August 10, 2016 Newsletter

Dear Friends,

Tangents:

On this day in 1846, the Smithsonian is created.

I’ve been a subscriber to the Smithsonian magazine for several years now.  It still arrives by print in the mail box and now, also online.  Always interesting articles on every subject imaginable.  They also orchestrate/organize interesting journeys.  A few years ago, Gary and I went travelling through Chile on a food and wine themed journey organized by the Smithsonian.   Even though there were only seven of us who signed up, we had two food and wine experts accompany us for the entire  week as we visited wine chateaux and fabulous eateries.  In addition, at several points along the way, various history and culture aficionados joined the group for  a time to impart their expertise.  One of the accompanying experts also happens to be a professor of gastronomy in Buenos Aires.  After Chile, we had planned to visit Argentina, so our guide invited us to his home and brought us to a local restaurant owned by some of his former students, and we were treated to an Argentinian feast.   They seem to get the right mixture of education and fun. 

Following is an article from the most recent Smithsonian magazine.  Fascinating stuff:

Scientists Uncover a “Hidden” Portrait by Edgar Degas

Read More ››

August 10, 1945: Japan surrenders.

PHOTOS OF THE DAY

Canadians Jacob Saunders and Graeme Saunders compete in the sailing preliminaries in the men’s two-person dinghy on Wednesday. Benoit Tessier/Reuters

Russia’s Nikolay Kovalev looks through his fencing mask as he competes against South Korea’s Kim Junghwan in the men’s individual sabre event on Wednesday. Charlie Riedel/AP

Market Closes for August 10, 2016

International Markets

Bonds

Currencies

Commodities

Market Commentary:

Canada

By Eric Lam

     (Bloomberg) — Canadian stocks fell, snapping a five-day advance as energy producers tumbled with crude and Valeant Pharmaceuticals International Inc. slid, offsetting gains in raw-materials producers spurred by rising gold prices.

     The S&P/TSX Composite Index lost 0.2 percent to 14,775.04 at 4 p.m. in Toronto, halting a five-day 2.2 percent rally. Trading volume was 7 percent higher than the 30-day average. The S&P/TSX is the second-best performing developed market in the world, just behind New Zealand.

     Energy producers lost 0.6 percent. New York crude fell 2.5 percent to $41.71 a barrel, after U.S. government data today showed stockpiles unexpectedly rose, while gasoline and distillate inventories fell more than estimated.

     Meanwhile the health-care group posted the biggest drop on the S&P/TSX, with Valeant falling 3.1 percent a day after rallying the most in two decades. The drugmaker surprised investors yesterday by maintaining its full-year outlook even after posting disappointing revenue and earnings figures. Valeant is also seeking to loosen restrictions on its debt load.

     Investors also weighed earnings from Canadian companies. Precious metals producer Tahoe Resources Inc. climbed 5.9 percent, for the biggest increase in six weeks, after posting adjusted earnings ahead of estimates while predicting it will achieve the top end of its 2016 forecast for silver production. Meanwhile, Alamos Gold Inc. slipped 4.7 percent after reporting a loss as second-quarter gold production slipped from year-ago levels.

     Gold producers paced a broader gain among raw-materials stocks on the day. Goldcorp Inc. and Detour Gold Corp. rose more than 3.4 percent to pace a 0.8 percent increase in raw-materials as gold and copper prices rose. Mining and materials companies are the top gainers this year among 10 industries in the S&P/TSX with a 65 percent advance, the best year-to-date performance for the category in at least 30 years according to data compiled by Bloomberg.

     That’s boosted the Canadian equity benchmark to a 14 percent jump in 2016, rebounding from a slump last year that was the worst for the S&P/TSX since the 2008 financial crisis. The rally has made Canadian stocks more expensive than their U.S. peers, with a price-earnings ratio of 23.5 for the S&P/TSX, about 15 percent higher than the S&P 500 Index.

US

By Joseph Ciolli and Lu Wang

     (Bloomberg) — A year that’s brought little but pain for bearish traders is getting worse.

     Not only is the rising market punishing shorts, it’s lifting their favorite targets at a rate that is by some measures three times as great as everything else. As a result, the 50 most-shorted stocks — that is, the ones bears had bet would fall — have instead rallied as much as 16 percent since the end of June, on track for the biggest quarterly gain in more than five years, data compiled by Bloomberg and Goldman Sachs Group Inc. show.

