April 11, 2014 Newsletter

Dear Friends,

Tangents:

04/11/1968 – Civil rights Act signed into law.

04/11/1957: Britain agrees to Singapore self-rule
The island of Singapore is granted self-government from Britain to come into effect next year.

Never will a man penetrate deeper into error than when he is continuing on  a road that has led him to great success. – Friedrich von Hayek, Counterrevolution of Science.

Photos of the day

Deutsche Post DHL postwoman Andrea Bunar punts to deliver post using a traditional boat in the Spreewald village of Lehede. Bunar is now Germany’s only postwoman to deliver the mail by boat from April until October. Axel Schmidt/Reuters

Tiny paper boats which collectively form a giant dove are seen inside the Panathenean stadium in Athens. The Hellenic Olympic Academy initiated the creation of the artwork to break the Guinness world record for the biggest paper peace dove. Yorgos Karahalis/Reuters

German artist Ottmar Hoerl stands among his 500 plastic Charlemagne sculptures in the western German city of Aachen to commemorate the Aachen Charlemagne Year and the 1200th anniversary of Charlemagne’s death. Wolfgang Rattay/Reuters

Market Closes for April 11^th, 2014

International Markets

Bonds

Currencies

Commodities

Market Commentary:

Canada

By Gerrit De Vynck

April 11 (Bloomberg) — Canadian stocks fell for a second day, led by health-care and technology shares, amid a rout in U.S. equities fueled by selling of some of the bull market’s pest-performing shares.

General Motors Co. shares trading in Canada fell 4.5 percent as Ontario said it planned to sell its shares in the company next year. Raise Production Inc. rose 89 percent after the oil well services company said it was in talks to complete the first commercial sale of one of its pump systems.

The Standard & Poor’s/TSX Index slipped 50.31 points, or 0.4 percent, to 14,257.69 at the end of trading in Toronto. The gauge fell 0.9 percent yesterday, the biggest drop since Feb. 3.

In the U.S., the Nasdaq Composite Index fell 1.3 percent while the S&P 500 dropped 1 percent to cap a 2.6 percent weekly loss, the worst since 2012.

Yesterday, the S&P 500 fell 2.1 percent and the Nasdaq dropped 3.1 percent as investors sold high-flying technology stocks that had soared in 2013.

In Canada, oil and gas companies kept the benchmark equity index from falling as much as its U.S. counterparts. Energy companies rose 0.1 percent as a group.

“While the market is down, there are a couple of sectors that are doing better, certainly oil and gas,” said Irwin Michael, a fund manager with ABC Funds in Toronto, which manages about C$850 million ($774 million). “Listening to the radio, they said gasoline is going up 2 cents a liter tonight. That’ll bring it up to around C$1.37 and the feeling is that we’re going to see it hit new record highs for this cycle.”

Prism Medical Ltd., which sells mobility aids for homes, rose 32 percent to C$7.90 after it said it was selling its business in the U.K. for 30 million pounds ($50 million).

Thompson Creek Metals Company Inc. rose 9.9 percent to C$3.12 after the miner said it sold more copper and molybdenum in the first quarter of 2014 than in the last quarter of 2013.

Finning International Inc., which sells heavy machinery, fell 1.4 percent to C$29.05 after saying its first quarter results would be hurt by currency devaluation in Canada and Argentina.

US

By Callie Bost

April 11 (Bloomberg) — U.S. stocks sank, extending the Standard & Poor’s 500 Index’s worst two-day drop since June, amid disappointing results at JPMorgan Chase & Co. and signs hedge funds were dumping the bull market’s best performers.

JPMorgan lost 3.7 percent as profit fell 19 percent on lower fixed-income trading and mortgage revenue. Teradata Corp., Broadcom Corp. and Salesforce.com Inc. lost at least 3 percent as technology shares paced declines in the market after tumbling the most since 2012 yesterday. General Motors Co. dropped 4.1 percent after a U.S. congressional panel released documents related to a recall probe of the company.

The S&P 500 fell 0.9 percent to 1,815.69 at 4 p.m. in New York, closing at its lowest level in two months. The gauge slipped 2.7 percent this week, the biggest loss since 2012. The Nasdaq Composite Index dropped 1.3 percent today, capping its biggest two-day retreat since 2011, and the Dow Jones Industrial Average slid 143.47 points, or 0.9 percent, to 16,026.75. About 7.4 billion shares changed hands on U.S. exchanges, 5.8 percent higher than the three-month average.

“You need to shake out some of the speculative money and throw water on the irrational exuberance,” Randy Frederick, managing director of trading and derivatives at Charles Schwab Corp., which manages $2.2 trillion in client assets, said in a phone interview. “It’s a good reminder that markets don’t go straight up. While the long-term is positive, we need to have these steps back along the way. We need this kind of pullback.”

The S&P 500 declined 2.1 percent yesterday and the Nasdaq Composite slumped 3.1 percent, its biggest decline since November 2011. Technology shares slid yesterday as investors sold the biggest winners in the five-year market rally.

The percentage of hedge-fund bets that stocks will rise has decreased to 46 percent, compared with 2014’s high of 58 percent, according to an April 9 research note from Credit Suisse Group AG. Net exposure in the U.S. declined to the lowest level since August 2012, the report said.

“So far, exposure reductions have been measured and at least for the time being, there has been no mass rush for the exits,” Credit Suisse’s Jon Kinderlerer wrote.

“Unsurprisingly, we have seen exposure being trimmed the most in information technology where the popular longs have underperformed significantly over the last few weeks.”

Companies with high levels of hedge-fund ownership have fallen about twice as much as the overall market. S&P 500 stocks that are most popular among the speculators have fallen 7.5 percent since April 2. The U.S. equity benchmark is down about 4 percent since then.

