April 18th, 2011 Newsletter
Dear Friends,
Today is the 100th Anniversary of The Fairmont Hotel in San Fransisco.
1907 view of the Fairmont Hotel in San Fransisco
2011 view of Fairmont hotel in San Fransisco
Wikie, a killer whale, swims with her calf in Marineland aquatic park in Antibes, southeastern France. Wikie, who was artificially inseminated at the aquatic park by a killer whale donor from San Diego, gave birth last month to a female calf after an 18-month period of gestation
Market Commentary:
Canada
By Matt Walcoff
April 18 (Bloomberg) — Canadian stocks fell for a third day as Standard & Poor’s changed its outlook on the United States’ credit ratings to “negative” and oil and metals producers dropped on falling commodity prices.
Suncor Energy Inc., Canada’s largest oil and gas producer, lost 2.2 percent after Saudi Oil Minister Ali al-Naimi said the “market is oversupplied.” Toronto-Dominion Bank, the country’s second-biggest lender by assets, declined 1 percent after S&P reduced its outlook on the U.S. from “stable,” citing the country’s budget deficit. BlackBerry Research In Motion Ltd.gained 3.3 percent after Barron’s said the shares may double.
The Standard & Poor’s/TSX Composite Index decreased 96.79 points, or 0.7 percent, to 13,702.33, the lowest close since March 16.
“It brings into focus there’s some hard choices to be made, and nobody knows if the U.S. is being run by adults or petulant children,” said David Baskin, president of Baskin Financial Services Inc. in Toronto, which manages C$400 million ($414 million). “The U.S. is the biggest economy in the world, and 75 percent of our exports go there.”
The S&P/TSX fell for the first time in five weeks last week as the International Monetary Fund cut its growth forecast for the U.S. and investors speculated China would tighten credit to fight inflation. The People’s Bank of China increased banks’ reserve requirements for the fourth time this year yesterday.
‘Material Risk’
In a public statement, S&P said “there is a material risk that U.S. policymakers might not reach an agreement on how to address medium- and long-term budgetary challenges by 2013.”
The U.S. projects its deficit will total 10.9 percent of gross domestic product this year. President Barack Obama has set a target of reducing the deficit to 2.5 percent of GDP by 2015.
The S&P/TSX Energy Index dropped to the lowest since Jan.28 as crude declined for the first time in four days.
Suncor lost 2.2 percent to C$41.14. Talisman Energy Inc., an oil and gas producer with operations in North America, the North Sea and Indonesia, slumped 1.5 percent to C$22.04. Cenovus Energy Inc., Canada’s fifth-biggest energy company, decreased 2.1 percent to C$35.18.
An index of S&P/TSX financial companies retreated to the lowest level in a month. TD fell 1 percent to C$81.28. Royal Bank of Canada, the country’s largest lender by assets, slipped 0.5 percent to C$59.73. Manulife Financial Corp., North America’s fourth-biggest insurer, dropped 1.6 percent to C$16.18.
Metal, Coal Producers
S&P/TSX base-metals and coal producers fell for a sixth day, the longest streak of declines since May, after China raised banks’ reserve requirement to a record 20.5 percent from 20 percent. Copper also slipped for a sixth day.
Teck Resources Ltd., Canada’s largest base-metals and coal producer, retreated for a ninth day, the longest streak of losses since 2006, falling 2.1 percent to C$48.77. First Quantum Minerals Ltd., the country’s second-biggest publicly traded copper producer, decreased 1.9 percent to C$116.80. Grande Cache Coal Corp., which mines in Alberta, sank 7.5 percent to C$8.31.
Capstone Mining Corp., which produces copper in Mexico, slumped 4.3 percent to C$4.03 after agreeing to buy Far West Mining Ltd. for C$725 million in cash and stock. Far West, which is developing a mine in Chile, surged 7.3 percent to a record C$8.24.
Gold, U.S. Dollar
Precious-metals producers retreated as the U.S. dollar rose as much as 1.9 percent, the most since November, against the euro. Greek and Portuguese bond yields extended records on concern about the possibility of sovereign-debt defaults.
Kinross Gold Corp., Canada’s third-largest gold producer, fell 2.5 percent to C$14.67. Silver reseller Silver Wheaton Corp. dropped 2 percent to C$40.10. First Majestic Silver Corp., which mines in Mexico, declined 3.5 percent to C$21.91. Eastern Platinum Ltd., which mines in South Africa, tumbled 15 percent, the most since November 2008, to C$1.10 after saying first-quarter production fell 17 percent from last year.
