August 1, 2014 Newsletter

Dear Friends,

Tangents:

Happy August!

August: formerly called Sextilis in the Roman calendar, as the sixth month from March, when the year began.  The name was changed to Augustus in 8 BC in honor of Augustus [ 63 BC – 14 AD ], the first Roman emperor, whose “lucky month” it was.  It was the month in which he began his first consulship, celebrated three triumphs, received the allegiance of the legions on the Janiculum, reduced Egypt and ended the civil wars.

The Old English name for August was Weodmonath, “weed month” weod meaning grass or herbs.  In the French Revolutionary calendar the equivalent month was Thermidor – “gift of heat” – which lasted from July 20^th to August 18^th.

On this day, in 1990, the World Wide Web was established.

August 1, 1789, US customs was established.

Photos of the Day

The art installation ‘Atlantis’ by Tea Makipaa is on display in the pond of the Kunsthalle Rostock museum in Rostock, Germany. The installation is part of the Finnish contemporary art exhibition ‘Nature and More.’ Bernd Wuestneck/dpa/AP

In a multiple exposure photo, Scott Morgan of Canada performs a vault during the men’s gymnastics apparatus final at the 2014 Commonwealth Games in Glasgow, Scotland. Russell Cheyne/Reuters

A child plays at an interactive playground called ‘Tangle,’ where children create art by weaving colorful elastic bands around poles at a skating rink in the Marina Bay Sands mall in Singapore. Edgar Su/Reuters

Market Closes for August 1^st, 2014

International Markets

Bonds

Currencies

Commodities

Market Commentary:

Canada
By Eric Lam

Aug. 1 (Bloomberg) — Canadian stocks fell, completing the worst two-day slump since January, as crude oil prices declined to offset a gain in gold after U.S. employers added fewer jobs than forecast.

Element Financial Corp. and AGF Management Ltd. lost more than 1.9 percent to pace declines among financial stocks. Vermilion Energy Inc. and Enerplus Corp. fell at least 2 percent. Eldorado Gold Corp. jumped 6.9 percent after raising its production forecast. Pacific Rubiales Energy Corp. rose 5.7 percent after Bloomberg News reported executives are considering buying the company to fend off a potential outside offer.

The Standard & Poor’s/TSX Composite Index fell 115.48 points, or 0.8 percent, to 15,215.26 at 4 p.m. in Toronto, giving it a weekly decline of 1.6 percent. The index fell 1.3 percent yesterday, the first time it moved by 1 percent or more since April. The benchmark Canadian equity gauge closed at a record high on July 30.

Vermilion Energy lost 3.6 percent and Enerplus Corp. retreated 2 percent. West Texas Intermediate crude for September delivery declined 0.3 percent, falling a fifth day. Prices are down 4.1 percent this week, the biggest weekly decline in seven months. U.S. refineries cut their utilization rate last week for the first time in more than a month, according to government data.

Energy stocks in the S&P/TSX tumbled 1.4 percent as a group. Seven of 10 industries in the Canadian stock index retreated on trading volume that was 16 percent greater than the 30-day average.

Eldorado Gold jumped 6.9 percent. Gold for December delivery rose 0.9 percent to $1,294.80 an ounce in New York, after prices fell 3 percent in July as a U.S. equity rally eroded demand for the metal as a haven.

U.S. employers added 209,000 jobs in July, short of the median forecast for 230,000 additions forecast by economists. Wages and hours were unchanged from June. The jobless rate climbed to 6.2 percent as more people entered the labor force.

Pacific Rubiales added 5.7 percent for a third day of gains. Executives hired Banco Itau BBA SA and Citigroup Inc. to arrange a loan and seek partners for a possible management buyout, according to people with direct knowledge of the matter.

The plan is a defensive move after Alfa SAB, the Mexican auto parts and petrochemical company, raised its Pacific Rubiales stake more than 20 times in just over two months, the two people said asking not to be named because talks are private.

US
By Joseph Ciolli and Jacob Barach

Aug. 1 (Bloomberg) — The Standard & Poor’s 500 Index fell for a second day, giving it the biggest weekly drop in two years, as concern over Argentina and Portugal overshadowed data that signaled the Federal Reserve may have leeway to keep rates low.

JPMorgan Chase & Co. and Morgan Stanley slumped more than 2.1 percent as a committee ruled that Argentina’s default will trigger $1 billion of credit-default swaps. LinkedIn Corp. jumped 12 percent after projecting revenue that beat forecasts. Procter & Gamble Co. increased 3 percent as profit topped estimates amid cost reductions.

The S&P 500 fell 0.3 percent to 1,925.15 at 4 p.m. in New York, bringing its weekly loss to 2.7 percent, the worst since June 2012. The Dow Jones Industrial Average declined 69.93 points, or 0.4 percent, to 16,493.37, after erasing its gains for the year yesterday. About 7.3 billion shares changed hands on U.S. exchanges today, 27 percent above the three-month average.

