May 3rd, 2011 Newsletter

Dear Friends,

 All that we are is the result of what we have thought. If a man speaks or acts with an evil thought, pain follows him. If a man speaks or acts with a pure thought, happiness follows him, like a shadow that never leaves him.                   – Buddha

Photo of the day, May 3rd, 2011

Market Commentary:

Canada

By Matt Walcoff

Canadian stocks fell the most in more than seven weeks, led by producers of energy, metals and fertilizer, as commodities dropped after China’s central bank signaled it may tighten credit even as growth cools.

Suncor Energy Inc. (SU), Canada’s largest oil and gas producer, declined 5.6 percent after cutting its production forecast. Goldcorp Inc. (G), the world’s second-biggest gold producer, lost 2.9 percent as the metal slumped the most since March 15. Potash Corp. of Saskatchewan Inc., the world’s largest fertilizer producer by market value, decreased 3.1 percent as corn futures retreated to the lowest price since March 31.

“Commodities are going through a correction,” said Sebastian van Berkom, a money manager at Van Berkom & Associates in Montreal, which manages C$1.6 billion ($1.7 billion). “China is really starting to try to slow down their economy. That will take some enthusiasm off the commodity market for a while.”

The Standard & Poor’s/TSX Composite Index fell 242.14 points, or 1.7 percent, to 13,692.37, the biggest decline since March 10.

The S&P/TSX dropped 1.9 percent from April 8 to yesterday as the Thomson Reuters/Jefferies CRB Commodity Price Index slipped from a 30-month high. Energy and raw-materials companies make up 49 percent of Canadian stocks by market value, according to Bloomberg data.

Inflation Priority

The People’s Bank of China said in a report today that controlling inflation is its top priority. China raised reserve requirements for its largest lenders to a record 20.5 percent last month.

Crude oil dropped 2.2 percent in New York a day before a U.S. supplies report that analysts estimate will show inventories at a six-month high, according to the median forecast in a 

Bloomberg survey. 

Canadian Natural Resources Ltd. (CNQ), the country’s second- largest energy company by market value, declined 2 percent to C$43.20. Talisman Energy Inc. (TLM), which produces oil and gas in North America, the North Sea and Indonesia, lost 2.4 percent to C$22.43 a day before it is to release first-quarter earnings. Petrominerales Ltd. (PMG), which operates in Colombia, decreased 6.4 percent, the most since September, to C$33.91.

Suncor slumped 5.6 percent, the most in 15 months, to C$41.55 after cutting its 2011 production forecast by 30,000 barrels of oil equivalent a day to a range of 520,000 to 570,000 barrels of oil equivalent a day. In a press release, the company cited the conflict in Libya.

Upgrader Maintenance

Investors may also be concerned oil-sands upgrader maintenance will take longer than the company estimates, Phil Skolnick, an analyst at Canaccord Financial Inc., said in an e- mail message. Suncor said today an upgrader at the Syncrude project will undergo six weeks of maintenance in September and October and work on a second upgrader will take place earlier than previously scheduled.

The S&P/TSX Materials Index tumbled the most in seven weeks. Gold futures slipped 1.1 percent as the U.S. dollar gained the most against the British pound since January.

Silver plunged 7.6 percent, completing the biggest two-day slide since October 2008, after CME Group Inc., the owner of the Comex exchange, raised silver margin requirements for the second time in a week. The requirements specify the minimum amount of cash that must be deposited when borrowing from brokers to trade silver futures. 

Goldcorp dropped 2.9 percent to C$48.69 after sinking 5.2 percent yesterday. Eldorado Gold Corp. (ELD), Canada’s fifth-largest gold producer by market value, declined 7.4 percent, the most since June 2009, to C$15.98. China Gold International Resources Corp., which explores for gold in China, tumbled 6.6 percent to a seven-month low of C$4.28.

