July 9, 2014 Newsletter

Dear Friends,

Tangents:

The Wall Street Journal published its first edition 125 years ago yesterday.  It consisted of four pages priced at 2 cents.  The Journal published an anniversary issue as a commemoration which is very interesting, especially some of the items from the front page of the July 8, 1889 issue:

The column entitled “The Average Movement of Price”  contained statistics on price movements on 12 active stocks.  Today’s Dow Jones Industrial Average began in 1896 with those same 12 stocks.  The only original stock in the present-day 30-stock index is General Electric.

There is an ad on the front page from Rand McNally & Company that begins in bold letters “WE FURNISH MAPS…”   Rand McNally is now owned by Patriarch Partners, but is still known as a publisher of maps.  It started in 1856 to print timetables and tickets for the railroads.

Readers of the first edition are informed that “The first bale of cotton from the South was sold at auction in front of the Cotton Exchange today and was bought by Henry Clews & Co. at 16 1/8.”

The bale of cotton from Georgia bought by Clews who was a  financier and served as an economic consultant to President Ulysses S. Grant.  The bale was said to be headed to Liverpool.

Readers are also informed on the front page of the first edition of the WSJ that “Mr. Duncan A. McTavish of the British Bank of North America died this morning aged 72.”

Duncan McTavish, born in Scotland, was a representative of the Bank of British North America in New York.  A detailed obituary in the Banker’s Magazine said “his business life was marked by success without sensation.”

Central Railroad Co. of New Jersey announced on the front page that “A dividend of one and a half per cent has this day been declared payable August 1^st prox. for the quarter ending June 30^th ulto.  The transfer books will close on Monday, the 15^th inst., and open on Friday, August 2d.  By order of the board.  J. W. Watson, Treasurer.”  This railroad started in 1831 as “Elizabethtown & Somerville Railroad” and adopted the “Central Railroad of New Jersey” name in 1849.  After the railroad boom years ended, CNJ went through numerous forms until in 1988, as part of a complicated transaction related to taxes, its shell acquired packaging company Triangle Industries and took its name.

Photos of the Day

Waves brought about by Typhoon Neoguri hits a lighthouse in Seogwipo on Jeju Island. Typhoon Neoguri weakened from its original status as a super typhoon but remained intense, with gusts of more than 250 km per hour (155 mph). It was powering through the Okinawa island chain where emergency rain and high-seas warnings were in effect. Ko Sung-sik/Yonhap/Reuters

People watch Estafeta Street from balconies as police control the street a few minutes before the start of the running of the bulls at the San Fermin festival, in Pamplona, Spain. Revelers from around the world arrive to Pamplona every year to take part in some of the eight days of the running of the bulls glorified by Ernest Hemingway’s 1926 novel ‘The Sun Also Rises.’ Alvaro Barrientos/AP

Market Closes for July 9^th, 2014

International Markets

Bonds

Currencies

Commodities

Market Commentary:

Canada
By Eric Lam

July 9 (Bloomberg) — Canadian stocks rose to a record, following a two-day slide, as materials companies advanced with gold and Royal Bank of Canada rallied amid data showing housing starts unexpectedly advanced last month.

Royal Bank, the nation’s second-largest lender by assets, rose 0.9 percent to extend its longest winning streak in four years. Alacer Gold Corp. added 6.7 percent as gold prices increased for the first time in four days. Copper Mountain Mining Corp. jumped 4.1 percent after reporting record second- quarter production results for its mine in British Columbia. Bankers Petroleum Ltd. sank as crude prices slid a ninth day.

The Standard & Poor’s/TSX Composite Index rose 78.01 points, or 0.5 percent, to 15,215.19 at 4 p.m. in Toronto. The benchmark Canadian equity gauge has gained 12 percent this year, topping its previous record in June, for the third-best performance among the world’s developed markets.

