April 9, 2014 Newsletter

Dear Friends,

Tangents:

APRIL: Spring means the warming up of the soil.  The appearance of the first flush of annual weeds is better than any thermometer to put you wise over this, telling you that you can start to sow your seeds outside with a sure conviction that they will germinate.  On some spring days I imagine I can see the plants growing, especially when the earth smells good.  This morning as I went outside in the sunshine after rain, the familiar smell of the balsam poplars wafted my way.  The delicious resinous scent is strongest as the leaf buds are opening in April.  Another sure sign of spring, and almost merging into summer, is the arrival of swallows.  As soon as they come we must remember to leave a crack in the garage doors to allow them inside.  They always build in the rafters above the windscreen of my car.  The poets have got it right.  Chaucer chose “Aprille with his schowres swoote” as the pleasantest month for his Canterbury pilgrims to “go on pilgrimage”.  Spenser describes it as

Garnished with garlands goodly dight
Of all the fairest flowers and freshest buds
Which earth brings forth.

I particularly like John Evelyn’s spring advice to his gardener at Sayes Court in 1687:  “Never expose your Oranges, Limons, and the like tender Trees whatever seasons flatter, ‘til the Mulberry puts forth its leafe, then bring them boldly out of the Green House.”  Presumably the mulberry waits to put forth its leaf until all danger of frost is over, so the advice should hold good for one’s geraniums and other tender bedding plants.  –from A CountryWoman’s Notes, Rosemary Verey, Frances Lincoln Ltd.,1989.

There are two kinds of people who lose money: those who know nothing and those who know everything.  –Henry Kaufman, German-American economist to Robert Lenzner in Forbes, 10/19/98, who added, “With two Nobel Prize winners in the house, Long-Term Capital clearly fits the second case.”

Photos of the day

A man looks at the bronze sculpture ‘Emissary Cat’ by British artist Laura Ford at the ‘Art Cologne’ art fair in Cologne, Germany. T Wolfgang Rattay/Reuters

A tourist takes pictures of tulips at the Keukenhof park, also known as the Garden of Europe, in Lisse, the Netherlands. Yves Herman/Reuters

Market Closes for April 9^th, 2014

International Markets

Bonds

Currencies

Commodities

Market Commentary:

Canada
By Gerrit De Vynck

April 9 (Bloomberg) — Canadian stocks rose for a second day as minutes from a U.S. Federal Reserve meeting suggested the central bank was pulling back from comments that roiled the markets last month.

Dollarama Inc., a discount retailer, climbed 8.4 percent to its highest price since going public in 2009 after beating analyst estimates for its fourth-quarter earnings. Cascades Inc. fell 1.1 percent after the paper and cardboard maker said it would close a mill in Sweden.

The S&P/TSX added 63.13 points, or 0.4 percent, to 14,435.58 at 4 p.m. in Toronto for a one-week high. Trading was in line with the 30-day average.

The Federal Reserve played down projections some of its own policy makers had made suggesting interest rates might rise more quickly than the market had predicted. Fed Chair Janet Yellen said in March that a rate rise might come as soon as six months after the central bank ends its monthly bond-buying program.  Today’s minutes don’t mention that time frame.

Energy stocks rose 0.4 percent to the highest level since 2011. BlackPearl Resources Inc. rose 6.8 percent to C$2.84 and Bankers Petroleum Ltd. advanced 4.6 percent to C$5.75 to lead gains among oil and gas producers.  “The focus right now is on some of the commodity price moves especially in energy,” said Bob Decker, fund manager at Aurion Capital Management in Toronto. “The most investor appetite right now is for increasing their exposure to energy as a result of the lowered Canadian dollar and the strong energy price realizations,” he said by phone. The firm manages about C$6 billion ($5.5 billion).

The Canadian dollar has fallen 4 percent against a basket of developed country currencies this year. West Texas Intermediate crude was up 0.7 percent at $103.32 a barrel — the highest since March 4.