Lumber producers Canfor Corp. and West Fraser Timber Co. dropped after Paul C. Quinn, an analyst at Royal Bank of Canada, cut his ratings on the shares to “underperform” from “sector perform.” In a note to clients, Quinn cited the decline in lumber prices and rise of the Canadian dollar.
West Fraser, Canada’s largest lumber producer, declined 6.8, the most since August 2009, to C$54.64. Canfor plunged 9.8 percent, also the most in 20 months, to C$12.56.
RIM rose 3.3 percent from a five-month low to C$52.84 after Barron’s said the shares may gain as the company releases new products. Canada’s biggest technology company has fallen eight- straight weeks, the most since 2006, as it forecast profit below analysts’ estimates and its PlayBook tablet generated negative reviews from some media.
US
By Rita Nazareth, Cordell Eddings and Inyoung Hwang
April 18 (Bloomberg) — U.S. stocks sank the most in a month, oil slid and gold rose to a record after Standard & Poor’s cut the American credit outlook to negative and concern about Europe’s debt crisis grew. Greek two-year bond yields surged to 20 percent for the first time since at least 1998.
The S&P 500 tumbled 1.1 percent to 1,305.14 at 4 p.m. in New York, its worst drop since March 16, and the Stoxx Europe 600 Index slid 1.7 percent. Ten-year Treasury notes gained, sending yields down four basis points to 3.37 percent, amid speculation S&P’s move will motivate lawmakers to pass a budget that requires less borrowing. The euro lost 1.4 percent to $1.4234 and Portuguese debt-insurance costs reached a record.
The S&P GSCI index of commodities slid 1.2 percent as oil sank.
S&P assigned a one-in-three chance it will lower the U.S. rating in the next two years, saying the credit crisis and recession that began in 2008 worsened a deterioration in public finances. Budget differences among Democrats and Republicans remain wide and it may take until after the 2012 elections to get a proposal that addresses the concern, S&P said.
The fact that the Dow and S&P and Nasdaq fell so sharply after they came out and said that sends a warning to politicians that there are going to be dire consequences if they don’t get their act together,” said Barton Biggs, who runs New York-based hedge fund Traxis Partners LP, in an interview on Bloomberg Television’s “Street Smart.” “I think they will get their act together. We have a system of government that is painful, but in the long run does the right things.”
Broad Decline
Gauges of energy and financial companies had the biggest declines among the 10 main groups in the S&P 500, all of which dropped. Caterpillar Inc., Bank of America Corp. and Alcoa Inc. lost at least 2.3 percent to lead declines in 29 of 30 stocks in the Dow Jones Industrial Average, which slid 140.24 points, or 1.1 percent, to 12,201.59. Gap Inc. slumped 3 percent after Goldman Sachs cut its rating on the shares to “sell” from “neutral” and said it sees long-term declines in comparable- store sales. The Nasdaq Composite Index lost 1.1 percent.
The S&P 500 has surged 93 percent from its bear-market low in March 2009 amid higher-than-estimated earnings and government stimulus measures. The Federal Reserve and U.S. agencies have lent, spent or guaranteed about $8.2 trillion to lift the economy from the worst slump since the Great Depression, according to data compiled by Bloomberg.
Global Retreat
The MSCI All-Country World Index of shares in 45 countries tumbled 1.5 percent. Global stocks also slid after China increased banks’ reserve requirements to lock up cash and cool inflation, and central bank Governor Zhou Xiaochuan said monetary tightening will continue for “some time.”
Thirty-year Treasury yields lost two basis points to 4.45 percent. Two-year yields slipped three basis points to 0.67 percent. The dollar slid 0.6 percent to 82.66 yen, the lowest level of the month, while still strengthening against 14 of 16 major peers.
The cost to protect U.S. corporate bonds from default rose to the highest level this month. The Markit CDX North America Investment Grade Index, which investors use to hedge against losses on corporate debt or to speculate on creditworthiness, added 1.6 basis points to a mid-price of 95.62 basis points, according to index administrator Markit Group Ltd.
S&P cut its long-term U.S. outlook from stable, while affirming its ‘AAA’ long-term and ‘A-1+’ short-term ratings.