Canadian housing starts unexpectedly rose for a third month in June led by single-family dwellings, adding to signs the nation’s real estate market is defying predictions of a slowdown.

Consumer confidence approached its 2014 high last week on optimism about real estate prices, according to the Bloomberg Nanos Canadian Confidence Index.

Nine of the 10 industries in the S&P/TSX rose on trading volume 9.1 percent higher than the 30-day average.

Royal Bank rose 0.9 percent to a record C$78.50. The stock has climbed for nine days, the longest streak since February 2010. The S&P/TSX Banks Index rallied 0.6 percent, for its eighth advance in the past nine days.

Copper Mountain Mining jumped 4.1 percent to C$3.05, the highest since March 2013. Production from the Copper Mountain mine in British Columbia rose 4 percent from the prior quarter to 19.9 million pounds in the second quarter.

Bankers Petroleum retreated 1.4 percent to C$7.01 to pace declines among energy stocks. West Texas Intermediate crude dropped for a ninth day, the worst losing streak since 2009, after a report showed U.S. supplies increased.

USA
By Joseph Ciolli and Callie Bost

July 9 (Bloomberg) — U.S. stocks rebounded from a two-day selloff as optimism over corporate earnings and jobs growth overshadowed central-bank concern that investors may be growing complacent about the economic outlook.

Alcoa Inc. jumped 5.7 percent to the highest in almost two years after kicking off earnings season with better-than- forecast results. American Airlines Group Inc. rallied 4.3 percent after raising its margin forecast. Facebook Inc. advanced 3.5 percent to pace gains among a gauge of technology shares. Bob Evans Farms Inc. slid 4.4 percent as quarterly revenue missed estimates.

The Standard & Poor’s 500 Index rose 0.5 percent to 1,972.83 at 4 p.m. in New York after a 1.1 percent slide the two previous days. The Dow Jones Industrial Average added 78.99 points, or 0.5 percent, to 16,985.61. About 5.4 billion shares changed hands on U.S. exchanges today, 8.3 percent below the three-month average.

“The market can go down, but it won’t stay down,” John Manley, who helps oversee about $233 billion as chief equity strategist for Wells Fargo Funds Management in New York, said in a phone interview. “The fact that the market is still questioning all these things that are going on is a very healthy sign. I still think the Fed is going to be more concerned about making absolutely sure that the U.S. economic recovery is under way and staying under way.”

Equities initially turned lower after Federal Reserve meeting minutes showed some policy makers were concerned investors may be growing too complacent about the economic outlook and the central bank should be on the lookout for excessive risk-taking. Officials are also debating the timing for the first increase in the main interest rate since 2006.

Fed officials expressed concern about low volatility in equity, currency and fixed-income markets, according to minutes of their June meeting, when policy makers trimmed monthly bond purchases to $35 billion. At the same time, “it was noted that monetary policy needed to continue to promote the favorable financial conditions required to support the economic expansion,” according to the minutes.

The Chicago Board Options Exchange Volatility Index finished last week at a seven-year low before rallying 16 percent the previous two days, the most since April. The gauge known as the VIX slipped 2.8 percent to 11.65 today.

The Fed meeting took place before a June payrolls report that showed job growth blew past expectations and the unemployment rate fell to the lowest level since before the financial crisis peaked six years ago, creating a firm foundation for a stronger U.S. economic expansion.

“We saw a knee-jerk reaction down, but we usually get some short-term volatility after events like these,” Joe Bell, senior equity analyst at Cincinnati-based Schaeffer’s Investment Research Inc., said by phone. “I think people are continuing to see improvement in labor market conditions, especially on the heels of the most recent jobs report. A lot of people are viewing the fact that the Fed is going to continue to be accommodative to the economy.”

Fed Chair Janet Yellen said last month that accommodative monetary policy, rising property and equity prices and the improving global economy should lead to above-trend growth. She emphasized the need to put more Americans back to work and downplayed concerns about asset-price bubbles and incipient inflation.

