April 10, 2014 Newsletter

Dear Friends,

Tangents:

RIP Jim Flaherty.

…He, only like himself, was  second unto none,
Whose death (though life) we rue, and wrong, and all in vain do moan.
Their loss, not him, wail they, that fill the world with cries,
Death slew not him, but he made death his ladder to the skies…

-Fulke Greville, from Epitaph on Sir Philip Sidney

In nature there are no rewards or punishments; there are consequences. –Horace Annesley Vachell, English writer, The Face of Clay, 1861-1955.

Photos of the day

A visitor photographs cherry blossom on trees in Greenwich Park in south London. Toby Melville/Reuters

Jimmel, an owl-faced monkey, protects her one-month old baby at the zoo in Antwerp, Belgium. Yves Herman/Reuters

Market Closes for April 10^th, 2014

International Markets

Bonds

Currencies

Commodities

Market Commentary:

Canada
By Gerrit De Vynck

April 10 (Bloomberg) — Canadian stocks fell, snapping a two-day gain, as a decline in China’s exports and imports weighed on raw-material and industrial companies.

Goldcorp Inc. fell 3 percent after increasing its hostile bid for Osisko Mining Corp. to trump another offer by Yamana Gold Inc. Crew Energy Inc. rose 17 percent after buying natural gas fields in northeast British Columbia.

The Standard & Poor’s/TSX Index lost 119.43 points, or 0.8 percent, to 14,316.15 at 1:23 p.m. in Toronto. The gauge rallied 1.2 percent over the previous two days as the U.S. Federal Reserve said it wouldn’t raise rates any time soon.

“The Chinese data that we had overnight in Asia was weaker than expected and that took away some of the momentum post-Fed, so that’s what we’re seeing today” said Youssef Zohny, a portfolio manager at Stenner Investment Partners of Richardson GMP Ltd. Richardson GMP manages about C$26 billion ($23.8 billion).

Overseas shipments fell 6.6 percent from a year earlier, according to China’s customs administration, attributing part of the drop to inflated data in early 2013. Imports fell 11.3 percent, resulting in a trade surplus of $7.71 billion.

Industrial companies fell 1.1 percent as a group, led by losses in ATS Automation Tooling Systems Inc., which makes manufacturing machines and fell 2.6 percent to C$14.50.

Goldcorp fell 3 percent to C$27 after raising its bid for Osisko to C$7.65, more than a dollar above its previous cash and stock bid, worth about C$6.29.

Osisko rose 0.9 percent to C$7.62. Yamana, which offered to buy half of Osisko at a value of C$7.60 a share, was little changed.

Crew Energy rose 17 percent to C$11.63 after selling one patch of natural gas assets for around C$222 million and buying assets in a different area for C$105 million.

Argent Energy Trust fell 28 percent to C$3.35 after cutting its production forecast and announcing its chief executive officer resigned.

Painted Pony Petroleum Ltd. rose 8.3 percent to C$10.31 after the company increased its production outlook in the same area Crew Energy bought new assets, the Montney formation.

Dollarama Inc. fell 3.7 percent to C$89.52 after three different analysts cut their ratings on the discount retailer. Dollarama rose 8.4 percent yesterday after reporting fourth quarter earnings that were higher than analyst expectations.

US
By Callie Bost and Lu Wang

April 10 (Bloomberg) — U.S. stocks tumbled, with the Nasdaq Composite Index falling the most since 2011, as a technology selloff resumed amid concern valuations may be too high at the start of earnings season.

Bed Bath & Beyond Inc. erased 6.2 percent after predicting quarterly profit below estimates. A gauge of Internet stocks tumbled the most since 2011, while biotechnology shares approached a bear market. EBay Inc. dropped 3.2 percent after reaching a deal with Carl Icahn to end his proxy fight by agreeing to add another independent director to the board.

The Nasdaq Composite tumbled 3.1 percent at 4 p.m. in New York, erasing a two-day rally. The Standard & Poor’s 500 Index fell 2.1 percent, its largest slide in two months, to 1,833.08. The Dow Jones Industrial Average dropped 266.96 points, or 1.6 percent, to 16,170.22. The Russell 2000 Index of smaller companies lost 2.8 percent. Treasuries rose, with the 10-year yield dropping five basis points to 2.65 percent.

“There’s still a continual rotation out of the high-flying momentum stocks of 2013 into more value-driven opportunities,”  Chad Morganlander, a Florham Park, New Jersey-based portfolio manager for Stifel Nicolaus & Co., which oversees more than $150 billion. “This will continue in the coming weeks as investors look for consistency in earnings. You have concerns about high valuations and flat revenue growth, which is a perfect cocktail for a sector rotation out of growth and into value.”

The S&P 500 has slumped 3.1 percent from a record reached April 2, closing today below its average level in the past 50 days for the first time since Feb. 10. Investors returned today to selling the biggest winners in the five-year U.S. bull market. The Nasdaq Composite trades at 35 times reported earnings of the companies in the index. That’s double the ratio for the S&P 500, which trades at about 17 times earnings.

The S&P 500 Information Technology Index dropped 2.5 percent today, with the Dow Jones Internet Composite Index plunging 4.2 percent. TripAdvisor Inc. fell 7.1 percent. The online travel research company jumped 98 percent in 2013.

Facebook Inc., which doubled last year, erased 5.2 percent today. Yahoo! Inc. slipped 4.2 percent.

The Nasdaq Biotechnology Index slipped 5.6 percent, the biggest drop since 2011. The gauge has fallen 19 percent after reaching an all-time high on Feb. 25. Alexion Pharmaceuticals Inc. dropped 7.5 percent, the most in the S&P 500. The drugmaker, which trades at 101 times reported earnings, rallied 42 percent last year.

