July 31, 2014 Newsletter

Dear Friends,

Tangents:

Our local web solutions provider had a server setting error, so our nightly newsletter was not transmitted for the past two nights – so sorry for the inconvenience.

A society grows great when old men plant trees whose shade they know they shall never sit in. ~Greek Proverb.

The restoration of the famous Caryatid statues at the Acropolis museum has been completed after 3-1/2 years.  They were carved by ancient Greek sculptor Alkamenes.  For 2,500 years, the six sisters stood unflinching atop the Acropolis, as the fires of war blazed around them, bullets nicked their robes, and bombs scarred their curvaceous bodies. When one of them was kidnapped in the 19th century, legend had it that the other five could be heard weeping in the night.

But only recently have the famed Caryatid statues, among the great divas of ancient Greece, had a chance to reveal their full glory.  Dimitris Pantermalis, president of the Acropolis Museum, stated, “With the pollution erased, we can read more about the history of the last 2,500 years.”

Caryatids were generally figures of women in Greek costume, used in architecture to support entablatures.  Caryae, in Laconia, sided with the Persians at Thermopylae, as a result of which the Greeks destroyed the city, slew the men and made the women slaves.  Praxiteles, to perpetuate the disgrace, employed figures of these women instead of columns.

Author J.K. Rowling’s birthday today.

Photos of the Day

Homer, an 18-week-old mastiff, is dressed as a bumblebee along with his owner, Eddyn Molden, 8, during the judging for the Best Costumed Pet at the Frederick County Fair in Clear Brook, Va. Jeff Taylor/The Winchester Star/AP

Visitors enjoy the Luminarium, an inflatable sculpture created by British artist Alan Parkinson, during the Geneva Festival in Switzerland.Martial Trezzini/Keystone/AP

Market Closes for July 31^st, 2014

International Markets

Bonds

Currencies

Commodities

Market Commentary:

Canada
By Eric Lam

July 31 (Bloomberg) — Canadian stocks fell the most since February, retreating from a record, amid a global selloff as Argentina missed a payment on its bonds while gold and oil prices tumbled.

Valeant Pharmaceuticals International Inc. sank 6.7 percent after cutting its year-end earnings forecast amid its hostile pursuit of Botox-maker Allergan Inc. Shaw Communications Inc. retreated 2.8 percent after agreeing to buy cloud services provider ViaWest Inc. for $830 million. Agnico Eagle Mines Ltd. tumbled 8.7 percent after analysts at Bank of Montreal and Desjardins cut their ratings for the stock.

The Standard & Poor’s/TSX Composite Index fell 194.09 points, or 1.3 percent, to 15,330.73 at 4 p.m. in Toronto. The benchmark Canadian equity gauge closed at 15,524.82 yesterday, an all-time high. This is the first time the measure has risen or fallen by 1 percent or more since April 16.

The S&P/TSX advanced 1.2 percent this month for a second straight gain, and is the second-best performer in the world among developed markets this year.

Canada’s gross domestic product jumped 0.4 percent in May, the fastest pace in four months, as car makers ramped up production. The fifth straight monthly gain matches the median forecast in a Bloomberg economist survey.

The MSCI All-Country World Index, which tracks both developed and developing markets, fell 1.5 percent, the largest decline since February and the lowest close since June 4. The S&P 500 sank 2 percent, the most since April, and the Dow Jones Industrial Average erased its gains for the year.

Argentina missed a deadline yesterday to pay $539 million in interest after two days of negotiations in New York failed to produce an agreement with creditors from its last default in 2001. Portugal’s Banco Espirito Santo said it needs to raise capital after a first-half loss and companies from Adidas AG to Lufthansa AG said unrest in Russia and Ukraine dimmed prospects for growth.

Agnico Eagle sank 8.7 percent to C$40.54, the most since October 2011, to pace declines among raw-materials producers as nine of 10 industries in the S&P/TSX retreated on trading volume 25 percent higher compared with the 30-day average.

Alamos Gold Inc. retreated 5.4 percent to C$9.70 and Semafo Inc. lost 3.5 percent to C$4.70 as gold futures fell 1.1 percent to $1,282.80 an ounce in New York, a six-week low.

First Quantum Minerals Ltd. dropped 4.3 percent to C$25.86 after yesterday reporting earnings and revenue short of analysts’ estimates.

