May 12th, 2011 Newsletter
Dear Friends,
I just returned from the Bloomberg Canada Economic Summit in Toronto where many of the country’s political and corporate leaders, including the Minister of Finance, James Flaherty, Barrick Gold Chairman Peter Munk, Magna founder Frank Stronach, among many others gave their views on a wide range of topics such as the future of the dollar, where commodity prices are heading, Canadian markets, global government debt ramifications etc., etc. All in all, it was extremely informative and useful. More on that topic later.…I’m sending this Newsletter late (Friday morning instead of Thursday night) because my flight got in last night and I bypassed stopping at the office to get this out, truth be told.
May 12th is Limerick Day, it being the birthday of one of its champions, Edward Lear. The limerick, which dates from the early 18th century, has been described as the “only fixed verse form indigenous to the English language.” It gained its greatest popularity following the publication of Edward Lear’s Book of Nonsense.
There was an Old Man of the coast,
Who placidly sat on a post;
But when it was cold
He relinquished his hold
And called for some hot buttered toast.
photos of the day
May 12, 2011
Actress Diane Kruger walks the red carpet before the screening of the film ‘Sleeping Beauty,’ at the 64th Cannes Film Festival in France. Twenty films are competing in the May 11 to 22 cinema showcase.
Eric Gaillard/Reuters
A child wears a scarf during a sandstorm in Harbin, Heilongjiang province, China.
China Daily/Reuters
Jessi Miley-Dyer of Australia competes in the women’s Association of Surfing Professionals Billabong Rio Pro championship at Barra da Tijuca beach in Rio de Janeiro.
Sergio Moraes/Reuters
Market Commentary:
Canada
By Matt Walcoff
May 12 (Bloomberg) — Canadian stocks fell for a third day, led by raw-materials producers, as China raised banks’ reserve requirement for the fifth time this year and wheat futures declined.
Potash Corp. of Saskatchewan Inc., the world’s largest fertilizer producer by market value, dropped 2.1 percent a day after the U.S. Agriculture Department forecast higher supplies than most analysts had estimated. Eastern Platinum Ltd., which mines in South Africa, plunged 13 percent after saying striking workers sabotaged equipment. BCE Inc., Canada’s largest phone company, rose 2.6 percent after beating analysts’ average profit estimate.
The Standard & Poor’s/TSX Composite Index fell 30.32 points, or 0.2 percent, to 13,389.42.
“Some disappointing economic data, coupled with commodity volatility, has essentially created some risk aversion,” said Youssef Zohny, a money manager at Van Arbor Asset Management Ltd. in Vancouver, which oversees C$50 million ($52 million).
The S&P/TSX dropped 4.9 percent this quarter through yesterday after surging 62 percent in the prior two years. Gold has declined from a record and oil from a 31-month high this month as the U.S. Dollar Index has rebounded after five months of losses. The U.S. currency gained on speculation the European Central Bank will be slower than previously forecast to raise interest rates and that Greece may need to restructure its debt.
China’s central bank raised reserve requirements to a record 21 percent, effective May 18. The U.S. today reported more initial jobless claims from last week than most economists in a Bloomberg survey had forecast.
Thirty percent of investors in a Bloomberg Global Poll released today said they intend to reduce commodity holdings.
Fertilizer producers dropped as wheat declined. Potash Corp. lost 2.1 percent to C$49.17. Agrium Inc., Canada’s second- largest fertilizer producer, slumped 2.4 percent to seven-month low of C$76.31.
Uranium producers retreated as nuclear regulators met in Europe and the U.S. to discuss power-plant safety. Cameco Corp., the world’s largest producer of the nuclear fuel, decreased 4.9 percent to C$25.37, the lowest price since August. Uranium One Inc., a producer controlled by Moscow-based ARMZ uranium holding, fell 7.6 percent to C$3.65.
Silver fell 2 percent, extending its monthly tumble to 28 percent. Gold dropped in electronic trading.