‘Fiscal Destiny’
“This is another indication of the need for the U.S. to better control its fiscal destiny, both for its sake and that of the global economy,” said Mohamed El-Erian, chief executive officer at Newport Beach, California-based Pacific Investment Management Co., the world’s biggest manager of bond funds.
“Absent credible medium-term fiscal reform, every segment of U.S. society would be faced with higher borrowing costs, a weaker dollar and a less bright outlook for employment, investment and growth.”
S&P said in its statement that there is a “material risk” U.S. officials may not reach an agreement on how to address budgetary challenges by 2013.
Under President Barack Obama’s fiscal year 2012 budget, released in February, the total debt subject to the ceiling would be $20.8 trillion in 2016. The plan House Republicans approved April 15, written by Budget Committee Chairman Paul Ryan, would need a debt ceiling of at least $19.5 trillion, according to data compiled by Bloomberg Government.
`Shot Across the Bow’
“It’s truly a shot across the bow and a message to Washington, which has been clowning around on this and playing politics when they should toss ideology aside and focus on achievement,” said David Ader, head of government bond strategy at Stamford, Connecticut-based CRT Capital Group LLC. “It’s a big deal. They’ve put us on notice.”
Treasury Assistant Secretary Mary Miller said today that S&P’s outlook on the U.S. credit rating “underestimates” the nation’s leadership.
“We believe S&P’s negative outlook underestimates the ability of America’s leaders to come together to address the difficult fiscal challenges facing the nation,” Miller said in a statement.
About 18 stocks declined for every one that gained in the Stoxx Europe 600. Commerzbank AG, Spain’s biggest lender, and France’s Societe Generale SA fell more than 3.8 percent. Smith & Nephew Plc, which had been identified as a bid target for Johnson & Johnson by analysts at Sanford C. Bernstein & Co., Morgan Stanley and Investec Securities, declined 3 percent after Synthes Inc. said it’s in talks about a possible takeover by J&J.
Euro, Greek Bonds
The euro depreciated against 13 of its 16 major counterparts, losing 1.9 percent versus the yen. Portugal’s 10- year yield climbed to a record 584 basis points above benchmark German bunds while the Greek spread reached 1,132 basis points, the most since Bloomberg began collecting the data in 1998.
Credit-default swaps insuring Greek bonds jumped 66 basis points to 1,221, signaling a 64.5 percent chance of a default within five years, while those for Portugal climbed 18.5 basis points to 616.5, according to CMA.
Restructuring of Greece’s debt is inevitable and only a question of time, Die Welt cited a Greek government minister as saying, without naming the minister. Greece isn’t discussing restructuring its debt, Finance Minister George Papaconstantinou said April 16 in Washington. European Central Bank Governing Council members signaled over the weekend they will keep tightening monetary policy this year to curb inflation.
‘A Lot of Risks’
“The European story has a lot of risks to it as Germany is very strong but peripheral Europe is clearly quite weak, so the last thing they need is higher interest rates,” Adrian Mowat, JPMorgan Chase & Co.’s Hong Kong-based chief Asia and emerging- markets strategist, said in a Bloomberg Television interview.
The yield on Germany’s 10-year bund declined 13 basis points to 3.25 percent. The 10-year gilt yield slipped four basis points to 3.56 percent. The pound fell 0.4 percent versus the dollar after Ernst & Young LLP’s Item Club cut its economic outlook for the U.K.
Oil fell for the first time in four days in New York after Saudi Arabia, the world’s biggest crude exporter, said the global market has enough supplies to meet demand. Crude for May delivery slumped 2.3 percent to $107.12 a barrel.
Cocoa for July delivery declined 3.2 percent to $3,057 a metric ton on ICE Futures U.S. in New York amid concern demand for commodities may slow as China fights inflation. Sugar and coffee also fell, while wheat, silver and corn gains. Gold for June delivery climbed 0.5 percent to $1,492.90.
Have a wonderful evening everyone.
All the religions of the world, while they may differ in other respects, unitedly proclaim that nothing lives in this world but Truth.
– Mohandas Gandhi
Be magnificent!
As ever,
Nishma for Carolann
Carolann Steinhoff, B.Sc., CFP, CIM, FCSI
Senior Vice-President &
Senior Investment Advisor