December 11, 2013 Newsletter

Dear Friends,

Tangents:

Happiness is having a large, loving, caring, close-knit family in another city. – George Burns, American comedian.

OUTLOOK

-Crystal Bacon

I’ve begun to love the cold, the slick, bitter seed

of this life: brittle, brilliant.  Even the bare trees

have embraced the ice: arms and fingers shelled

in diamond, in glass, and still they wave and click,

bend and freeze in the chill kiss of the wind…

Photos of the day

With recent cold temperatures in eastern Washington, the Walla Walla, Wash., Nursery broke out one of their two snow-making machines to put a layer of ice and snow on some of the tender plants to insulate them. Greg Lehman/Walla Walla Union-Bulletin/AP

An aquarium staff member dressed in a Santa Claus costume embraces a Zebra shark as he swims with fish inside the Sunshine International Aquarium in Tokyo. Shizuo Kambayashi/AP

A Palestinian man plays with his daughter on a stormy day at a beach in Gaza City. Mohammed Salem/Reuters

Market Closes for December 11^th, 2013

International Markets

Bonds

Currencies

Commodities

Market Commentary:

Canada

By Eric Lam

Dec. 11 (Bloomberg) — Canadian stocks fell the most in almost six months after crude and gold slumped and Encana Corp.’s forecasts for next year disappointed investors.

Encana slid 5.6 percent after the company’s target for oil and liquids production was less than projected, Canaccord Genuity Corp. said. B2Gold Corp. and Iamgold Corp. declined at least 6 percent as gold fell after congressional negotiators reached a U.S. budget agreement. Hudson’s Bay Co. sank 5.7 percent as earnings fell short of forecasts. Laurentian Bank of Canada slumped 4.6 percent after reporting quarterly earnings that missed analyst estimates.

The Standard & Poor’s/TSX Composite Index fell 190.59 points, or 1.4 percent, to 13,133.42 at 4 p.m. in Toronto, the biggest loss since June 20. The benchmark equity gauge has risen 5.6 percent this year, the fourth-worst performer among developed markets ahead of Austria, Hong Kong and Singapore.

“Oil’s had a couple of good days and people are looking for an excuse to take a bit of money off the table,” said Michael O’Brien, a fund manager with TD Asset Management Inc. in Toronto. The firm manages C$218.3 billion ($205.7 billion).

“People are beginning to tighten things down in advance of what could be an early taper announcement.”

American lawmakers announced a budget deal yesterday that would ease automatic spending cuts over the next two years, remove the risk of a government shutdown and cut the deficit by $23 billion.

The Federal Open Market Committee may begin reducing stimulus at its Dec. 17-18 meeting, according to 34 percent of economists surveyed Dec. 6 by Bloomberg, an increase from 17 percent in a Nov. 8 survey.

Legacy Oil & Gas Inc. dropped 1 percent to C$6.04 and Penn West Petroleum Ltd. retreated 3.2 percent to C$9.09 as crude fell from a six-week high. The Energy Information Administration said stockpiles of the two fuels each jumped about three times as much as analysts in a Bloomberg survey has estimated. Oil for January delivery slipped 1.1 percent to settle at $97.44 a barrel.

Energy producers declined 1.4 percent as a group as all 10 industries in the S&P/TSX retreated.

Encana declined 5.6 percent to C$19.17. The natural gas producer gave forecasts for production, including 70,000 to 75,000 barrels of oil and liquids a day in 2014. That’s about 12 percent lower than projections, said Phil Skolnick, an analyst with Canaccord Genuity, in a note to clients.

Bank of Montreal analyst Randy Ollenberger said in a research report that Encana’s estimate for liquids production was less than his forecast.

Hudson’s Bay tumbled 5.7 percent to C$18.80. The operator of department stores reported adjusted earnings of 7 Canadian cents a share in the third quarter, less than the average analyst forecast of 10 cents from a Bloomberg survey.