Barrick Gold Corp., the world’s largest gold producer, slipped 0.9 percent to a nine-month low of C$43.44. Eldorado Gold Corp., which mines in China and Turkey, retreated 1.5 percent to C$14.72.
Sherritt International Corp., which produces coal and industrial metals, rallied 6.1 percent from an eight-month low to C$7.49 as base metals advanced.
Eastplats plunged 13 percent to 90 Canadian cents, the lowest closing price since July. The company said it has suspended operations at its Crocodile River Mine after members of the National Union of Mineworkers damaged electrical, pumping and ventilation systems.
Lesiba Seshoka, a National Union of Mineworkers spokeswoman, said by phone that the union is unaware of any property damage at the mine.
Tim Hortons Inc., Canada’s largest fast-food chain, dropped 4.5 percent, the most since November 2008, to C$45.70 after its first quarter profit trailed the average of 12 analyst estimates by 6.4 percent, excluding certain items.
Finning International Inc., BCE and Linamar Corp. rallied after their earnings beat their average analyst estimates.
Finning, which says it is the world’s largest Caterpillar dealer, soared 8.5 percent to C$28.08, ending a seven-day streak of losses. BCE, Canada’s biggest phone company, increased 2.6 percent to a 29-month high of C$37.89 after raising its 2011 profit forecast. Linamar, the country’s second-largest auto- parts maker, climbed 5.9 percent to C$21.71.
Nevsun Resources Ltd., which mines precious and base metals in Africa, rallied 8.3 percent to C$5.36 after Rahul Paul, an analyst at Canaccord Financial Inc., raised his rating on the shares to “speculative buy” from “hold.” In a note to clients, Paul said Nevsun’s first-quarter financial results “demonstrate a smooth ramp-up” of its Bisha mine.
US
By Michael P. Regan and Rita Nazareth
May 12 (Bloomberg) — U.S. stocks rose and commodities erased losses, while the Dollar Index retreated, as riskier assets recovered from an early slump amid speculation that recent declines were excessive. Treasuries slid after an auction of 30-year bonds drew the weakest demand in six months.
The Standard & Poor’s 500 Index advanced 0.5 percent to 1,348.65 at 4 p.m. in New York after slumping as much as 0.8 percent. The S&P GSCI Index of commodities climbed less than 0.1 percent after tumbling as much as 2.3 percent. Sugar, hogs and soybeans led gains and oil rose 0.8 percent to $98.97 a barrel.
The Dollar Index, which tracks the currency versus six major peers, lost 0.2 percent to reverse an early gain. Yields on 30- year Treasuries rose four basis points to 4.35 percent.
Declines in energy and raw material prices yesterday and early today threatened to wipe out a two-day rebound in the S&P GSCI Index from last week’s 11 percent slump, its worst since 2008. Shares of oil and mining companies dragged the S&P 500 last week to its biggest drop since March. Steven A. Cohen, the billionaire founder of hedge fund SAC Capital Advisors LP, said the sell-off in commodity markets makes this a good time to buy stock in energy companies.
“We’re seeing a reversal of the trend of commodities taking a hit as the dollar rises,” said Michael Nasto, senior trader at U.S. Global Investors Inc., which manages about $3 billion in San Antonio. “There was nothing fundamental about what happened over the last few days. It was just a reversal of a trend. The economic recovery is in place and there will be demand for commodities and riskier assets.”
The U.S. Oil Fund and Market Vectors Agribusiness ETF attracted more money than any other U.S. exchange-traded fund in the past week following the biggest retreat in commodity prices in more than two years.
The ETF that tracks the price of oil drew $514.4 million in the past week, according to data from New York-based research firm XTF Inc. The agriculture fund, which tracks the share prices of 46 companies such as Deere & Co. and Syngenta AG, got $500.9 million, the data show.
Investors “are not yet willing to give up on the weak dollar and inflation trade,” said Nicholas Colas, the New York- based chief market strategist at BNY ConvergEx Group LLC. “They are cycling into agriculture and energy-oriented investments, even though the price action is choppy.”
