced at least 0.5 percent.

Industrial and consumer-staples shares paced gains, rallying more than 1.4 percent. Procter & Gamble Co. added 2.2 percent to $84.52 and Boeing Co. advanced 1.9 percent to $135.18.

Intel jumped 2.3 percent to $24.82 for the biggest gain in the Dow. Citigroup raised its recommendation on the shares to buy from neutral, saying stability in corporate demand for personal computers will benefit the world’s biggest chipmaker.

Boston Scientific Corp. advanced 4.5 percent to $11.85.

Cowen Group Inc. analyst Joshua Jennings upgraded the medical- device manufacturer to the equivalent of buy from hold, with a target price of $14 per share.

General Motors Co. rose 2.8 percent to $40.17, the highest level since it began trading in 2010 after a 2009 bankruptcy.

Hayman Capital Management LP disclosed yesterday it has taken a stake in the largest U.S. automaker.

Rite Aid gained 2.3 percent to $5.75. The drug-store chain operator reported November same-store sales advanced 2.8 percent, surpassing the 2.1 percent median forecast by analysts in a Bloomberg survey.

J.C. Penney plunged 8.7 percent to $8.08, extending a three-day slide to 20 percent. A letter from the Securities and Exchange Commission on Oct. 7 requested “information regarding the company’s liquidity, cash position, and debt and equity financing, as well as the company’s underwritten public offering of common stock,” the struggling retailer said in a quarterly filing.

Sears Holdings Corp. fell 3.8 percent to $48.09, capping a 24 percent decline for the week after Edward Lampert, the hedge- fund manager who for the past eight years tried to turn around the retailer, cut his stake to below 50 percent.

Today’s retreat came after Sears said it plans to spin off its Lands’ End Inc. unit to shareholders. The stock has fallen eight straight sess.ions and trades at a three-month low.

Gap Inc. slid 1.9 percent to $39.46, a fourth-straight drop, even as sales at stores open at least a year increased 2 percent from last year. The biggest U.S. specialty-apparel retailer offered discounts of as much as 50 percent at its three brands during Thanksgiving and Black Friday.

Family Dollar Stores Inc. dropped 2.4 percent to $65.98, the lowest since July. Sterne, Agee & Leach Inc. equity analyst Charles Grom downgraded the discount retailer to underperform from neutral, with a 12-month target price of $56 per share. The stock has not advanced for eight straight sessions.

Ulta Salon, Cosmetics & Fragrance Inc. plunged 21 percent, the biggest drop in almost five years, to $93.76. The cosmetics and hair-care products retailer reported fourth-quarter profit and revenue forecasts that missed analysts’ estimates.

Have a wonderful weekend everyone.

Be magnificent!

A diamond is lost in the mud;

all are seeking it.

Some go to the East – or to the West,

Wishing to find it.

Is it lost in the river?

Or in the rocks?

Kabir, your servant, appreciates it

for its just value.

He will take it away,

warmly sheltered

in a corner of his heart.

Kabir, 1440-1518

As ever,

Carolann

The greatest glory in living lies not in never falling,

But in rising every time we fall.

-Nelson Mandela, 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