February 12, 2014 Newsletter

Dear Friends,

Tangents:

On this day in 1912, Hsian-T’ung, the Emperor of China, abdicated his throne, at the tender age of six, and after a four-year rule (yes, he took the crown at two). It was not a decision that a six-year old would naturally make, and indeed the young emperor did not make the decision on his own. He was forced to abdicate following Sun Yat-sen’s republican revolution, ending 267 years of Manchu rule and 2,000 years of imperial rule. This set him on a decades-long odyssey that involved exile and imprisonment, and a stint as a puppet of Japanese imperial ambitions. In 1959, he was pardoned by Mao Zedong, and later worked in a mechanical repair shop in Peking.-Paul Vigna, WSJ.

And Abraham Lincoln was born on this day in 1809.

People are just as happy as they make up their minds to be.  –Abraham Lincoln.

20 years ago, on February 12^th, 1994, two art thieves steal Edvard Munch‘s “The Scream” from Norway’s National Gallery, leaving behind a note that reads, “Thanks for the poor security.”

Photos of the day

Australia’s Torah Bright competes in the women’s snowboard halfpipe qualifying, Wednesday, Feb. 12. Sergei Grits/AP

France’s Sophie Rodriguez performs a jump during the women’s snowboard halfpipe qualification round, February 12, 2014. Dylan Martinez/Reuters

Market Closes for February 12^th, 2014

International Markets

Bonds

Currencies

Commodities

Market Commentary:

Canada
By Eric Lam

Feb. 12 (Bloomberg) — Canadian stocks rose a seventh day, the longest streak in three years, as commodity producers advanced with metal and oil prices and banks gained on rising home prices.

Canada Bread Co. soared 7.3 percent after Grupo Bimbo SAB agreed to acquire the business from owner Maple Leaf Foods.  Canadian Natural Resources Ltd. and First Quantum Minerals Ltd. rallied at least 2.2 percent as crude and copper prices advanced. Air Canada plunged 20 percent after reporting fourth- quarter earnings short of analysts’ estimates due to a decline in the Canadian dollar.

The Standard & Poor’s/TSX Composite Index rose 19.5 points, or 0.1 percent, to 13,900.49 at 4 p.m. in Toronto. The benchmark equity gauge jumped 3.1 percent in the past seven days, the longest rally since September 2010.

“There’s some general market optimism carried over from yesterday’s Yellen testimony, and positive news from China is driving commodities,” said Anish Chopra, fund manager at TD Asset Management Inc. in Toronto. He helps manage C$218.3 billion ($198.6 billion) with the firm. “As well, the budget from yesterday you get a picture of fiscal responsibility from the government. And if the budget will be in surplus, it gives the government room to maneuver in stimulating the Canadian economy.”

U.S. Federal Reserve Chair Janet Yellen yesterday testified she will reduce stimulus in “measured steps” amid a gradual recovery in the labor market, sending U.S. and Canadian markets higher.

Canadian Federal Finance Minister Jim Flaherty released a budget after the market close yesterday that projects a surplus of C$6.4 billion in 2015.

Canadian Imperial Bank of Commerce rose 0.4 percent to C$88.32 and Bank of Montreal rallied 1.1 percent to C$70.51 as financial stocks added 0.7 percent as a group, the second-most in the S&P/TSX. Six of 10 industries advanced and trading volume was 7.9 percent higher compared with the 30-day average.

Canadian home prices rose 4.5 percent in January from year- ago figures, as values increased in Toronto, Vancouver and Montreal, according to data from the Teranet-National Bank house price index.

Maple Leaf slipped 0.9 percent to C$15.70. The company agreed to sell Canada Bread to Grupo Bimbo, the Mexican producer of Sara Lee products, for about C$1.83 billion. Canada Bread increased 7.3 percent to C$72.20, the most since October.

Bimbo will pay C$72 a share for Canada Bread. Maple Leaf owns 90 percent of the company, and is divesting assets to focus on its packaged-meats business. The company will return available proceeds from the sale to shareholders within three years of closing.

Canadian Natural Resources advanced 2.2 percent to C$38.50 and Athabasca Oil Corp. climbed 4.1 percent to C$7.96 as the price of crude added 0.4 percent to $100.37 a barrel in New York. Prices pared an earlier gain after U.S. stockpiles rose more than expected last week. Energy stocks rallied 1 percent as a group, most in the Canadian equity gauge.

First Quantum Minerals climbed 2.6 percent to C$20.93 as copper rose in New York after Chinese trade data showed imports of the metal expanded to a record. Deliveries of unwrought copper and products to China surged 53 percent from a year earlier to 536,000 metric tons.