Corn Declines 

Potash Corp. and Agrium Inc. (AGU) slumped to 2011 lows as corn futures retreated after exchange data showed that Archer Daniels Midland Co., the largest grain processor, delivered 1.96 million bushels of corn against expiring May futures. Potash Corp. lost 3.1 percent to C$51.46. Agrium, a fertilizer producer and agricultural-products retailer, decreased 2.9 percent to C$83.55. 

Thirteen of 16 base-metals and coal producers in the S&P/TSX dropped. China is the world’s largest user of industrial metals.

First Quantum Minerals Ltd. (FM), Canada’s second-largest publicly traded copper producer, declined 3.1 percent to C$129.92. Teck Resources Ltd. (TCK/B), the country’s biggest base-metals and coal producer, lost 2.7 percent to C$50.47. Northern Dynasty Minerals Ltd. (NDM), Anglo American Plc’s partner in the Pebble project in Alaska, sank 4.7 percent to C$12.52.

Canada’s eight-largest banks and three biggest insurers each retreated.

Manulife Financial Corp. (MFC), North America’s fourth-largest insurer, decreased 4 percent to C$16.80 two days before it is to release first-quarter financial results. In a note to clients dated yesterday, Joanne Smith, an analyst at Bank of Nova Scotia, reduced her 2011 earnings forecast for the company, citing the March earthquake in Japan.

US 

By Rita Nazareth and Jeff Sutherland 

U.S. stocks retreated, sending the Standard & Poor’s 500 Index lower for a second straight day, as declines in oil and gold prices drove commodity producers down and Sears Holdings Corp. (SHLD) led a drop in retailers. 

Freeport-McMoRan Copper & Gold Inc. (FCX) and ConocoPhillips paced losses in metal and energy companies, slumping at least 2.1 percent. Sears, the largest U.S. department-store chain, tumbled 9.9 percent after saying it lost money last quarter. Pfizer Inc. (PFE) slid 2.8 percent as sales of its Lipitor cholesterol pill, the world’s best-selling drug, missed estimates. MasterCard Inc. (MA), the second-biggest bank-card network, rallied 2.6 percent after earnings topped analysts’ estimates. 

The S&P 500 declined 0.3 percent to 1,356.62 at 4 p.m. in New York after falling as much as 0.9 percent at 4 p.m. The Dow Jones Industrial Average rose 0.15 point, or less than 0.1 percent, to 12,807.51. Both gauges fell yesterday after rising to the highest levels since 2008 amid higher-than-estimated corporate earnings and economic data. 

“People are taking some chips off the table,” said Michael Strauss, who helps oversee $27 billion as chief investment strategist at Commonfund in Wilton, Connecticut. “We’ve had good numbers, but we also had a good run in the equity markets. In addition, there’s concern about the path of inflation and interest rates. Investors are treating things here more cautiously.”

Earnings Scorecard 

The S&P 500 has risen 7.9 percent this year. Earnings-per- share beat estimates at 74 percent of the 336 companies in the S&P 500 that reported results since April 11, according to data compiled by Bloomberg. 

The MSCI Emerging Markets Index dropped 1.7 percent today as India’s central bank raised interest rates by a more-than- estimated 0.5 percentage point after forecasting inflation will stay at an “elevated level.”

Stocks fell even after orders placed with U.S. factories rose 3 percent in March on increasing demand for machinery and computers, topping the median economist estimate in a Bloomberg News survey for a gain of 2 percent.

Sears Holdings declined 9.9 percent to $75.88, the worst drop in almost a year. The retailer said it lost $1.35 to $1.81 a share in the first quarter, compared with the 3-cent average profit estimate from analysts, as appliance sales dropped.

Gauges of energy and raw-material producers led declines in the S&P 500, falling 2.4 percent and 1 percent, respectively, as oil, silver and gold retreated. Silver futures tumbled, capping the biggest two-day slide since October 2008, after margin requirements on the Comex increased for the second time in less than a week. Gold fell the most since mid-March.

