May 24th 2011, Newsletter
Dear Friends,
I never thought I’d be saying this but it’s Bob Dylan’s 70th birthday today….
“When you feel in your gut what you are and then dynamically pursue it – don’t back down and don’t give up – then you’re going to mystify a lot of folks.” -Bob Dylan
An exhibitor poses with clematis and delphiniums during press day at the Chelsea Flower Show 2011, in London.
Luke MacGregor/Reuters
A hand-written note to rescue workers is seen on a house that was damaged by a tornado that destroyed nearly 30 percent of Joplin, Mo., on Sunday afternoon. The twister cut a six-mile path through the city.
Adam Wisneski/AP
Canada
By Matt Walcoff
May 24 (Bloomberg) — Canadian stocks fell for the first time in six days, led by financial companies, on speculation European countries are more likely to default on their debt.
Manulife Financial Corp., North America’s fourth-largest insurer, decreased 2.9 percent a day after the Standard & Poor’s 500 index retreated the most in two months. Barrick Gold Corp., the world’s largest gold producer, advanced 2.8 percent as the metal climbed for a third day. Teck Resources Ltd., Canada’s biggest base-metals and coal producer, fell 3 percent after a gauge of Chinese manufacturing sank to a 10-month low.
The Standard & Poor’s/TSX Composite Index fell 57.15 points, or 0.4 percent, to 13,595.12 after Christian Noyer, a member of the European Central Bank’s governing council, said a restructuring of Greece’s debt would be a “horror” story.
“Yesterday, I couldn’t believe what was going on with Greece, the concern about it spreading to other countries,” said Irwin Michael, a money manager at ABC Group of Funds in Toronto, which oversees about C$1 billion ($1 billion). “People are quite concerned.”
The S&P/TSX rallied the most in three months last week as stocks rebounded from their lowest prices relative to earnings in six months and copper, gold, corn and wheat advanced. The index had fallen the previous three weeks for the longest streak of weekly declines since January 2010.
The S&P/TSX Financials Index fell the most in three weeks after Fitch Ratings cut its outlook on Belgium’s credit rating to negative and world equity markets dropped. Canada’s market was closed yesterday for the Victoria Day holiday. After markets closed on May 20, S&P said it may lower Italy’s debt rating.
Manulife, the owner of Boston-based John Hancock Financial Services Inc., declined 2.9 percent to C$17.01. Bank of Montreal, Canada’s fourth-largest lender by assets, slipped 1.1 percent to C$61.50 before the release of its second-quarter financial results. Brookfield Asset Management Inc., Canada’s biggest real estate company, lost 2.6 percent to C$31.39.
Base-metal producers retreated two days after HSBC Holdings Plc and Markit Economics said China’s preliminary manufacturing index, known as the Flash PMI, fell to 51.1 from 51.8 in April.
Teck dropped 3 percent to C$47.24. First Quantum Minerals Ltd., Canada’s second-largest publicly traded copper producer, declined 1.6 percent to C$130.78. Lundin Mining Inc., which produces base metals in Europe, slumped 4.3 percent to C$8.46.
Sino-Forest Corp., a forest-products company with operations in China, sank 7.1 percent, the most since June, to C$18.88.
Gold futures climbed to the highest since May 3, and silver rallied 3.5 percent in New York. The S&P/TSX Gold Index advanced for a seventh day, the longest streak since August.
Barrick rose 2.8 percent to C$45.63. Goldcorp Inc., the world’s second-biggest producer of the metal by market value, gained 1.9 percent to C$48.39. NovaGold Resources Inc., which is developing gold and base-metals projects in Alaska and British Columbia, jumped 8.2 percent, the most in five months, to C$10.98.
Eastern Platinum Ltd., which produces precious metals in South Africa, surged 7.3 percent to C$1.03. Eastplats said its Crocodile River Mine has resumed operations after the company reached an agreement with the National Union of Mineworkers to end a labor dispute.
Fertilizer producers advanced after Citigroup raised its 2012 Vancouver potash price estimate by $25 to $475 a metric ton. On May 22, Belarusian Potash Co. said it increased third- quarter potash prices for Brazil, citing “exceptionally strong demand.”
Potash Corp. of Saskatchewan Inc., the world’s largest fertilizer producer by market value, increased 2.3 percent to C$51.75. Agrium Inc. climbed 1.9 percent to C$79.30.
Energy companies fell as natural gas futures dropped.
Talisman Energy Inc., which produces energy in North America, the North Sea and Indonesia, declined 2.5 percent to C$19.82. Nexen Inc., an oil and gas producer with operations on five continents, lost 2.8 percent to C$21.68. PetroBakken Energy Ltd., a western Canadian oil and gas producer, decreased 2.7 percent to C$16.29.
Canadian National Railway Co., the country’s largest railroad, slid 2.6 percent from a record high to C$73.11.
Canadian Pacific Railway Ltd. retreated 1.3 percent to C$59.31.
Imax Corp., the maker of giant-screen movie-projection systems, sank 5.6 percent to C$33.46 after Walt Disney Co.’s “Pirates of the Caribbean: On Stranger Tides” took in less in sales in its opening weekend than some analysts had forecast.
US
By Rita Nazareth
May 24 (Bloomberg) — U.S. stocks retreated, sending benchmark indexes to one-month lows, as a drop in stocks most- tied to economic growth offset a government report showing that sales of new homes rose to the highest level this year.
