January 6, 2016 Newsletter

Dear Friends,

Tangents:

Carnivale season begins today…

It is also Three Kings Day or Twelfth Day, also known as the Epiphany (from the Greek, epiphaneia, meaning “appearance” or “manifestation.”  It is in commemoration of the manifestation of Christ to the Wise Men from the East.  It also marks the official ending of Christmas, as the twelfth day after December 25^th.  Tradition calls the three Magi, Melchior, Gaspar and Balthazar; the first offered gold as the emblem of royalty, the second, Frankincense, in token of divinity and the third, myrrh, in prophetic allusion to the persecution unto death that awaited.  Melchior means “my king of light” from the Hebrew, malki-or, Gaspar, which is the same name as Jasper, has been derived from the Old Persian Kansbar, “treasurer” and Balthazar is a corrupt form of the Aramaic name Belshazzar, itself from Babylonian Belu-sharu-usur, “Bel protect the king.”

Among the ancient Medes and Persians the Magi were members of a priestly caste credited with great occult powers, and in Camoens’ Lusiad (1572) the term denotes Indian Brahmans.  Ammianus Marcellinus says the Persian magi derived their knowledge from  the Brahmans of India, and Arianus expressly calls the Brahmans “magi.”

All over Orthodox Europe today, celebrations of the epiphany occur:

People parade through the streets as part of celebrations on Three Kings Day in downtown Vilnius, Lithuania, Wednesday. Epiphany, the 12th night of Christmas, marks the day the three wise men visited Christ. Mindaugas Kulbis/AP

PHOTOS OF THE DAY

Simon Ammann of Switzerland soars through the air during the first competition round of the final jumping at the 64th four-hills ski jumping tournament in Bischofshofen, Austria, Wednesday. Dominic Ebenbichler/Reuters

Members of the Edo Firemanship Preservation Association display their balancing skills atop bamboo ladders during a New Year demonstration by the fire brigade in Tokyo Wednesday. Yuya Shino/Reuters

Market Closes for January 6^th, 2016

International Markets

Bonds

Currencies

Commodities

Market Commentary:

Canada

By Eric Lam

     (Bloomberg) — The materials trade that battered Canadian stocks through much of last year is proving to be the equity market’s saving grace at the start of 2016.

     A 7.2 percent rally among gold producers in the Standard & Poor’s/TSX Composite Index so far this year has softened the impact from waves of negative news that have roiled major markets elsewhere. The benchmark Canada stock gauge is still down for the sixth straight day as energy shares led losses.

     Investors seeking a haven from turmoil in the market are turning once again to gold as the metal posted its longest winning streak since October, buoyed by the selloff in equities and North Korea’s nuclear test. Barrick Gold Corp. jumped 4.6 percent. Gold producers in the S&P/TSX have declined for five straight years.

     “People now are getting legitimately concerned and wondering where can you go?” said Bruce Campbell, a fund manager at StoneCastle Investment Management in Kelowna, British Columbia. His firm manages about C$100 million. 

     Campbell is keeping his cash positions out of the market for now while waiting for more economic stability. “You start to wonder what the consensus trade is and you have to start looking the other way and what’s going to change,” he said. “‘Treasuries are low and the stock markets are down so let’s hold gold.”’

     The Canadian benchmark, one of the worst-performing markets in the developed world in 2015, has lost only 2.2 percent in three days of trading, outperforming stock gauges in Germany and the U.S. The index has posted the sixth-smallest loss this year out of 24 developed equity markets tracked by Bloomberg. Valuations of Canadian stocks have fallen 13 percent from an April high, to 19.7 times earnings.

     The S&P/TSX dropped 193.34 points, or 1.5 percent, to 12,726.80 at 4 p.m. in Toronto, about 30 index points away from a two-year low. Global stocks retreated to a three-month low as Brent crude plunged to an 11-year nadir. The Bloomberg Commodity Index slid a third straight day.

     China’s central bank lowered the reference rate for the yuan, pushing the currency to a five-year low and raising concern about the economic health of the world’s second-largest economy. China rocked financial markets when it last devalued the currency in August, sparking a rout in emerging-market currencies and stocks. Canada’s dollar touched a 12-year low as bets mount the Bank of Canada will drop interest rates to a record low this year. China is Canada’s second-largest trading partner after the U.S.

     Encana Corp. and Canadian Natural Resources Ltd. fell at least 4.3 percent as all 55 members of the S&P/TSX Energy Index retreated. The industry, the worst-performing in the broader S&P/TSX last year, fell 3.2 percent today, for the most in three weeks. Crude in New York dropped to less than $34 a barrel after supplies at the U.S. hub rose to a record.

     Royal Bank of Canada and Toronto-Dominion Bank fell at least 1.6 percent as financial services stocks sank 1.7 percent as a group, for a three-month low.

     Magna International Inc., the largest North American auto- parts supplier, fell a seventh straight day to match the longest losing streak since April, and Linamar Corp. tumbled 5.2 percent to a November low. U.S. automakers Ford Motor Co. and General Motors Co. fell in New York yesterday after missing December sales estimates, and extended declines Wednesday.

     Valeant Pharmaceuticals International Inc. rose 2.1 percent for a second day of gains. The drugmaker named former Chief Financial Officer Howard Schiller to run the company while Chief Executive Officer Michael Pearson remains hospitalized with severe pneumonia. Pearson is on medical leave and the timing of his return remains uncertain, the company said in a statement.

US

By Oliver Renick and Dani Burger

     (Bloomberg) — U.S. stocks tumbled to three-month lows, following equities around the world after China weakened its currency, stoking investor concern that a slowdown in the world’s second-largest economy will damp global growth.