Freeport, Chesapeake

Freeport-McMoRan, the largest publicly traded copper producer, dropped 2.1 percent to $53.20. ConocoPhillips (COP) lost 3.8 percent to $74.53.

Chesapeake Energy Corp. (CHK) retreated 5.7 percent to $31.33. The most-active U.S. natural-gas driller reported a first- quarter loss, saying lost $725 million from energy hedging contracts used to lock in oil and gas prices.

Pfizer, the world’s biggest drugmaker, slumped 2.8 percent to $20.44. Lipitor had sales of $2.39 billion in the first quarter, missing the $2.55 billion average estimate of five analysts surveyed by Bloomberg. Sales will decline by more than half next year after generic-drug makers flood the U.S. market with cheaper copies, according to eight analysts surveyed.

Pfizer Chief Executive Officer Ian Read is selling units and cutting jobs to prepare for the loss of U.S. patent protection of Lipitor in November.

Four-Day Streak

The S&P 500 broke a four-day winning streak yesterday as declines in commodity producers led the market lower following an early rally spurred by the death of Osama bin Laden, leader of the al-Qaeda terrorist network.

“We’re seeing a defensive move today,” said James Paulsen, chief investment strategist at Minneapolis-based Wells Capital Management, which oversees about $340 billion. “There’s some fear about terrorist retaliation. Still, you just cannot knock this thing down too much. Profits have been fantastic and most economic reports tell us there is economic momentum.”

MasterCard gained 2.6 percent to $282.38. Profit excluding some items was $4.29 a share, beating the average analyst estimate of $4.09, as consumers stepped up spending.

MetroPCS Communications Inc. (PCS) rose 10 percent, the most in the S&P 500, to $18.15. The pay-as-you-go U.S. wireless provider reported first-quarter subscriber additions of 725,945. That beat the estimates of 475,000 from Jason Armstrong, an analyst with Goldman Sachs Group Inc., and 350,000 by Todd Rethemeier of Hudson Square Research.

Record Options Trading

Alcoa rallied 2.6 percent, the most in the Dow, to $17.67 and bullish options volume surged to a record amid speculation Rio Tinto Group will make a takeover offer for the largest U.S. aluminum producer. More than 360,000 calls to buy Alcoa shares changed hands, eight times the four-week average and the fourth- largest call volume on U.S. exchanges, according to data compiled by Bloomberg.

Mark Kelly, an analyst at Olivetree Securities in London, said he was skeptical about “unsubstantiated” speculation today that Rio has secured a syndicated loan it may use to make a bid for Alcoa for $25.50 a share. Rio has “generally been happy” to focus on smaller purchases, such as Australian coal miner Riversdale Mining Ltd., Kelly said today in a report.

Tony Shaffer, a spokesman for Rio, and Alcoa’s Michael Belwood said separately that their companies don’t comment on market speculation.

The debate over U.S. borrowing limits may drive equity markets down as much as 7 percent in July, according to Tobias Levkovich of Citigroup Inc.

No Catastrophe 

The U.S. government is approaching the $14.29 trillion limit that it’s allowed to borrow. A growing number of Republican lawmakers such as Senators Pat Toomey and Jim DeMint and Representative Joe Walsh are rejecting warnings that failing to raise the debt limit would trigger a financial catastrophe. 

“I’m concerned that the debt-ceiling debate can get somewhat rancorous and nasty as the Republicans really want to push for something important in terms of spending cuts,” Levkovich, the chief U.S. equity strategist at the New York- based firm, said in an interview today on Bloomberg Television’s “InBusiness” with Margaret Brennan. “Markets could get very unsettled already in July.”

 Have a wonderful evening everyone.

The world is the great gymnasium where we come to make ourselves strong.

Swami Vivekananda (January 12, 1863–July 4, 1902) 

Be magnificent!

 As ever,

 Nishma for Carolann

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

Senior Vice-President &

Senior Investment Advisor