Dollarama rose 8.4 percent to C$92.97 after beating analyst estimates for fourth-quarter earnings and increasing its dividend to 16 Canadian cents from 14 cents.

Cascades fell 1.1 percent to C$7.17. The Kingsey Falls, Quebec-based company recycles paper into new packaging. It said it would close its Swedish mill, which employs 130 people and can produce 60,000 metric tons of cardboard each year.

Canadian Oil Sands Ltd. dropped 1.2 percent to C$23.12 after Royal Bank of Canada cut its rating on the company to the equivalent of a hold from the equivalent of a sell.

Copper Mountain Mining Corp. rose 11 percent to C$2.47 after reporting first quarter production that exceeded the previous quarter by 9 percent.

US
By Callie Bost

April 9 (Bloomberg) — U.S. stocks rallied, with technology shares gaining the most in two months, as minutes from the Federal Reserve’s last meeting eased concern about the timing of future interest-rate increases.

Alcoa Inc. advanced 3.8 percent after earnings topped estimates and the company forecast that global demand for aluminum will exceed production this year. Facebook Inc. climbed 7.3 percent, the most in the Standard & Poor’s 500 Index, helping to extend a rebound in technology stocks after a selloff. Regeneron Pharmaceuticals Inc. surged 6.9 percent as shares of biotechnology companies rallied the most in a year.

The S&P 500 gained 1.1 percent to 1,872.18 at 4 p.m. in New York, after the gauge yesterday snapped a three-day slide. The Nasdaq 100 Index climbed 1.8 percent, the most since Feb. 7, after a 0.9 percent advance yesterday. The Dow Jones Industrial Average increased 181.04 points, or 1.1 percent, to 16,437.18. About 6.3 billion shares changed hands on U.S. exchanges, 9 percent lower than the three-month average.

“These minutes are calming for the markets,” Jeffrey Kleintop, chief market strategist at LPL Financial LLC, which manages about $414 billion, said by phone from Boston. “It was clearly stated that the projections overstated the likely shift in rates. A slower pace of interest rates seems more likely here than from the statements.”

Several Fed policy makers said a rise in their median projection for the main interest rate exaggerated the likely speed of tightening, according to minutes of their March 18-19 meeting released today.

Treasury yields rose last month after policy makers predicted that the benchmark interest rate would rise faster than previously forecast. Janet Yellen, presiding over her first meeting as chair, later downplayed the importance of the forecasts, even as she said that rates might start to rise “around six months” after the Fed ends its bond-purchase program.

The Fed reduced the monthly pace of purchases by $10 billion, to $55 billion, and repeated it is likely to continue paring the program in “further measured steps.” Three rounds of bond purchases from the Fed have helped fuel economic growth, sending the S&P 500 surging as much as 180 percent from its 2009 low.

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 payrolls last month and the unemployment rate held at 6.7 percent.

The S&P 500 rose 0.4 percent yesterday and the Nasdaq 100 rebounded from its worst three-day drop since 2011 as technology shares rallied after a selloff. The S&P 500 fell as much as 2.4 percent from a record high reached April 2 amid concern about valuations in technology stocks.

Stocks rallied before the Fed minutes today as technology stocks continued to recover and Alcoa’s results boosted optimism at the start of earnings season.

Investors will be watching financial reports for signs of how well corporations weathered the first quarter. 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. Their sales climbed 2.9 percent, the projections show.

Alcoa, the first company in the S&P 500 to report results for the quarter, climbed 3.8 percent to $13. The largest U.S. aluminum producer posted profit excluding restructuring costs and other items that beat analysts’ estimates.

The company also forecast global aluminum demand will exceed production this year, predicting an end to an almost decade-long surplus driven by Chinese output that has saddled the industry with lower prices.

JPMorgan Chase & Co. and Wells Fargo & Co. are among the S&P 500 companies that report their earnings on Friday.