Hedge funds make up at least 30 percent of the shareholders in Allegion Plc, Dollar General Corp. and Constellation Brands Inc., the most among companies in the S&P 500. About 37 percent of Allegion shares are owned by hedge funds, the most among S&P 500 companies. The maker of security systems is almost 9 percent lower since April 2. H&R Block Inc., the tax software provider, is down 11 percent and is about 27 percent owned by hedge funds.

The selloff that began last week was sparked by growing concern that valuations may be too high as earnings season begins. The Nasdaq Composite trades at 35 times reported earnings of the companies in the index. That’s double the ratio for the S&P 500, which trades at about 17 times earnings.

Profit for members of the S&P 500 probably fell 0.9 percent in the first quarter, analysts now forecast, after anticipating a 6.6 percent rise in January. Sales increased 2.6 percent, according to projections.

Analysts have reduced earnings estimates more than they usually do over the last three months, according to Goldman Sachs Group Inc. strategists led by David Kostin. Average profit forecasts for S&P 500 companies fell about 4 percent in the first quarter, a percentage point more than normal, they wrote.

JPMorgan dropped 3.7 percent to $55.30 today, its biggest decline since November 2012. Chief Executive Officer Jamie Dimon warned investors in February that trading had fallen 15 percent for the first two months of 2014, a decline analysts blamed on a reduction in the Federal Reserve’s bond purchases.

Wells Fargo & Co. rose 0.8 percent to $48.08. The most profitable U.S. bank in 2013 posted a 14 percent rise in earnings as fewer customers missed loan payments.

Alcoa Inc. unofficially started the earnings season on April 8 with profit that beat forecasts. About 54 companies in the S&P 500 are scheduled to report results next week, including Coca-Cola Co., Goldman Sachs Group Inc., Yahoo! Inc., Google Inc. and General Electric Co.

“We can still get decent earnings, but all in all, the total level of earnings will probably not grow as much as expected,” Nicola Marinelli, who helps oversee $200 million at Sturgeon Capital Ltd. in London, said by telephone. “Earnings will have subdued growth. Equity market can remain strong but that doesn’t mean much stronger.”

Investors have added $5.4 billion to U.S. equity exchange- traded funds in the past five days and $732.3 million flowed into American bond ETFs, data compiled by Bloomberg show.

Health-care stocks absorbed the most money among industry ETFs, taking in $511 million during the past week. Technology ETFs lost $1.1 billion in the past five days, the most of any sector in that period.

Traders exchanged more than 1.3 million contracts today on the PowerShares QQQ ETF, which tracks shares of the Nasdaq 100, according to data compiled by Bloomberg. That’s almost twice the 20-day average volume for the fund. Bearish contracts expiring this month with a strike prices of $84 were the most traded at this time of day, Bloomberg data show.

The selloff that is sending shares in the Nasdaq 100 Index to the wildest swings since Europe’s debt crisis is failing to stir equal panic in option prices. During April, the Nasdaq 100 has moved 1.5 percent a day on average, the most since November 2011. At the same time, prices for options are below levels from February and October.

“They’ll have to show a lot of pessimism before this decline is over,” said Bruce Bittles, chief investment strategist at Milwaukee-based RW Baird & Co., which oversees $110 billion. “It certainly looks like this correction could carry on.”

The Chicago Board Options Exchange Volatility Index, the gauge of S&P 500 options prices known as the VIX, rose 7.2 percent to 17.03. The CBOE NDX Volatility Index of Nasdaq 100 contracts climbed 10 percent to the highest since December 2012, adding to a 16 percent surge yesterday.

All 10 main industries in the S&P 500 declined today.

Consumer-discretionary shares retreated 1.4 percent, leading losses. Gauges of raw material and technology stocks decreased 1.2 percent.

The Nasdaq 100 slipped 1.2 percent. The Nasdaq Biotechnology Index fell 2.8 percent. The gauge entered a bear market today, sliding 21 percent since Feb. 25.

NewLink Genetics Corp. tumbled 11 percent to $19.97. The drugmaker has plunged 60 percent since closing at a record Feb. 25. Celldex Therapeutics Inc. dropped 10 percent to $14.02 and OncoMed Pharmaceuticals Inc. sank 10 percent to $24.12.

GM fell 4.1 percent to $31.93, the lowest level since June.  Documents released by the House Energy and Commerce committee showed an engineer the automaker has put on leave approved a work-around in small-car models recalled this year for ignition defects that can deactivate air bags.

Herbalife Ltd., the nutritional supplement company that hedge fund manager Bill Ackman has accused of being a pyramid scheme, sank 14 percent to $51.48 for its biggest decline since 2012. Herbalife is being probed by the Federal Bureau of Investigation, according to a person familiar with the matter.

Authorities are looking into the company’s marketing practices, said the person, who asked not to be identified because the investigation is private.

Have a wonderful weekend everyone.

Be magnificent!

Civilization, in the real sense of the term, consists not in the multiplication

but in the deliberate and voluntary restriction of the wants.

This alone promotes real happiness and contentment, and increases the capacity for service.

A certain degree of physical harmony and comfort is necessary, but above that level,

it becomes a hindrance instead of a help.

Therefore the ideal of creating an unlimited number of wants and satisfying them

seems to be a delusion and a snare. The satisfaction of one’s physical needs, even the intellectual needs

of one’s narrow self, must meet at a point a dead stop before it degenerates into physical

and intellectual voluptuousness.  A man must arrange his physical and cultural circumstances

so that they may not hinder him in his service of humanity,

on which all his energies should be concentrated.

Mahatma Gandhi, 1869-1948

As ever,

Carolann

When humor goes, there goes civilization.

-Erma Bombeck, 1927-1996

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