Talisman Energy Inc. fell 3.5 percent to C$11.44 and Bankers Petroleum Ltd. slumped 4.1 percent to C$6.16 as 63 of 69 members of the S&P/TSX Energy Index declined. The gauge slumped 1.7 percent, the most in a month.

Crude in New York fell to a four-month low, capping a monthly loss of 6.8 percent, the biggest in two years.

Open Text Corp. surged 15 percent to a record C$60.67 after the company posted profit ahead of estimates as revenue from cloud computing more than tripled from year-ago figures.

US
By Lu Wang

July 31 (Bloomberg) — U.S. stocks joined a global selloff, erasing the year’s gains in the Dow Jones Industrial Average, as Exxon Mobil Corp. to Micron Technology Inc. tumbled amid weaker corporate results.

Exxon and Murphy Oil Corp. dropped amid concern over output. Micron slid 6.1 percent after earnings from Samsung Electronics Co., the world’s biggest smartphone maker, trailed estimates. Nike Inc. declined 3.1 percent as its European rival Adidas AG slashed its full-year forecast. Sprint Corp. tumbled 5.3 percent, leading losses among phone stocks as France’s Iliad SA offered to buy a stake in T-Mobile US Inc.

The Dow fell 317.06 points, or 1.9 percent, to 16,563.30 at 4 p.m. in New York, for the largest one-day retreat since Feb. 3. The Standard & Poor’s 500 Index slid 2 percent, the most since April 10, to 1,930.67. The gauge dropped 1.5 percent in July, its first monthly decline since January. The Nasdaq 100 Index lost 2.1 percent. The MSCI All-Country World Index tumbled 1.5 percent for its worst loss in almost six months.

“The Fed is stepping out of the way and the market’s valuation is high enough that people are quick to take profit,” Wayne Wilbanks, who oversees $2.5 billion as chief investment officer at Wilbanks, Smith & Thomas Asset Management LLC in Norfolk, Virginia, said in a phone interview. “You are going to get more days like today, where investors are more trigger happy, quicker to liquidate. Everybody knows a correction is coming and it will come.”

The S&P 500, which is up 4.5 percent this year and reached a record on July 24, has gone without a 10 percent correction since 2011. It trades at 17.6 times the reported earnings of its companies, near the highest level since 2010.

The benchmark index had climbed 0.5 percent in July through yesterday as companies from Facebook Inc. to Chipotle Mexican Grill Inc. reported a surge in profit, while Time Warner Inc. rallied as Rupert Murdoch’s 21st Century Fox Inc. made a takeover offer.

Market volatility is rising after the S&P 500 ended its longest stretch of calm since 1995. Including today, the index has posted gains or losses of more than 1 percent three times in the past two weeks, compared with none during the 62 days through July 16, data compiled by Bloomberg show.

The Chicago Board Options Exchange Volatility Index, known as the VIX, surged 27 percent today to 16.95, the highest level since April 11.

The S&P 500 closed below its average price over the past 50 days for the first time since April. More than 7.9 billion shares changed hands on U.S. exchanges, the highest level since June 27.

Fifty S&P 500 companies report quarterly earnings today. About 76 percent of those that have released results this seasons have topped analysts’ estimates for profit, while 66 percent have exceeded sales projections.

Global equities fell today amid weaker-than-projected earning from Europe and Asia. Deutsche Lufthansa SA and Adidas were among European companies sliding as they cited unrest between Russia and Ukraine for dimming growth prospects.

Banco Espirito Santo SA plunged by the most on record and the bonds slumped after the Portuguese lender was ordered to raise capital following a 3.6 billion euro ($4.8 billion) first- half net loss.

“Maybe the market is getting a little bit tired here,” David Chalupnik, the head of equities at Nuveen Asset Management in Minneapolis, said by phone. His firm runs about $120 billion. “It’s more concern around Europe. We’ve had an extremely easy monetary environment for the past six years. When that changes, it’s going to cause a lot of anxiety.”

Concern grew that the improving economy may force the Federal Reserve to raise interest rates sooner than expected.

U.S. gross domestic product expanded at a 4 percent annual pace in the second quarter, confirming the central bank’s view that a first-quarter contraction was transitory. Data today showed fewer Americans filed applications for unemployment insurance benefits over the past month than at any time in more than eight years, signaling employers are hanging on to workers as demand improves.