“Whether it’s the Portuguese bank, Argentina or continued unrest in the Middle East, these things are seemingly mattering more to investors now,” Matt McCormick, who helps oversee $11 billion as a fund manager at Cincinnati-based Bahl & Gaynor Inc., said in a phone interview. “All of a sudden, geopolitical things that didn’t matter a few weeks ago are starting to be more relevant concerns, and they’re serving as catalysts to sell. Investors are getting more risk-averse.”

U.S. stocks joined a global selloff yesterday, sending the S&P 500 to its first monthly decline since January, after companies from Exxon Mobil Corp. to Samsung Electronics Co. reported results that disappointed investors, Argentina defaulted and Banco Espirito Santo SA was ordered to raise capital.

Banco Espirito Santo shares were suspended today by Portugal’s securities regulator after they dropped as much as 50 percent in Lisbon. Global financial markets were roiled last month after another holding company in the group missed payments on commercial paper.

Argentina’s failure to pay interest on its bonds is a credit event that will trigger settlement of $1 billion of default insurance, according to the International Swaps & Derivatives Association. Argentina is the first nation to trigger default swaps since Greece restructured its debt in 2012.

The S&P 500, which is still up 4.2 percent this year, has gone without a 10 percent correction since 2011. The benchmark index is down 3.2 percent from a record of 1,987.98 reached on July 24. It trades at 17.5 times the reported earnings of its companies, near the highest level since 2010.

Market volatility is rising after the S&P 500 ended its longest stretch of calm since 1995. 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, rose 0.5 percent today to 17.03. The gauge surged 27 percent yesterday to the highest level since April 11. The volatility measure fell to the lowest since 2007 on July 3.

Stocks fluctuated earlier in the day as data showed employers in the U.S. added more than 200,000 jobs for a sixth straight month in July, the longest such period since 1997. The 209,000 advance fell short of the 230,000 increase forecast by economists.

The jobless rate climbed to 6.2 percent from 6.1 percent in June as more people entered the labor force. Wages and hours were unchanged from June.

Pacific Investment Management Co.’s Bill Gross said the Federal Reserve will remain accommodative with wage growth in the U.S. unchanged.

Wages “are not raging,” Gross, manager of the world’s biggest bond fund, said during a radio interview on “Bloomberg Surveillance” with Tom Keene. “American wages on Main Street are Janet Yellen’s number one concern.”

Concern has grown that the improving economy may force the Fed to raise interest rates sooner than expected. Data earlier this week showed U.S. gross domestic product expanded at a 4 percent annual pace in the second quarter, confirming the Fed’s view that a first-quarter contraction was transitory.

Manufacturing expanded in July at the fastest pace in more than three years, data today showed, signaling U.S. factories will help power the economy after a second-quarter rebound. The Thomson Reuters/University of Michigan’s final sentiment index for July fell to 81.8 from 82.5 in June.

The Fed this week 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.

Fed Bank of Dallas President Richard Fisher said he believes the timing has moved up for the first main interest rate increase from close to zero because of a strengthening economy and higher inflation.

“It would seem to me and I have been arguing this that the date of so-called liftoff has been moved forward,” Fisher said today in a CNBC interview. “I believe personally we have moved that forward significantly,” possibly as soon as “sometime early next year,” he said.

Chevron Corp. and Procter & Gamble are among six S&P 500 members that reported earnings today. Some 76 percent of the 379 companies that have released results this season have beaten analysts’ estimates for profit, while 65 percent have exceeded sales projections.

Seven out of the S&P 500’s 10 main industries dropped as phone and financial shares slumped the most, losing more than 0.8 percent. Consumer-staples companies rallied 0.8 percent.

P&G jumped 3 percent for the biggest advance in the Dow.  Fourth-quarter profit beat analysts’ estimates, helped by cost reductions and an increase in razor prices. A.G. Lafley, who returned as P&G’s chief executive officer last year, has focused on cutting costs and regaining customers in areas such as detergents and beauty.

LinkedIn rallied 12 percent. The company gave a third- quarter sales forecast that topped estimates as the largest professional-networking website rolled out new products to reignite growth.

Expedia Inc. advanced 6.4 percent for the largest increase in the S&P 500. The provider of online travel services reported second-quarter profit of $1.03 per share, more than the average estimate of 76 cents in a Bloomberg survey. Revenue of $1.49 billion also beat projections.

GoPro Inc. slumped 15 percent. The camera maker which sold about $1 billion last year in equipment to surfers, skiers and sky divers reported a net loss of $19.8 million for the second quarter, almost four times bigger than its $5.1 million loss in the year-earlier period.

Have a wonderful weekend everyone.

Be magnificent!

I cannot imagine anything nobler or more national than that for, say, one hour in a day,

we should all do the labor that the poor must do,

and thus identify ourselves with them and through them with all mankind.

Mahatma Gandhi,1869-1948

As ever,

Carolann

Formal education will make you a living; self-education

will make you a fortune.

-Jim Rohn, 1930-2009

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