October 21, 2015 Newsletter

Dear Friends,

Tangents:

I attended Barron’s investment conference on Monday and The Economist’s Annual Finance & Economics Forum on Tuesday, both taking place in NYC.  The focus this year at the Buttonwood (The Economist’s) conference was “The Valley Meets the Street” – what’s new and what’s coming in fintech.  It is really amazing, dazzling even.  The final event of the day was an Economist debate: This house believes millennials will stop using banks.  Both the Pro and the Con panels made very convincing arguments, so there is much to contemplate. 

Some catching up to do here, so I’ll tell you more about it in the next couple of days…

PHOTOS OF THE DAY Sergio Marchionne (c.) points at a Ferrari SF15-T parked in front of the New York Stock Exchange in honor of Ferrari’s IPO, Wednesday. The parent company, mass-market carmaker Fiat Chrysler Automobiles, is selling Ferrari shares under the stock name RACE. Mark Lennihan/AP

A detail of the vaulting of the Sagrada Familia Basilica, designed by architect Antoni Gaudi, in Barcelona, Spain, Wednesday. Barcelona’s breathtaking Basilica has begun its final phase of raising six immense towers that officials say will make it Europe’s tallest religious building. Manu Fernandez/AP

Market Closes for October 21^st, 2015

International Markets

Bonds

Currencies

Commodities

Market Commentary:

Canada

By Peter Henderson

     (Canadian Press) — TORONTO — The Toronto stock market dropped by triple digits and the loonie contracted sharply against the greenback after a pullback in commodity prices and a disappointing read on the economy from the Bank of Canada.

     The Toronto Stock Exchange’s S&P/TSX index ended the day down 137.73 points at 13,704.19, with the health-care subsector posting the biggest loss on the day, down 6.41 per cent.

     Valeant Pharmaceuticals stock plunged 19.2 per cent to $154.21 on Wednesday after short-seller research firm Citron Research compared the Canadian pharmaceutical company to the collapsed energy giant Enron and accused it of creating a network of phantom pharmacies to fool auditors.

     The drug company denied the allegations.

     Valeant shares have fallen from a peak of $347.84 in August, with American political figures including Hillary Clinton turning their focus in the last month to price increases in the pharmaceutical industry.

     Kash Pashootan, portfolio manager at First Avenue Advisory in Ottawa, a Raymond James company, said investors can do all the research in the world but they can never really predict a company’s fortunes.

     “What you’re seeing is another reminder of why diversification is so important in any investing,” he said.

     In New York, the Dow Jones average of 30 stocks closed down 48.50 points at 17,168.61, while the broader S&P 500 index fell 11.83 points to 2,018.94 and the Nasdaq index dropped 40.85 points to 4,840.12.

     Pashootan said that ever since the American economy began to recover in 2010, North American equity markets have shown strong results.

     Now, he said, the market is changing as investors become more aware that those returns are unlikely to last.

     “After five years of phenomenal gains in the markets, especially the U.S. markets, it’s unrealistic to expect that for the next five years growth will come at the same magnitude,” he said.

     On the commodity markets, the December gold contract ended trading down $10.40 to US$1,167.10 an ounce, the December crude contract fell US$1.09 to US$45.20 a barrel and the November natural gas contract fell 7.2 cents to US$2.404 per thousand cubic feet.

     Pashootan said the oil market is still suffering from worldwide oversupply and that he foresees a rough time for oil company stocks as they continue to adjust to the lower oil price.

     Many oil companies have been protected by the long-term hedges they invest in as insurance against an oil price decline and many of those hedges are beginning to expire, he said.

     “Then they will really feel the impact of selling oil into a market at half the price of what they were used to selling it at,” Pashootan said.

     The loonie fell by 0.91 of a cent to 76.24 cents US.

     The Bank of Canada announced on Wednesday that it would keep its key overnight interest rate at 0.5 per cent.

     The bank said in its economic forecast that it will take several years for the Canadian economy to adjust to the impact of persistently low commodity prices.    

US

By Anna-Louise Jackson and Dani Burger

     (Bloomberg) — U.S. stocks declined after Valeant Pharmaceuticals International Inc. took health-care stocks on a wild ride, distracting investors from one of the busiest days for corporate earnings so far this season.

     Equities whipsawed between gains and losses after a short- seller takedown on Valeant sent the shares plunging, only to then rebound after the company disputed the report and CNBC said investor William Ackman added 2 million shares to his stake in the company. Mixed earnings reports from General Motors Co. to Chipotle Mexican Grill Inc. gave few definitive signals on the health of the economy.

     The Standard & Poor’s 500 Index fell 0.6 percent to 2,018.94 at 4 p.m. in New York, the most in a week after earlier rising as much as 0.4 percent. The Dow Jones Industrial Average lost 48.50 points, or 0.3 percent, to 17,168.61. The Nasdaq Composite Index dropped 0.8 percent as biotechnology shares slumped for a second day. About 6.8 billion shares traded hands on U.S. exchanges, 8 percent below the three-month average.

     “We were looking for biotech and health-care as a form of leadership to stabilize the market and this news certainly doesn’t help,” said Andrew Burkly, head of institutional portfolio strategy at Oppenheimer & Co. in New York. “That was the component we were missing on the rally and this sets that back.”