“The Fed may have to change course sooner than expected if reports continue to show the economy is gaining some strength,” Bruce Bittles, chief investment strategist at Milwaukee-based RW Baird & Co., which oversees $110 billion, said in a phone interview.

The Fed yesterday cut its monthly bond buying to $25 billion in its sixth consecutive $10 billion reduction. The Fed’s Open Market Committee reiterated that it’s likely to reduce bond buying in “further measured steps” and to keep interest rates low for a “considerable time” after ending purchases.

The central bank said slack in the labor market persists even though the economy is picking up. Data from Washington tomorrow may show companies added 231,000 jobs this month, according to the median economist estimate.

Investors also watched developments in Latin America.  Argentina missed a deadline yesterday to pay $539 million in interest after two full days of negotiations in New York failed to produce an accord with creditors from its last default in 2001. A U.S. judge ruled that the payment couldn’t be made unless those investors, a group of hedge funds led by Elliott Management Corp., got the $1.5 billion they claimed. Standard & Poor’s said Argentina is in default.

“When events like this happen, investors try to figure out whether this is an isolated occurrence or the first domino in a chain,” Lawrence Creatura, who helps oversee $350 billion as a fund manager at Pittsburgh-based Federated Investors Inc., said in a phone interview. “In the early moments there is always a bit of uncertainty as to which we have on our hands.”

All 10 S&P 500 main industries declined as energy, financial, phone and health-care companies fell at least 2 percent. Exxon, Nike and American Express Co. led declines in the Dow, slumping more than 3.1 percent.

Smaller companies tumbled as the Russell 2000 Index sank 2.3 percent. The measure has dropped 3.9 percent since July 14, one day before the Fed said in its Monetary Policy Report that valuations for smaller biotechnology and social media stocks are stretched.

The Dow Jones Internet Composite Index declined 2.3 percent, with TripAdvisor Inc. falling 5.2 percent. The Nasdaq Biotechnology Index plunged 2.6 percent.

Exxon tumbled 4.2 percent for the largest drop since August 2011. Oil and gas output dropped 5.7 percent to the equivalent of 3.84 million barrels of crude a day, the lowest since the third quarter of 2009, according to data compiled by Bloomberg.  Exxon had been expected to post daily output equivalent to 3.96 million barrels, based on the average of six analysts’ estimates.

Murphy Oil dropped 6.9 percent. The oil and natural gas company lowered its full-year production forecast as second- quarter earnings trailed analysts’ estimates.

Micron Technology, the largest U.S. maker of memory chips, slumped 6.1 percent. The shares have rallied 40 percent this year. Samsung sank 3.7 percent in Seoul as it posted the lowest quarterly profit since it became the largest mobile-phone producer in 2012.

Kraft Foods Group Inc. lost 6.4 percent after reporting second-quarter sales of $4.75 billion, missing the average analyst projection of $4.83 billion.       Yum! Brands Inc. slid 4.9 percent. The owner of Pizza Hut and KFC said it cut ties with meat supplier OSI Group LLC globally after previously saying it would stop using it China, Australia and the U.S.

Sprint lost 5.3 percent while T-Mobile rallied 6.5 percent amid the prospects of a bidding war. Iliad, the French mobile- phone carrier founded by billionaire Xavier Niel, offered $15 billion in cash for a 56.6 percent stake in T-Mobile to enter the American wireless market.   A bid for T-Mobile would compete with SoftBank Corp. Chairman Masayoshi Son’s planned takeover offer. Son, whose company controls U.S. wireless carrier Sprint, had been planning to acquire T-Mobile for about $40 a share in stock and cash, the equivalent of about $32 billion, people with knowledge of the matter said earlier this month.

Have a wonderful evening everyone.

Be magnificent!

Where we suffer we have made it into a personal affair.

We shut out all the suffering of mankind.

Krishnamurti, 1895-1986

As ever,

Carolann

The reward of a thing well done is to have done it.

-Ralph Waldo Emerson, 1803-1882

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

Senior Vice-President &

Senior Investment Advisor

Queensbury Securities Inc.,

St. Andrew’s Square,

Suite 340A, 730 View St.,

Victoria, B.C. V8W 3Y7