Energy is “an interesting sector,” SAC’s Cohen said yesterday at the SALT, or SkyBridge Alternatives, Conference in Las Vegas. “I think that energy stocks are discounting oil prices much lower than where we are trading today.”
The S&P GSCI commodity gauge had rallied 20 percent and the S&P 500 had risen 8.4 percent before last week’s rout. Earlier losses in stocks today came after China moved to curb lending and Cisco Systems Inc. forecast earnings that trailed analysts’ estimates.
International Business Machines Corp., Merck & Co. and Coca-Cola Co. climbed at least 1.5 percent to lead gains in 21 of 30 stocks in the Dow Jones Industrial Average today.
Freeport-McMoRan Copper & Gold Inc. and Schlumberger Ltd. rose, reversing declines. Symantec Corp., the world’s biggest maker of security software, climbed 5.2 percent after forecasting higher revenue than analysts estimated. Tyson Foods Inc. added 4.6 percent after the biggest U.S. meat processor announced a stock buyback.
Goldman Sachs Group Inc. declined the most since January, losing 3.5 percent. Richard X. Bove, analyst at Rochdale Securities LLC, told investors to sell the stock on concern that the Department of Justice faces growing pressure to bring claims against the firm.
Treasuries extended losses after the government’s $16 billion sale of 30-year bonds. The bid-to-cover ratio, which gauges demand by comparing total bids with the amount offered, was 2.43, the least since November and down from an average of 2.7 at the past 10 sales. The bonds drew a yield of 4.38 percent, compared with an average forecast of 4.343 percent in a Bloomberg News survey of eight of the Federal Reserve’s 20 primary dealers. The sale was the final of three auctions this week totaling $72 billion.
In economic data, the Labor Department said jobless claims fell to 434,000 in the week ended May 7, compared with 430,000 claims forecast in a Bloomberg survey. Other reports showed the producer price index increased 0.8 percent, more than estimated, while retail sales increased 0.5 percent, the slowest pace since July.
The Stoxx Europe 600 Index slid 0.7 percent, the biggest drop in a week. Losses were led by energy and basic-resources companies, with European exchanges closing before the rebound in commodities.
The MSCI Emerging Markets Index fell 1.5 percent, heading for the lowest close since March 29. China’s Shanghai Composite Index retreated for a second day, losing 1.4 percent. South Korea’s Kospi Index sank 2 percent, the biggest drop since March 15. Russia’s Micex Index lost 1.5 percent.
Global investors have tempered their optimism about the U.S. and world economies and plan to put more of their money in cash and less in commodities over the next six months, a Bloomberg survey found.
Almost one in three of those questioned say they will hold more cash, while 30 percent intend to reduce investments in commodities, according to a quarterly Bloomberg Global Poll of 1,263 investors, analysts and traders who are Bloomberg subscribers. Both results were the highest since the survey began asking the question last June.
A plurality — 40 percent — expects oil prices to fall in the next six months, the first time respondents felt that way since the inception of this poll in July 2009.
Most global investors predict China’s yuan will be convertible into other currencies by 2016, with 50 percent seeing it joining the dollar, yen and euro as a reserve currency within a decade, the Bloomberg poll indicated.
Have a wonderful day everyone.
Be magnificent!
Nature’s law dictates that, in order to survive, bees must work together
As a result, they instinctively possess a sense of social responsibility.
They have no constitution, no law, no police, no religion or moral training but,
because of their nature, the whole colony survives.
We human beings have a constitution, laws and a police force.
We have religion, remarkable intelligence, and hearts with a great capacity to love.
We have many extraordinary qualities but, in actual practice,
I think we are behind those small insects.
In some ways, I feel that we are poorer than the bees.
-His Holiness, the XIVth Dalai Lama
As ever,
Carolann
The dictionary is the only place
that success comes before work.
Hard work is the price we must pay
for success. I think you can
accomplish anything if you’re
willing to pay the price.
-Vince Lombardi, 1913-1970
Carolann Steinhoff, B.Sc., CFP, CIM, FCSI
Senior Vice-President &
Senior Investment Advisor