     Unlucky stock selection is making a tough year worse for the group, who’ve watched the value of U.S. stocks swell by more than $2 trillion since late June. The S&P 500 Index pushed its gains to nearly 7 percent this year before the measure slipped 0.3 percent Wednesday to 2,175.49 at 4 p.m. in New York, about 0.3 percent from an all-time high.

     From concerns Brexit would derail the global economy to a fifth straight quarter of earnings contraction and stretched equity valuations, investors had more than enough reasons to bet against U.S. stocks this summer. Those wagers have gone south as traders snapped up companies whose prospects are tied to an expanding economy, signaling expectations for continued central- bank support amid steady growth.

     “This environment of low interest rates and excess capital availability provides significant danger to shorts in this market,” said Walter Todd, who oversees about $1.1 billion as chief investment officer for Greenwood Capital Associates LLC in South Carolina. “This particular market has continued to grind higher, and it’s never a good idea to short when things are relatively dull.”

     Investors have already started scaling back short positions as their effectiveness comes into question amid a market that’s notched eight closing highs in the past month. Short interest on the SPDR S&P 500 ETF, which tracks the benchmark index, fell to an almost 20-month low last week. The measure now sits at 3.8 percent of shares outstanding, more than two percentage points below its two-year average.

     Bears have pointed to equity valuations that sit at the highest in more than a decade on an estimated earnings basis, yet the S&P 500 Index pushed its advance since the post-Brexit selloff to nearly 9 percent. The index has recently received a boost from signs of economic expansion, highlighted by July payrolls data that beat estimates on Friday, bolstering confidence in the U.S. economy.

     The pain subsided somewhat on Wednesday, as the Goldman index slipped 1.6 percent. The Dow Jones Industrial Average fell 37.39 points, or 0.2 percent, to 18,495.66, while the Nasdaq Composite Index lost 0.4 percent after closing yesterday at a record for the second time in three sessions. About 5.9 billion shares traded on U.S. exchanges, 16 percent below the three- month average.

     Among shares moving, Exxon Mobil Corp. fell 1.8 percent to lead energy companies lower after crude tumbled on data showing an increase in stockpiles. Banks retreated as yields on the 10- year Treasury note slid on speculation the Federal Reserve won’t rush to raise interest rates. Perrigo Co. plunged 9.6 percent to a five-year low after cutting its annual earnings forecast.

     Ralph Lauren Corp. surged 8.5 percent, the most in nine months, after reporting a quarterly profit that exceeded analysts’ estimates. Walt Disney Co. rose 1.3 percent, as Macquarie Capital upgraded the shares amid big steps the media giant is taking in online video to adapt to changing consumer viewing habits.

     The rally that’s propelled stocks higher since the days following the U.K.’s vote to secede from the European Union has recently lacked conviction, based on trading volume, with the number of shares changing hands on days the S&P 500 closed at a record 15 percent lower than the average up day. The index has been stuck in a range of about 40 points since July 8, going 23 days without a move of more than 1 percent in either direction, the longest such streak since 2014.

     “There’s a little bit too much complacency at this time,” Dubravko Lakos-Bujas, head of equity strategy and global quant research at JPMorgan Chase & Co., said in an interview on Bloomberg Television. “There’s a lot of expectation that’s already priced into the market.”

     More than 90 percent of S&P 500 members have posted quarterly results this season, of which 78 percent beat profit predictions and 56 percent topped sales projections. Michael Kors Holdings Ltd., among four companies on the index reporting today, fell 2.8 percent after its quarterly comparable sales fell more than expected.

     Analysts have tempered their estimates for a decline in second-quarter net income to 2.7 percent, from a 5.8 percent drop less than a month ago. Forecasts for the current quarter ending in September have turned negative, indicating a sixth consecutive period of falling profits, the longest since the financial crisis.

 –With assistance from Roxana Zega.

Have a wonderful evening everyone.

Be magnificent!

When water joins with water, it is not a meeting but a unification.

Swami Prajnanpad

As ever,

Carolann

Believe that life is worth living and your belief will help create the fact.

                                                        -William James, 1841-1910

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

Portfolio Manager &

Senior Vice-President

Queensbury Securities Inc.,

St. Andrew’s Square,

Suite 340A, 730 View St.,

Victoria, B.C. V8W 3Y7