Laurentian Bank slumped 4.6 percent to C$44.98, the biggest decline in two years. Net income plunged 41 percent to C$27.2 million in the quarter after a restructuring charge, the lender said in a statement.

Royal Bank of Canada retreated 1.3 percent to C$68.45.

Toronto-Dominion Bank, with C$862.5 billion in assets, has surpassed Royal Bank as the nation’s largest lender, according to financial statements. Royal Bank had C$860.8 billion in assets as of Oct. 31. TD slipped 0.8 percent to C$95.18.

B2Gold slumped 6.1 percent to C$2.15 and Iamgold fell 6 percent to C$4.06 as gold futures for February delivery retreated 0.3 percent to $1,257.20 in New York. Gold is on pace for the first annual drop in 13 years.

Bombardier Inc. lost 2.3 percent to C$4.50 for a third day of declines. The aircraft manufacturer is 118 orders short of a target for 300 firm orders of the CSeries jet by the time the aircraft enters service next year. Air Canada, the best- performing stock in the S&P/TSX this year, rose 0.7 percent to C$7.68. The stock has rallied 339 percent in 2013.

Bombardier is in discussions with Air Canada about a possible order, said Mike Arcamone, Bombardier Commercial Aircraft President, in an interview.

USA

By Nikolaj Gammeltoft and Callie Bost

Dec. 11 (Bloomberg) — U.S. stocks fell a second day, giving the Standard & Poor’s 500 Index its biggest back-to-back drop in two months, as a congressional budget accord fueled speculation the Federal Reserve could trim stimulus next week.

Cisco Systems Inc. lost 1.6 percent after losing a European Union court bid to overturn approval of Microsoft Corp.’s 2011 takeover of Skype Technologies SA. Laboratory Corp. of America Holdings plunged 11 percent after issuing a profit forecast below analysts’ estimates. MasterCard Inc. climbed 3.5 percent after saying its board of directors approved an 83 percent dividend increase and a 10-for-1 stock split.

The S&P 500 dropped 1.1 percent to 1,782.22 at 4 p.m. in New York, extending its two-day slide to 1.5 percent from a record on Dec. 8. Today’s retreat was the biggest since Nov. 7.

The Dow Jones Industrial Average fell 129.60 points, or 0.8 percent, to 15,843.53. About 6.5 billion shares changed hands on U.S. exchanges, 6.5 percent above the three-month average.

“We’ve moved much closer for the Fed to taper in December,” Jeffrey Kleintop, chief market strategist at LPL Financial LLC in Boston, said in a telephone interview.

“Markets are increasing their views that we are a week or so away from tapering because of improving economic data and clearing the hurdle for a budget deal. This deal is great, it’s a positive, but also a negative because it could prompt the Fed to taper sooner.”

The S&P 500 fell 0.3 percent yesterday after reaching a record 1,808.37 the day before. Fed stimulus has helped propel the benchmark gauge higher by as much as 167 percent from its bear-market low in 2009. The index has rallied 25 percent this year and is challenging 2003 for the biggest annual jump since 1998.

Investors are considering when the central bank, which meets next week, will reduce the pace of its monthly bond buying. Fed officials cited the drag from fiscal policy in their Oct. 30 statement and Jeffrey Lacker, president of the Richmond Fed, said in a speech Dec. 9 that budget uncertainty is weighing on business investment decisions.

Congressional negotiators yesterday agreed to a budget deal that would ease automatic spending cuts by about $60 billion over two years and will reduce the deficit by $20 billion to $23 billion. The budget compromise, which needs to pass both chambers of Congress, doesn’t raise the U.S. debt limit, setting up another potential fiscal showdown after February.

Fitch Ratings said the proposal signals “an improvement in the functioning of budget policy making” and suggests a reduced risk that political brinkmanship will cause another government shutdown or debt ceiling crisis.

“The budget deal itself is at best a signal that we won’t shut the government down at the start of the new year,” Alexander Friedman, chief investment officer at UBS AG’s wealth- management unit, told Anna Edwards on Bloomberg Television.