“The market is very skittish,” David Pavan, a portfolio manager at ClariVest Asset Management LLC in San Diego, California, said in a phone interview. His firm oversees about $3.5 billion. “You see very sharp love and hate on a day-to-day basis. Today is a very strong preference for cheap stocks.  Higher growth stocks get really hit hard.”

The Chicago Board Options Exchange Volatility Index, a gauge for U.S. stock volatility known as the VIX, advanced 15 percent to 15.89, poised for the largest gain since Feb. 3. The index has climbed 16 percent this year.

About 7.4 billion shares changed hands on U.S. exchanges, 6.4 percent above the three-month average.

All 10 major industries in the S&P 500 declined, with industrial, commodity, consumer-discretionary, financial and health-care companies joining technology in posting drops of more than 1.3 percent.

American Express Co. erased 3.8 percent, the most since June 2012, to lead declines in the Dow. JPMorgan Chase & Co. slid 3.2 percent as the KBW Bank Index lost 3 percent. Walt Disney Co. dropped 3.7 percent, its largest slide since November 2012.

“The tone of the market has been really difficult,” David Pearl, co-chief investment officer who helps oversee $40 billion at Epoch Investment Partners Inc. in New York, said by phone. “The leadership has changed almost every month. No one has a high confidence level of what the Fed is going to do, what the economy is going to do. It’s just a difficult environment to invest because all the macro conditions are volatile.”

The S&P 500 climbed 1.1 percent yesterday as minutes from the Federal Reserve’s last meeting eased concern about the timing of an interest-rate increase. Several members said a rise in their projection for the benchmark interest rate exaggerated the likely speed of tightening. Treasury yields rose last month after policy makers predicted the rate would rise faster than previously forecast.

Three rounds of Fed stimulus and lending rates near zero have helped fuel economic growth, sending the S&P 500 surging as much as 180 percent from its 2009 low.

A government report today showed the fewest number of Americans since before the last recession filed applications for unemployment benefits last week, pointing to more progress in the labor market. Data last week boosted optimism that the economy is shaking off the effects of severe winter weather and building momentum into the second quarter. The government’s jobs report on April 4 showed employers boosted hiring last month and the unemployment rate held at 6.7 percent.

Stock futures fell earlier today after data showed China’s exports and imports unexpectedly fell in March, adding to concern that expansion in the world’s second-largest economy will deteriorate further. Premier Li Keqiang said the nation will roll out more policies to support growth while avoiding stronger stimulus.

Alcoa Inc. this week unofficially began the quarterly earnings-reporting season as it posted profit that beat analysts’ estimates. Profit for members of the S&P 500 probably climbed 1 percent in the first quarter, analysts now forecast, after anticipating a 6.6 percent rise in January. The companies’ sales climbed 2.9 percent, the projections show.

“We’re more focused on the beginning of earnings season and what companies are telling us,” Drew Wilson, an investment analyst with Fenimore Asset Management in Cobleskill, New York, said in a phone interview. His firm oversees nearly $2 billion. “It seems with the lack of big risk-on, risk-off stories and movements, the markets are more focused on company-specific issues. It’s a stock picker’s market this year.”

JPMorgan Chase & Co. and Wells Fargo & Co. are scheduled to report earnings tomorrow.

Bed Bath & Beyond slid 6.2 percent to $63.72. The retailer said first-quarter earnings will be 92 cents to 96 cents a share, missing the $1.02 average prediction of analysts in a Bloomberg survey.

EBay lost 3.2 percent, the most since November, to $54.08.  Icahn, who took a stake in EBay in January and began campaigning to split off the PayPal payments unit, agreed to withdraw his PayPal proposal and his two board nominees ahead of the company’s upcoming annual meeting.

Rite Aid Corp. jumped 8.4 percent to $6.94 after saying it expects full financial-year sales of $26 billion to $26.5 billion, exceeding the $25.78 billion-average of analysts surveyed by Bloomberg. The drugstore-chain operator also reported fourth-quarter adjusted earnings that surpassed the average analyst estimate.

Investors have added $5.4 billion to U.S. equity exchange- traded funds in the past five days and added $464.4 million to American bond ETFs, data compiled by Bloomberg show. Energy stocks absorbed the most money among industry ETFs, taking in $513 million during the past week. Technology ETFs lost $1.2 billion in the past five days, the most of any sector in that period.

An investor paid about $5.3 million for a trade that will pay off if the iShares Russell 2000 ETF falls at least 2 percent by May.

The trader bought 40,000 bearish contracts today on the small-cap stock ETF expiring in May with a strike price of $113, while selling the same number of May $107 puts in a strategy known as a put spread, according to JonesTrading Institutional Services LLC. The trade cost $1.33 to put on for each contract.

“It might be a short-term hedge for fear of further market losses over the next five weeks,” Fred Ruffy, a Chicago-based senior options strategist at Trade Alert LLC, said in a note.

Have a wonderful evening everyone.

Be magnificent!

Is there any motion in a straight line?  A straight line infinitely projected becomes a circle,

it returns to the starting point.  You must end where you begin; and as you begin in God,

you must go back to God.  What remains?  Detail work.  Through eternity you have to do the detail work.

Swami Vivekananda, 1863-1902

As ever,

Carolann

Our character is what we do when we think no one is looking.

-H. Jackson Brown Jr., 1940-

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

Senior Vice-President &

Senior Investment Advisor

Queensbury Securities Inc.,

St. Andrew’s Square,

Suite 340A, 730 View St.,

Victoria, B.C. V8W 3Y7