February 3, 2014 Newsletter

Dear Friends,

Tangents:

Writer Gertrude Stein was born on this day in 1874.  I just finished reading a novel that was published by Paula McLean in 2012 entitled The Paris Wife. It is told through the eyes of Hadley Richardson, Ernest Hemingway’s first wife.  It is a portrait of a marriage, and of a writer’s early struggle to come into his own, but it is also a glimpse into the Paris of the early 1920’s when many American and English expatriots lived the Bohemian existence of struggling artists in the city of light.  It describes the importance of Gertude Stein’s Paris salon to the artists and intellectuals who gathered and her early friendship with Hemingway.  All in all, a good read.

Wasn’t that a game yesterday?

Photos of the day

Seattle Seahawks Malcom Smith makes an angel in the confetti after his team defeated the Denver Bronocs in the NFL Super Bowl XLVIII football game in East Rutherford, New Jersey. Shannon Stapleton/Reuters

Denver Broncos quarterback Peyton Manning runs off the field after being defeated by the Seattle Seahawks in the NFL Super Bowl XLVIII football game in East Rutherford, New Jersey. Shannon Stapleton/Reuters

Market Closes for February 3^rd, 2014

International Markets

Bonds

Currencies

Commodities

Market Commentary:

Canada

By Callie Bost

Feb. 3 (Bloomberg) — Canadian stocks declined, sending the benchmark index to the lowest level of the year, as energy and industrial shares slumped after manufacturing gauges in China and the U.S. weakened.

Energy producers retreated as Atlantic Power Corp. plunged 7.9 percent. BlackBerry Ltd. dropped 4.5 percent for a third straight day of losses. Cameco Corp. tumbled 5.3 percent after Canaccord Genuity Corp. analysts cut the stock’s rating. Semafo Inc. jumped 2.2 percent after Macquarie North America analysts said it may be a target for mergers and acquisitions.

The Standard & Poor’s/TSX Composite Index decreased 208.74 points, or 1.5 percent, to 13,486.20 at 4 p.m. in Toronto. The gauge erased its gain for the year, falling 1 percent for 2014.

Trading in S&P/TSX stocks was 2.8 percent higher than the 30-day average at the close.

“There’s some worry about what’s going on in emerging markets and if it’s now spreading to developed markets and what the ramifications of this will be,” said Ian Nakamoto, director of research with MacDougall MacDougall & MacTier Inc. in Toronto. The firm manages about C$4.5 billion ($4.1 billion).

“There’s just a general risk aversion that has come into the market today.”

The Institute for Supply Management’s factory index, a measure of U.S. manufacturing activity, decreased to 51.3 in January from 56.5 the prior month, the Tempe, Arizona-based group’s report showed today. Readings above 50 indicate expansion.

China’s Purchasing Managers’ Index decreased in January as output and orders slowed. The gauge was at 50.5 last month, the National Bureau of Statistics and China Federation of Logistics and Purchasing said Feb. 1 in Beijing. The reading in December was at 51. A number above 50 indicates expansion.

Gold for April delivery rallied 1.6 percent as declining global equity markets boosted demand for haven assets. The MSCI All-Country World Index dropped 1.6 percent, while emerging- markets shares slid 1.1 percent.

All 10 main industries in the S&P/TSX retreated at least 1 percent. Technology shares tumbled 2.9 percent, while industrials lost 2 percent. Consumer-discretionary shares and financials declined at least 1.3 percent.

Utilities slid 1.4 percent as Atlantic Power plunged 7.9 percent to C$2.69, an all-time low. Just Energy Group Inc. fell 4.6 percent to C$7.45 and ATCO Ltd. slipped 2.6 percent to C$48.55.

BlackBerry declined 4.5 percent to C$10.08, extending a three-day losing streak to 9.4 percent. Last week, a person familiar with the matter said Lenovo Group Ltd. considered the Motorola Mobility handset unit a better fit for the company than BlackBerry. Lenovo agreed to buy Motorola’s handset unit from Google Inc. for $2.91 billion. Lenovo’s chief financial officer said last year the company was considering a possible deal with BlackBerry.

Cameco tumbled 5.3 percent, the biggest drop since March 2012, to C$22.41. Canaccord analyst Gary Lampard downgraded the uranium explorer’s rating to sell from hold.

Semafo Inc. jumped 2.2 percent to C$3.67. Macquarie analysts led by Michael Gray wrote that the gold mining company could potentially be bought by producers of the precious metal such as Agnico Eagle Mines Ltd., Argonaut Gold Corp. and B2Gold Corp.  B2Gold climbed 2.7 percent to C$2.70. Argonaut increased 1.8 percent to C$5.

US

By Lu Wang

Feb. 3 (Bloomberg) — U.S. stocks fell, sending benchmark indexes to their biggest declines since June, as manufacturing in the world’s largest economy slowed more than estimated.

All but nine stocks in the Standard & Poor’s 500 Index slipped, the broadest decline since April. Telephone shares plunged after AT&T Inc. introduced new service plans, the latest in an escalating price war among wireless carriers. Ford Motor Co. and General Motors Co. fell at least 2.3 percent after reporting declines in January auto sales. Jos. A. Bank Clothiers Inc. slid 5 percent after telling Men’s Wearhouse Inc. it will not enter takeover talks.

The S&P 500 fell 2.3 percent to 1,741.89 at 4 p.m. in New York, the lowest close since Oct. 17. The Dow Jones Industrial Average lost 326.05 points, or 2.1 percent, to 15,372.80. The gauge has fallen 7.3 percent this year to a three-month low.