Air Canada tumbled 20 percent to C$6.22, the most since 2009, after saying profit in the first quarter will decline because of severe weather conditions and a weaker Canadian dollar. The company reported adjusted fourth-quarter earnings of 1 Canadian cent a share, short of analysts’ projections for 11 cents. Air Canada was the best-performing stock in the S&P/TSX in 2013, surging 323 percent.

Rogers Communications Inc., Canada’s largest wireless operator, slumped 5.3 percent to C$43.28, the biggest decrease since June. Guy Laurence, the company’s new chief executive officer, said he was not happy with the last quarter’s results and will fully review the operator in search of ways to improve performance. Rogers posted earnings of 69 Canadian cents a share, missing the 74 cents projected by analysts.

Thomson Reuters Corp. slumped 6.1 percent to C$37.75, the most in five years, after reporting declining fourth-quarter and full-year operating profit. The financial news and data company blamed the drop difficulties in the European and emerging markets.

US
By Callie Bost and Jeff Sutherland

Feb. 12 (Bloomberg) — U.S. stocks fell, after the biggest four-day jump in a year for the Standard & Poor’s 500 Index, as declines in companies from Procter & Gamble Co. to Amazon.com Inc. overshadowed optimism about economic growth.

Procter & Gamble lost 1.7 percent after the world’s largest consumer-products maker cut its forecasts for profit and sales growth. Amazon.com slid 3.5 percent after UBS AG lowered the online retailer’s rating. Dow Chemical Co. fell 1 percent as an internal review concluded a breakup plan would reduce the company’s value. TripAdvisor Inc. jumped 7.2 percent as fourth- quarter revenue beat analysts’ estimates.

The S&P 500 fell less than 0.1 percent to 1,819.26 at 4 p.m. in New York, after gaining as much as 0.4 percent earlier in the day. The Dow Jones Industrial Average dropped 30.83 points, or 0.2 percent, to 15,963.94. About 6.4 billion shares changed hands on U.S. exchanges, in line with the three-month average.

“We’re taking a breather here,” Phil Orlando, New York- based chief equity market strategist at Federated Investors Inc., which oversees about $376 billion, said in a phone interview. “Washington has essentially gotten out of the way, Yellen has told us monetary policy will be a continuation of what we’ve seen and we have a sense of what’s going to happen with the taper.”

The S&P 500 advanced 3.9 percent in the previous four days, the biggest gain for that stretch since January 2013. The benchmark gauge jumped 1.1 percent yesterday as comments by Federal Reserve Chair Janet Yellen fueled optimism the economy can weather further stimulus cuts.

Yellen, 67, delivering her first public remarks as Fed chair, said economic growth has strengthened and there is “broad improvement” in the labor market. She repeated the Fed’s outlook for further stimulus reductions in “measured steps,” adding that only a “notable change in the outlook” for the economy would prompt policy makers to slow the pace.

St. Louis Fed President James Bullard said today in New York that he expects economic expansion in 2014 of 3 percent or better. “Right now I think we’re on track” to continue tapering asset purchases and “will be able to move out of the program later this year,” he said.

Federal Open Market Committee officials have twice reduced the size of the monthly asset-purchase program, lowering bond buying to $65 billion in February from $85 billion last year.

Three rounds of stimulus under previous Chairman Ben S. Bernanke have helped push the S&P 500 as much as 173 percent higher from a 12-year low in 2009.

The benchmark gauge closed at a record on Jan. 15 and then dropped 5.8 percent through Feb. 3 on signs of slowing growth in China and a rout in emerging-market currencies. The recent rally has brought the index back to within 1.6 percent of its all-time high.

Data today showed China’s exports climbed in January.  Overseas shipments rose 10.6 percent from a year earlier, the General Administration of Customs said today. That beat the median economist projection for a 0.1 percent gain. Imports advanced 10 percent, more than forecast, leaving a trade surplus of $31.9 billion, the widest for January since 2009.

“What you’re seeing here is the world returning to normal,” Patrick Spencer, head of equity sales at Robert W. Baird & Co. in London, said in a phone interview. “The Chinese economy has doubled in size in dollar terms since 2008. The opportunities for the rest of us remain simply staggering. Concerns about tapering will be offset by reassurances that zero-interest policies are here for the foreseeable future.”

Equities extended gains yesterday as U.S. policy makers moved toward an agreement on the debt ceiling. After the market closed, the House of Representatives voted to suspend the debt limit until March 2015. The Senate cleared the measure today for President Barack Obama’s signature. Treasury Secretary Jacob J. Lew had said the nation’s ability to borrow may not last past Feb. 27 without an extension in the ceiling.

Since Republicans took control of the House in 2011, debates over the debt ceiling led to eleventh-hour showdowns that raised concerns that the government could default on its obligations, roiling financial markets. This time, lawmakers are sending a bill to Obama with about two weeks to spare.

A total of 14 companies in the S&P 500 were scheduled to post earnings today, including Cisco Systems Inc. and MetLife Inc. Almost 76 percent of those that have reported results this season have exceeded analysts’ profit estimates, data compiled by Bloomberg show.