“It’s a low base that we’re declaring victory from. The key message for 2014 is the real economy is getting better. For investors however, it’s probably not going to be the same sugar high we’ve seen for the last five years.”

The deal comes after data last week showed the jobless rate fell to a five-year low and the U.S. economy expanded in the third quarter at a rate faster than initially estimated. Data later this week on retail sales, initial jobless claims and producer prices will provide clues on whether growth is strong enough for the Fed to curb stimulus measures.

The Federal Open Market Committee will probably start slowing its $85 billion in monthly bond purchases at its Dec. 17-18 meeting, according to 34 percent of economists surveyed Dec. 6 by Bloomberg, an increase from 17 percent in a Nov. 8 survey. Nine of the 35 economists surveyed said the central bank will buy fewer bonds from its January meeting and the remaining 14 predicted that tapering will start in March.

The Chicago Board Options Exchange Volatility Index, the gauge of S&P 500 options known as the VIX, rose 11 percent percent to 15.42 for the biggest advance since Oct. 15. Today’s gain trimmed the measure’s decline for the year to 14 percent.

Nine of 10 main S&P 500 retreated today. Materials and health-care companies paced declines, with each falling more than 1.6 percent as a group. UnitedHealth Group Inc. dropped 2.6 percent to $72.14 for the second-biggest drop in the Dow.

LabCorp plunged 11 percent to $88.25 for the steepest slide in the S&P 500. The provider of laboratory-testing services said it expects 2014 earnings to be below the average of analyst estimates in a Bloomberg survey.

Quest Diagnostics Inc. dropped 5.8 percent to $55.20, the fifth retreat in the past six sessions that left the stock at the lowest level since June.

Avanir Pharmaceuticals Inc. tumbled 30 percent, the most in seven years, to $3.01. The drugmaker said that the phase II study of AVP-923, a treatment for patients with multiple sclerosis, did not meet the primary efficacy endpoint.

Cisco lost 1.6 percent to $20.88. The company “failed to demonstrate” that the EU was wrong to find the merger in line with the bloc’s internal market, the EU General Court ruled today. The Microsoft-Skype merger “does not restrict competition” in the markets for consumer- and business-video communications, said the court.

MasterCard climbed 3.5 percent to $790.57, extending a record after rising for a fifth straight day. The second-biggest bank-card network raised its quarterly dividend to $1.10 a share and authorized repurchasing as much as $3.5 billion of stock.

Investors who own MasterCard stock on Jan. 9 will get the additional shares on Jan. 21, the Purchase, New York-based company said yesterday.

Visa Inc. rallied 3.1 percent to a record $205.66 for the biggest advance in the Dow.

Scripps Networks Interactive Inc. surged 7.6 percent to $81 for the biggest gain in the S&P 500. Discovery Communications Inc. might make an offer for the owner of HGTV and the Food Network, Variety reported, citing an unidentified person who attended a board meeting yesterday where the idea was discussed.

The publication didn’t provide possible terms.

Discovery operates cable television channels Animal Planet and TLC. Its shares lost 0.8 percent to $84.53.

Urban Outfitters Inc. climbed 3.1 percent to $36.84. The operator of the Anthropologie and Free People stores said fourth-quarter sales at locations open at least 13 months have been rising at a mid-single-digit rate.

Home Depot Inc. rose 0.5 percent to $79. The largest U.S. home-improvement retailer said it will meet a profitability goal a year earlier than planned as rising housing prices prompt an increase in renovations. Operating margin will expand to 12 percent by the year ending January 2015.

Have a wonderful evening everyone.

Be magnificent!

The human soul travels from the law to love,

from discipline to freedom,

from the moral plane to the spiritual plane.

Rabindranath Tagore, 1861-1901

As ever,

Carolann

When people are free to do as they please,

they usually imitate each other.

-Eric Hoffer, 1902-1983.

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