     Energy and raw-material companies in the Standard & Poor’s 500 Index led the selloff, losing at least 2.6 percent as China’s move revived the angst that sent financial markets into turmoil last summer. Chevron Corp. declined 4 percent, while copper producer Freeport-McMoRan Inc. slid 8.1 percent. Seven of the benchmark’s 10 main industries dropped at least 1 percent.

     The S&P 500 lost 1.3 percent to 1,990.26 at 4 p.m. in New York, trimming a drop of as much as 1.9 percent while sliding to its lowest level since Oct. 6. The Dow Jones Industrial Average fell 252.15 points, or 1.5 percent, to 16,906.51, bringing its three-day loss to 3 percent, its worst start to a year since 2008. The Nasdaq Composite Index dropped 1.1 percent. About 8.2 billion shares traded hands on U.S. exchanges, 17 percent higher than the three-month average.

     “This is risk aversion right now,” said Benjamin Dunn, president of Alpha Theory Advisors, which works with hedge funds overseeing about $6 billion. “Not a lot of people had conviction coming into the year after a violently flat to down year, and now we’re perhaps getting confirmation that China is as bad as people think. We’ve lost the tailwinds from the Fed and investor enthusiasm, and this adds to the mosaic of fear that’s out there right now.”

     China’s central bank set the yuan’s reference rate at an unexpectedly weak level, adding to anxiety about an economic slowdown that has dominated markets this week. The S&P 500 on Monday kicked off 2016 with its worst start in 15 years. Adding to geopolitical worries, North Korea claims it successfully tested its first hydrogen bomb, which follows a recent buildup of tension between Saudi Arabia and Iran.

     Commodity producers fell amid speculation that weakness in China would weigh on demand for raw materials. Brent crude oil dropped below $35 a barrel to its lowest since 2004, while West Texas Intermediate futures lost more than 5 percent. Apache Corp. and Murphy Oil Corp. tumbled 11 percent to the steepest losses in seven years.

     China’s currency devaluation last August triggered a global rout that drove the S&P 500 to its first correction in four years, after it had reached an all-time high as recently as May. Now, UBS Group AG’s technical strategists predict the U.S. benchmark will enter a bear market as early as this year.                        

     The S&P 500 has fallen 2.6 percent in the first three days of the year. That’s better than the 2.7 percent plunge to start 2015, which marked the worst opening since 2008. The index swung wildly last January before ending the month lower by 3.1 percent. The poor start to 2016 has left the benchmark index 6.6 percent below its all-time high set in May.

     Sentiment has turned more cautious on stocks after the Federal Reserve’s first interest-rate increase since 2006 and forecasts for little to no growth in corporate earnings until the spring. Fed officials have stressed that while the pace of future hikes will be gradual, it will depend on progress in economic data.

     A report Wednesday showed companies added more workers than projected in December, indicating the job market had momentum as 2015 came to a close. Separate data showed service companies continued to outperform their manufacturing counterparts last month as orders and employment picked up. Another report said factory orders in November fell, in line with forecasts from economists surveyed by Bloomberg.

     Equities offered little reaction to the Fed’s latest meeting minutes, which showed some policy makers saw the decision to raise interest rates as a “close call.” Minutes from the December gathering said “almost all” of the rate-setting committee’s participants were satisfied the criteria for tighter policy had been met.                     

     The Chicago Board Options Exchange Volatility Index rose 6.5 percent to 20.59, after earlier surging as much as 13 percent. The measure of market turbulence known as the VIX jumped nearly 14 percent Monday to a three-week high, before slipping 6.6 percent yesterday.

     “I don’t know we’ll see a panic unless we see it extend for several more days,” said David Spika, global investment strategist for GuideStone Capital Management. “We started the year with a low level of conviction. We’ve conditioned our clients for much higher levels of volatility — to expect the market to go straight up is not very smart.”

     While investors cope with turbulence sparked by China, another source of consternation is looming as the corporate earnings season for 2015’s final quarter soon begins. Alcoa Inc. is scheduled to report results on Monday, with JPMorgan Chase & Co. and Intel Corp. also due next week. Analysts forecast profits for companies in the S&P 500 fell 6.1 percent last quarter.

     Energy companies in the benchmark index, which are forecast to post a 68 percent drop in fourth-quarter earnings, were the hardest hit group Wednesday, falling 3.6 percent to the lowest level since August.                       

     Ford Motor Co. and General Motors Co. continued their losing streaks, down at least 3.5 percent after sales reports yesterday disappointed. GM fell for an eighth day, the longest stretch in five months. AutoNation Inc. tumbled 11 percent, the most since 2009, after saying it expects to report significant margin declines for the fourth quarter amid a tougher sales environment.

     “Sentiment right now is tarnished partially over earnings but also because the pace of global growth is slow and geopolitical tensions are rising,” said Terry Sandven, who helps oversee $126 billion as chief equity strategist at U.S. Bank Wealth Management in Minneapolis. “In the absence of earnings visibility and given global headwinds, we’re in store for a market going sideways to down.”

     Among the few bright spots Wednesday, Netflix Inc. jumped 9.3 percent, the most since July and the online video company’s first gain in five days. It began selling its streaming service in India and more than 100 other countries, a major step toward its goal of becoming the first global online television service.

Have a wonderful weekend everyone.

Be magnificent!

How can we be free to look and learn when our minds from the moment we are born

to the moment we die are shaped by a particular culture in the narrow pattern of “me?”

For centuries we have been conditioned by nationality, caste, class, tradition,

religion, language, education, literature, art, custom, convention,

propaganda of all kinds, economic pressure, the food we eat, the climate we live in,

our family, our friends, our experience – every influence you can think of –

and therefore our responses to every problem are conditioned.

Are you aware that you are conditioned?

Krishnamurti

As ever,
 

Carolann

Expect problems and eat them for breakfast.

                              -Alfred A. Montapert

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