About 9.5 billion shares changed hands on U.S. exchanges today, the busiest trading since Dec. 20.

“Everyone walked in this year expecting a continuation of at least growing economic activity and the latest data we’ve been seeing throw a bit of cold water on that theory,” Bill Schultz, chief investment officer who oversees about $1.1 billion at McQueen Ball & Associates in Bethlehem, Pennsylvania, said by phone. “Economic activity was not as strong as people expected. People are taking a pause, reassessing where they stand.”

The S&P 500 reached a record 1,848.38 on Jan. 15 and has since fallen 5.8 percent. The market last produced a loss of at least 5 percent in June, when the index dropped 5.8 percent from a May high. The seven months between declines of at least 5 percent was the longest stretch since late 2006, according to Bespoke Investment Group LLC.

The benchmark for American equities sank 3.6 percent in January, its worst opening month since 2010, as the gauge dropped in each of the month’s final three weeks, the longest streak since 2012. Stocks fell as the Federal Reserve trimmed its bond-buying program for the second time in as many months and emerging-market currencies tumbled amid signs growth was slowing in China. The country’s official Purchasing Managers’ Index decreased to a six-month low in January as output and orders slowed.

Data today showed factory activity in the U.S. expanded in January at the weakest pace in eight months as orders slumped, a sign manufacturing cooled at the start of the year along with the weather.

The Institute for Supply Management’s factory index decreased to 51.3 from 56.5 the prior month, the Tempe, Arizona- based group’s report showed. The median forecast of 85 economists surveyed by Bloomberg called for a decrease to 56.  Readings above 50 indicate expansion.

Fed policy makers said on Jan. 29 that the central bank will trim its monthly bond purchases by $10 billion to $65 billion, cutting the pace of stimulus for a second straight meeting because of an improving economy.

Three rounds of Fed bond buying has helped drive the S&P 500 up 157 percent from a 12-year low in 2009 while pushing capital into emerging markets in search of higher returns.

“The market is adjusting to the Fed taking the punch bowl away,” Douglas Cote, chief market strategist at ING U.S. Investment Management in New York, in a telephone interview. His firm oversees about $200 billion. “The fundamentals remain solid. Even though we’re in the correction phase, ultimately the path for the market is up.”

Treasury Secretary Jacob J. Lew today said the U.S. risks breaching the federal debt limit by the end of this month and called on Congress to raise it immediately to sustain economic momentum. The debt ceiling was suspended through Feb. 7 under an agreement between President Barack Obama and congressional Republicans in October. The Treasury Department uses so-called extraordinary measures, or accounting maneuvers, stay under the ceiling.

Anadarko Petroleum Corp. and Yum! Brands Inc. are among 11 S&P 500 companies reporting earnings today. Profit at companies in the benchmark gauge probably increased by 8.3 percent in the fourth quarter of 2013 and their revenue by 2.5 percent, analysts’ estimates compiled by Bloomberg show.

The Chicago Board Options Exchange Volatility Index jumped 16 percent today to 21.44, the highest level since December 2012. The gauge of S&P 500 options known as the VIX is up 56 percent this year.

The Nasdaq Composite Index plunged 2.6 percent for its biggest decline since June 2012. The Russell 2000 Index slumped 3.2 percent for its steepest slide since April and the Dow Jones Transportation Average lost 3.2 percent to its lowest since November.

All 10 main S&P 500 groups retreated at least 0.8 percent.

Financial, industrial and consumer-discretionary stocks fell more than 2.5 percent.

Phone stocks plunged 3.7 percent, the most since August 2011, to lead declines. AT&T dropped 4.1 percent to $31.95 for the biggest loss in the Dow, while Verizon Communications Inc. fell 3.4 percent to $46.41.

AT&T’s new offer cuts $40 a month from premium users’ bills. The move is an escalation of competition in the mobile market where AT&T and T-Mobile US Inc. have run back-and-forth attack ads and offered $450 in credit to entice customers to switch service providers.

Ford fell 2.7 percent to $14.55, the seventh drop in eight days that left the stock at its lowest level since May. GM slipped 2.3 percent to $35.25. The largest U.S. automakers reported wider declines in deliveries than analysts estimated as the coldest January in two decades kept some shoppers from dealerships. Sales of cars and light trucks fell 12 percent for GM and 7.5 percent for Ford, according to company statements.

Jos. A. Bank dropped 5 percent to $53.39. The retailer, which told Men’s Wearhouse Inc. it won’t enter buyout talks, has been looking at other acquisitions including retailer Eddie Bauer, people familiar with the matter said.

Pfizer Inc. added 0.7 percent to $30.60 for the only gain in the 30-stock Dow index. The world’s largest drugmaker said a phase 2 trial of palbociclib plus letrozole achieved its primary endpoint in treating post-menopausal women with advanced breast cancer.

ArthroCare Corp. rallied 8.2 percent to $49.12. Smith & Nephew Plc agreed to buy the company for $48.25 a share, or $1.7 billion in cash, to add products for minimally invasive surgery used in sports medicine.

Have a wonderful evening everyone.

Be magnificent!

What is the world?  It is the earth below and the sky above and the air in space that connects them.

What is light?  It is fire below and the sun above – and the lightning that connects them.

What is education?  It is the teacher above and the disciple below – and the wisdom that connects them.

Taittiriya Upanishad

As ever,

Carolann

A rose is a rose is a rose.

-Gertrude Stein, 1894-1946

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