Shares of industrial, consumer-discretionary and technology companies led the declines in the Standard & Poor’s 500 Index.
Goodyear Tire & Rubber Co. retreated 3.1 percent as China appealed a World Trade Organization ruling that backed U.S. duties on Chinese tire imports, saying the levies are “protectionist.” Freeport-McMoRan Copper & Gold Inc. and Occidental Petroleum Corp. rose at least 2.9 percent as Goldman Sachs Group Inc. signaled a positive outlook for commodities.
The S&P 500 fell 0.1 percent to 1,316.28 at 4 p.m. in New York, reversing a 0.5 percent gain. The Dow Jones Industrial Average retreated 25.05 points, or 0.2 percent, to 12,356.21.
“Investors are trying not to be too heroic at this point,” said Peter Sorrentino, a senior portfolio manager at Huntington Asset Advisors in Cincinnati, which manages $14.8 billion. “People are just sliding to the sidelines. We’ve had a decent gain in stocks this year amid so many uncertainties. The earnings season is over. We need real catalysts at this point to push stocks higher.”
The S&P 500 has fallen 3.5 percent since climbing to a three-year high on April 29 amid a commodity slump and concern about Europe’s debt crisis. Still, the benchmark has rallied 4.7 percent from the end of 2010 amid government stimulus measures and higher-than-estimated earnings.
The Federal Reserve Bank of Richmond’s manufacturing index slid to negative six in May, compared with a reading of 10 the April and a forecast of nine in a Bloomberg News survey. A separate report showed that purchases of new houses rose in April to the highest level so far this year after plunging to a record low two months earlier.
The Morgan Stanley Cyclical Index of companies most- dependent on economic growth fell 0.5 percent as 20 of its 30 stocks declined. Industrial companies had the biggest drop in the S&P 500 within 10 industries, while car companies fell the most among 24 groups.
General Electric Co. slumped 1.5 percent, the most in the Dow, to $19.10. Goodyear lost 3.1 percent to $16.74.
Goldman Sachs and Morgan Stanley increased their oil price forecasts by more than 20 percent, signaling a bullish outlook for commodities. Goldman boosted its 12-month prediction for Brent crude to $130 a barrel from $107, analysts led by Jeffrey Currie said in a report today. Morgan Stanley raised its Brent estimate by 20 percent to average $120 a barrel this year and by 24 percent to $130 in 2012, it said.
“Economic growth will likely be sufficient to tighten key supply-constrained markets in the second half, leading to higher prices from current levels,” the Goldman analysts said. They also advised buying copper and zinc.
The S&P GSCI spot index of 24 commodities lost about 10 percent through yesterday since New York-based Goldman told investors on April 11 to sell a basket of commodities including oil, copper and cotton, and in the same week recommended they stay “underweight” in raw materials.
Gauges of energy and raw-material producers advanced as oil and metal prices rallied. Freeport, the world’s largest publicly traded copper producer, rose 3 percent to $48.82. Occidental gained 3.6 percent to $102.50.
AK Steel Holding Corp. added 2.6 percent to $14.44 as the third-largest U.S. steelmaker by sales said it will increase prices for all carbon flat-rolled steel products by at least $50 per ton to recover higher costs.
El Paso Corp. jumped 6.5 percent to $20.22. The company plans a tax-free spinoff, Chairman and Chief Executive Officer Douglas Foshee said at an analyst meeting in New York today. The decision comes after pipeline operator Williams Cos. said on Feb. 16 it will sell 20 percent of its production unit later this year. The company said it will sell the stake in an initial public offering and spin off the rest in 2012, to give shareholders “greater value.”
AutoZone Inc. rose 6 percent to $293.30. The U.S. auto- parts retailer reported third-quarter earnings of $5.29 a share, topping the $4.97 estimated by analysts on average.
“There’s a battle between good long-term fundamentals and short-term uncertainties,” said David Kelly, who helps oversee about $445 billion as chief market strategist for JPMorgan Funds in New York. “It’s most likely that any slowdown in the global economy is temporary. There are reasons why economic growth should pick up around the world on the second half of the year.
If you buy that notion, this is a good time to take advantage of that. The stock market looks attractive for the long run.”
Barton Biggs, the hedge fund manager who bought stocks when the market bottomed in March 2009, said he is bullish on U.S.equities and likes industrial shares even though the global economy has slowed. Biggs favors companies such as Caterpillar Inc. and Deere & Co. because their earnings growth continues to exceed expectations and demand for farming and construction equipment remains strong.
“The U.S. and the global economy have clearly slowed pretty significantly,” Biggs, who runs New York-based Traxis Partners LP, said in a radio interview with Tom Keene on Bloomberg Surveillance. “That’s arousing the bears, who believe we’re going to slip back into a long soft patch at best or maybe even a double-dip at worst,” he said. “For a number of reasons I don’t think that’s right.”
Have a wonderful evening everyone.
Be magnificent!
Strength does not come from physical capacity. It comes from an indomitable will.
-Mahatma Gandhi, 1869-1948
As ever,
Carolann
A hero is no braver than an ordinary man,
but he is braver five minutes longer.
-Ralph Waldo Emerson, 1802-1883
Carolann Steinhoff, B.Sc., CFP, CIM, FCSI
Senior Vice-President &
Senior Investment Advisor