     The S&P 500 was unable to make any forward progress for a second session after reaching a two-month high. Equities have been recovering from a summer selloff and the benchmark’s first correction in four years, which was fed by anxiety over China’s slowdown and confusion on the Federal Reserve’s intentions toward interest rates. The S&P 500 is up 5.2 percent this month, rebounding from its worst quarter since 2011.

     The Chicago Board Options Exchange Volatility Index rose 6 percent Wednesday to 16.70. The measure of market turbulence known as the VIX pared its monthly drop to 32 percent, on track for its steepest since July.

     Investors are looking to corporate America for clues on the strength of the economy as the Fed considers raising interest rates for the first time in almost a decade. The probability of a Fed rate increase this year is about 32 percent, according to data compiled by Bloomberg. March is the first month for which traders price in at least even odds of a boost.                       

     Some 46 S&P 500 companies are due to post results on Thursday, including Caterpillar Inc., Dow Chemical Co., 3M Co. and Amazon.com Inc. Of those that have reported so far, about 47 percent have outpaced sales estimates while 74 percent have beaten earnings targets. Profits are expected to fall 6.7 percent this quarter, according to data compiled by Bloomberg.

     “Earnings reports have been more good than bad so far, but the real meat of earnings will be in the next two weeks,” said Michael James, managing director of equity trading at Wedbush Securities Inc. in Los Angeles. “There’s not enough to draw from to make a broad conclusion yet.”

     Chipotle slid to a three-month low as its weaker-than- expected profit renewed concerns about escalating costs and slowing growth. Higher labor costs and marketing expenses squeezed profit at the Mexican-food chain last quarter.

     Chipotle’s decline dragged down other eatery stocks. The Bloomberg Limited-Service Restaurant Index fell 2.2 percent, while Jack in the Box Inc. and Papa Murphy’s Holding Inc. both lost more than 4.3 percent. Consumer discretionary stocks erased earlier automaker-led gains as Chipotle weighed and Harley- Davidson Inc. sank 2.5 percent to extend yesterday’s 14 percent tumble.

     Valeant slumped 19 percent, trimming an earlier 40 percent plunge, after a stock-commentary site run by a short seller accused the company of an Enron-like strategy of recording fake sales by using phony customers. Health-care stocks sank 0.9 percent, trimming most of an earlier 2.5 percent drop. The Nasdaq Biotechnology Index declined 0.5 percent after falling as much as 3.5 percent.

     St. Jude Medical Inc. tumbled 8.9 percent, the most since 2012, after it reported third-quarter revenue that missed the consensus of analysts’ estimates and trimmed 2015 guidance. Endo International Plc fell 13 percent, its biggest decline since 2009.

     Yahoo! Inc. and EMC Corp. lost more than 5.2 percent to pace a slump among technology shares. Yahoo reported its biggest quarterly sales drop since 2009 and gave a fourth-quarter revenue forecast that missed analysts’ estimates. EMC’s results met analysts’ reduced estimates, while its shares were hurt in part by a 19 percent drop by VMware Inc., of which EMC owns 81 percent. VMware tumbled amid a weak gauge of future revenue.

     Energy and raw-materials fell more than 0.9 percent, the session’s worst performers among the S&P 500’s 10 major groups. Range Resources Corp. and Consol Energy Inc. decreased more than 6.5 percent as oil slid after a government report showed U.S. crude inventories grew by the most in six months. Alcoa Inc. lost 3.2 percent, and Freeport-McMoRan Inc. declined 2.4 percent before its earnings report tomorrow.

     GM had its best gain since 2012 after its quarterly profit was boosted by strong light-truck sales in the U.S. and stable operations in China. The company credited strong margins in North America and only a slight decline in China, where auto sales have struggled.

     Boeing Co. climbed 1.7 percent to the highest since Aug. 19. The company reassured investors that the aerospace market remains robust after raising its full-year profit forecast amid rising jetliner deliveries and a slowdown in 787 Dreamliner costs.

     The two acquisitions in the semiconductor industry helped the Philadelphia Stock Exchange Semiconductor Index eke out a gain to its highest since July. KLA-Tencor Corp. rose 19 percent after Lam Research Corp said it would acquire the company in a $10.6 billion cash-and-stock deal. SanDisk Corp. added 2.1 percent and advanced for a sixth day after Western Digital Corp. agreed to pay about $19 billion for the storage maker.

     The pacts added to what was already a record year for chip deals — a total of $76 billion before Wednesday.

Have a wonderful evening everyone.

Be magnificent!

I hold that true education of the intellect can only come through a proper exercise

and training of the bodily organs, e.g., hands, feet, eyes, ears, nose, etc.

In other words an intelligent use of the bodily organs in a child provides

the best and quickest way of developing his intellect.

But unless the development of the mind and body goes hand in hand

with a corresponding awakening of the soul,

the former alone would prove to be  a poor lopsided affair.

By spiritual training I mean education of the heart.

Mahatma Gandhi

As ever,

Carolann

Nobody got anywhere in the world by simply being content.

                                           -Louis L’Amour, 1908-1988

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

Portfolio Manager &

Senior Vice-President

Queensbury Securities Inc.,

St. Andrew’s Square,

Suite 340A, 730 View St.,

Victoria, B.C. V8W 3Y7