“We’ve been in this pre-earnings information void and now we’re going to have a threshold and we’ll see which companies will continue to grow and which won’t,” Dan Veru, chief investment officer who helps oversee $5 billion at Palisade Capital Management LLC, said by phone. “This is the year of individual stock-picking. That’s what will drive returns.”

The Chicago Board Options Exchange Volatility Index, a gauge for U.S. stock volatility known as the VIX, retreated 7.2 percent to 13.82 today. The index has fallen 11 percent since closing at a three-week high on April 7.

Eight of 10 main industries in the S&P 500 advanced, with health-care companies climbing 2.1 percent. Technology shares added 1.6 percent, as the Dow Jones Internet Composite Index surged 2.4 percent, the most since Jan. 30. The Morgan Stanley Cyclical Index rallied 1.4 percent, the biggest in a month, and the Dow Jones Transportation Average increased 1.6 percent.

“These pops happen to be in sectors like tech and consumer-discretionary, very cyclical areas of the markets,” LPL Financial’s Kleintop said. “The idea is that if the Fed is slower to raise interest rates, it is good news for more cyclical areas of the market. These companies are very levered to how fast the economy grows.”

Facebook jumped 7.3 percent, its largest gain since Jan. 30, to $62.41. The shares have rallied 10 percent in three days.  The social-networking company slipped as much as 21 percent from a record $72.03 on March 10.

LinkedIn Corp., which trades at more than 760 times reported earnings, increased 4.2 percent to $176.18. The company jumped 5.9 percent yesterday, after falling in five of the previous six sessions. Twitter Inc. added 1.7 percent to $42.49, its first gain in six days, and Yahoo! Inc. rose 3.1 percent to $34.87.

The Nasdaq Biotechnology Index climbed 4.1 percent, the most in a year. The gauge fell as much as 17 percent after reaching an all-time high on Feb. 25. Regeneron surged 6.9 percent to $306.26. The drugmaker, which trades at 80 times reported earnings, slid 18 percent after the shares closed at a record on Feb. 24.

Merck & Co. soared 3.7 percent to $57.10 to lead gains in the Dow. Industrial shares jumped 1.3 percent as a group, paced by a rally in airlines. The Bloomberg U.S. Airlines Index surged 3.1 percent as Delta Air Lines Inc. added 3.6 percent to $34.73. Boeing Co. climbed 2.2 percent to $126.88.

U.S. stocks will rally further as the doubling of the S&P 500 from its 2009 low has yet to stretch valuations, according to Holland & Co.

Valuations have not risen to levels that threaten an imminent correction, even though equities trade at a higher price-to-earnings ratio than they did five years ago, Michael Holland, who oversees more than $4 billion as chairman of Holland & Co. in New York, told Tom Keene and Scarlet Fu on Bloomberg Surveillance.

“This is not a bear market,” Holland said. “The bull market still has some significant legs to it before this is over. We had valuations that were screamingly attractive five years ago. Fast forward to today, they are reasonably valued.  These things normally don’t end until we get overvalued and we’re not there yet.”

The bull market has pushed the benchmark to 16 times estimated earnings from a low of 11 in October 2011, according to data compiled by Bloomberg. The index’s average multiple in the last five years was 14.3.

Investors have added $8.1 billion to U.S. equity exchange- traded funds in the past five days and added $189.9 million to American bond ETFs, data compiled by Bloomberg show. Consumer staples stocks absorbed the most money among industry ETFs, taking in $401.5 million during the past week. Technology ETFs lost $1.5 billion in the past five days, the most of any sector in that period.

Have a wonderful evening everyone.

Be magnificent!

Sensibility is the capacity to feel,

recognize, and distinguish the most tiny and subtle changes.

Swami Prajnanpad, 1891-1974

As ever,

Carolann

Do not take life too seriously.  You will never get out of it alive.

-Elbert Hubbard, 1856-1915

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