U.S. equities retreated a second day yesterday amid growing investor concern that stocks have rallied too fast after benchmark indexes ended last week at all-time highs. Raymond James & Associates Inc. said stocks are vulnerable to losses and Citigroup Inc.’s chief U.S. equity strategist cited concerns for a “severe” pullback.

The S&P 500 has not had a drop of 10 percent in more than two years. The gauge trades at a valuation of 18 times reported earnings, the highest since 2011 when it was in the middle of a 19 percent slide, its biggest during the current five-year bull market.

Equity losses in the previous two days were concentrated in technology shares and small-caps with high valuations. Twitter Inc. and Pandora Media Inc., which trade at more than 150 times estimated earnings, plunged about more than 9 percent. Facebook Inc. and TripAdvisor Inc. sank at least 5.3 percent.

Facebook rose 3.5 percent to $64.97 today. The stock paced gains in the Nasdaq 100 Index of large technology shares, which had fallen for two straight days.

More than 130 companies in the S&P 500 are scheduled to report quarterly results in the next two weeks, including Citigroup Inc., JPMorgan Chase & Co., Goldman Sachs and Johnson & Johnson.

Profit at S&P 500 companies probably rose 5 percent in the three months through June, while sales gained 3 percent, estimates compiled by Bloomberg show. The forecasts are lower than they were at the start of April, when analysts predicted a 7.3 percent rise in earnings and 3.7 percent sales increase.

“We’re looking for continued economic growth, which will drive corporate earnings,” John Fox, director of research at Fenimore Asset Management in Cobleskill, New York, said in a phone interview. “There’s still money on the sideline. As long as earnings keep going up and stocks are fairly valued, the market can keep going.”

All but one of the 10 main S&P 500 groups advanced today, with shares in makers of consumer-discretionary products adding 1.2 percent to pace gains. Utility stocks fell 0.2 percent.

Alcoa advanced 5.7 percent to $15.69 for its best day since March and the biggest gain in the S&P 500. The struggling U.S. aluminum producer, which is shifting its focus to manufacturing auto and aerospace components, reported better-than-forecast profit on the strength of its traditional aluminum smelting business.

American Airlines gained 4.3 percent to $41.99. The carrier said second-quarter pretax margins would exceed the company’s previous forecast. The company also said it sees strong global travel demand and no “material pockets of weakness.”

Reynolds American Inc. rose 2.2 percent to $62.67. The U.K.’s Daily Mail speculated British American Tobacco Plc may purchase the rest of the cigarette producer. BAT holds about 42 percent of Reynolds, according to data compiled by Bloomberg.

Bob Evans Farms slid 4.4 percent to $47.57. The Columbus, Ohio-based operator of family restaurants reported quarterly revenue that failed to meet analyst estimates.

The Container Store Group plunged 8.4 percent to $24.80. The retailer of storage and organization products reported quarterly earnings that missed analysts’ estimates and said it’s “experiencing retail ‘funk.’”

Gigamon Inc. tumbled 32 percent to $12.29. The designer of networking products reported preliminary second-quarter revenue of as much as $35 million. That was lower than its earlier forecast of as much as $42 million, and missed analyst estimates of $40.3 million.

Have a wonderful evening everyone.

Be magnificent!

Every day we see or read of appalling things happening in the world as the result of violence in man.

You may say, “I can’t do anything about it,” or “How can I influence the world?”

I think you can tremendously influence the world if you yourself are not violent,

if you lead actually every day a peaceful life – a life which is not competitive, ambitious, envious –

a life which does not create enmity.

Small fires can become ablaze.

Krishnamurti, 1895-1986

As ever,

Carolann

Draw strength from the knowledge that education will break the backs of poverty,

disenfranchisement, and violence; that war is never inevitable but only a terrible

failure of the imagination; and that love is stronger than hatred.

-Wally Lamb, 1950-

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