Earnings at S&P 500 companies rose by 8.3 percent in the fourth quarter of 2013 and sales by 2.7 percent, according to analyst estimates compiled by Bloomberg.

The Chicago Board Options Exchange Volatility Index, the gauge of S&P 500 options known as the VIX, fell 1.5 percent to 14.30 for its fifth day of declines, the longest stretch since July.

Six out of 10 main industries in the S&P 500 fell. Energy, raw-materials and consumer-staples shares had the biggest declines, losing more than 0.3 percent.

Procter & Gamble slid 1.7 percent, the most in the Dow, to $77.49. The company said core earnings per share excluding some items will increase 3 percent to 5 percent this year, down from a previous forecast of 5 percent to 7 percent, because of currency exchange-rate fluctuations and policy changes in Venezuela.

Amazon lost 3.5 percent to $349.25. UBS lowered the shares to neutral from a buy rating, meaning it no longer recommends acquiring the stock. The brokerage cited slowing sales growth in the fourth quarter and a potential risk to revenue from Amazon Prime customers.

Dow Chemical dropped 1 percent to $46.37. The largest U.S. chemical company, facing pressure from Dan Loeb’s Third Point LLC to split itself in two, said the review found that creating separate petrochemical and specialty-chemical businesses would negatively affect Dow’s “value proposition.” A breakup also wouldn’t improve productivity or capital allocation, Dow said.

Intuit Inc. slipped 4.1 percent to $69.72. Evercore Partners Inc. analyst David Togut cut the stock’s rating to underweight from equal weight and lowered his price target to $62 a share from $72 after a consumer tax survey showed respondents may shift from tax software use.

TurboTax unit volumes may be flat to down 1 percent, versus a 4 percent gain in 2013, Togut said. He lowered his estimate for consumer tax revenue growth to 0.5 percent this year from 4.5 percent.

Lorillard Inc. erased 5 percent, the most in the S&P 500, to $47.47. The cigarette manufacturer reported fourth-quarter earnings and revenue excluding excise taxes that missed analysts’ forecasts.

LinkedIn Corp. dropped 5.2 percent to $192.34, the lowest level since July. Shares of the professional-networking site have plummeted 14 percent since Feb. 6, when LinkedIn forecast first-quarter sales that fell short of analysts’ estimates as growth slows in all three of its businesses.

FireEye Inc. retreated 11 percent to $69.08. The technology company forecast a first-quarter adjusted loss of between 51 cents a share and 56 cents, compared with the average analyst call for a loss of 37 cents. FireEye’s revenue forecast also missed projections.

Technology, phone and industrial companies gained the most among 10 groups in the S&P 500. Caterpillar Inc. jumped 1.3 percent to $96.17, the highest level in a year, for the biggest gain in the Dow.

TripAdvisor jumped 7.2 percent to a record $90.27. The online trip booking service reported fourth-quarter revenue of $212.7 million, topping analysts’ estimates of $205.6 million.

Fossil Group Inc. added 3.5 percent to $121.06. The fashion accessories designer reported fourth-quarter earnings that beat its own forecast for the period.

Cliffs Natural Resources Inc gained 2.3 percent to $21.99.

The U.S. iron-ore producer said yesterday it would stop operations at its Wabush mine in Newfoundland and Labrador by the end of the first quarter because of “unsustainably high” costs.

Casablanca Capital LP, Cliffs’ fourth-largest shareholder according to data compiled by Bloomberg, has called for the company to double its dividend, convert its U.S. assets to a master-limited partnership and significantly cut costs. Cliffs has advanced 17 percent since Feb. 4.

Trimble Navigation Ltd. rose 14 percent to $37.19, an all- time high. The measurement-instruments company said adjusted profit was 43 cents a share in the fourth quarter, more than analysts’ projections of 37 cents.

Have a wonderful evening everyone.

Be magnificent!

When you abandon every desire that rises up within you,

and when you become content with things as they are, then you experience inner peace.

When your mind is untroubled by misfortune, when you desire no pleasures,

when your emotions are tranquil, and when you are free from fear and anger,

then you experience inner calm.  When you are free from all attachments,

when you are indifferent to success and failure,

then you experience inner serenity.

When you can withdraw your senses from pleasures of the senses,

just as a tortoise withdraws its limbs,

then you experience inner wisdom.

The Bhagavad Gita

As ever,

Carolann

Go confidently in the direction of your dreams.  Live the life

you have imagined.

-Henry David Thoreau, 1817-1862

Carolann Steinhoff, B.Sc., CFP®, CIM, FCSI

Senior Vice-President &

Senior Investment Advisor

Queensbury Securities,

Suite 340A, 730 View St.,

Victoria, B.C. V8W 3Y7