August 16th, 2011 Newsletter

Dear Friends,

Tangents:

A friend just e-mailed me and remarked that Elvis died on this day in 1977 at 42 years of age.  It brought back a few fond memories for me….One of my best summers ever was drawing to an end that year.  I had been travelling around Europe by myself in the summer of 1977 –  I was meeting lots of interesting people, having great experiences.  On August 16^th, I was on my way back to France after spending some time in the Cyclades with a group of friends whom I had met in the south of Italy.  They were from England and were going to spend the winter in North Africa after our sojourn in Greece.  I had to get back to Montreal in time for my final year as an undergraduate; my flight was out of Paris and as I was hustling through the Athens airport, I recall so vividly a young American woman around my age rushing up to me and asking, “Did you hear???”  I told her I had just arrived from a tiny Greek island and hadn’t heard any news and then she told me that Elvis had died that day.  So, I’ll always remember where I was and what I was thinking on that day, August 16^th, 1977.

The Globe & Mail ran a headline today, “GOLD DISCOVERED IN THE KLONDIKE” on August 16^th, 1896.  “Tens of millions of dollars in gold were taken before the rush ended in 1899, with production fading off over the next decade but the thrill of gold-rush days long remembered.”

As I write this, I’m looking at my Bloomberg terminal and watching gold march up over $30/ounce in after hours trading –looks like it’s heading to $1800.

It is fascinating stuff.  From an article I was reading recently:

In any era, understanding gold’s worth as a commodity requires some magical thinking.  You can’t eat it.  You can’t put it in your gas tank.  It won’t keep you warm at night.  It’s not as immediately useful as, say, cattle, which preceded gold as a widely accepted unit of wealth.  (Gold’s value was originally pegged to the worth of cows.  The Latin word for money, pecunia, comes from pecus, which means cattle, while the Indian rupee is derived from rupa, or cattle in Sanskrit.

Billionaire investor Warren Buffett addressed the fundamental strangeness of gold during a 1998 talk at Harvard University.  “It gets dug out of the ground….then we melt it down, dig another hole, bury it again, and pay people to stand around guarding it,” he said.  “It has no utility.  Anyone watching from Mars would be scratching their head.”

Photos of the day 

August 16, 2011

People relax in the last ray of the setting sun near the Kremlin Wall in Moscow, Russia. Alexander Zemlianichenko/AP.

A man looks at the crooked-looking architecture of the Neuer Zollhof building, designed by Frank Gehry in Duesseldorf, Germany. Martin Meissner/AP.

Market Commentary:

Canada

By Matt Walcoff

Aug. 16 (Bloomberg) — Canadian stocks fell for the first time in six days, led by energy and base-metals producers, after the European Union reported a bigger slowdown in economic growth than most economists had forecast and U.S. homebuilding dropped.

Canadian Natural Resources Ltd., the country’s second- largest energy company by market value, declined 2.4 percent as crude oil lost 1.4 percent. First Quantum Minerals Ltd., Canada’s second-largest publicly traded copper producer, decreased 6.3 percent as the metal slumped in New York. Toronto- Dominion Bank, Canada’s second-biggest lender by assets, slipped 0.8 percent after an analyst at Macquarie Group Ltd. cut his rating on the shares.

The Standard & Poor’s/TSX Composite Index decreased 152.9 points, or 1.2 percent, to 12,530.71.

“The economic stats, they haven’t given us anything to get excited about,” Jennifer Radman, a money manager at Caldwell Investment Management Ltd. in Toronto, said in a telephone interview. The firm oversees about C$1 billion ($1 billion).

“It’s certainly causing investors to pause a bit.”

The S&P/TSX surged 8.7 percent in the five days ending yesterday, the most since the beginning of the bull market in March 2009, as the U.S. reported a decline in initial jobless claims and a gain in retail sales. Crude oil jumped after sinking to a 10-month low, boosting energy stocks, the second- biggest part of the index.                       

 Gross domestic product in the 17 countries that use the euro rose 0.2 percent in the second quarter, the EU’s statistics office said, trailing most economists’ forecasts in a Bloomberg survey. Germany’s economy grew 0.1 percent, less than all 33 estimates.

U.S. housing starts fell to a 604,000 annual rate in July, down from a revised 613,000 in June, the Commerce Department said today in Washington. Building permits totaled 597,000, compared with a median forecast of 605,000 in a Bloomberg survey of economists.

In Canada, manufacturing sales dropped in June for a third month, Statistics Canada said today. The decline exceeded all 19 forecasts in a Bloomberg survey.

Sixty of 67 S&P/TSX energy companies declined. Canadian Natural lost 2.4 percent to C$36. Suncor Energy Inc., Canada’s biggest oil and gas producer, decreased 1.7 percent to C$31.89.

Encana Corp., the country’s largest natural gas producer, retreated 3 percent to C$24.99 as the fuel slumped to a five- month low.  Base-metals and coal producers fell as copper futures lost 1 percent in New York. First Quantum Minerals Ltd., Canada’s second-largest publicly traded copper producer, dropped 6.3 percent to C$23.05.Teck Resources Ltd., the country’s biggest company in the industry, slipped 3.8 percent to C$42.14. Quadra FNX Mining Ltd., which produces base metals in the U.S., Canada and Chile, sank 6.1 percent to C$12.10.

Grande Cache Coal Corp., which mines in Alberta, slumped 6.7 percent to C$6.81 after reporting first-quarter profit that missed the average estimate of analysts in a Bloomberg survey by 37 percent, excluding certain items.

Uranium producers declined after Ux Consulting Co. said prices of the nuclear fuel decreased 1.9 percent the week ending yesterday. Cameco Corp., the world’s largest uranium producer, fell 4.3 percent to C$22.35. Denison Mines Corp., which operates in Canada, the U.S. and Africa, dropped 7.7 percent to C$1.55.

Alacer Gold Corp., which mines in Turkey, rallied 7.9 percent to C$10.07 a day after reporting second-quarter earnings that beat the average estimate in a Bloomberg survey by 62 percent, excluding certain items. Lake Shore Gold Corp., which operates in Ontario, jumped 11 percent to C$2.17 after disclosing a new discovery at its Bell Creek Mine.

The country’s seven largest banks and three biggest insurers each fell after Sumit Malhotra, an analyst at Macquarie, said in a note to clients that banks’ 2012 earnings are likely to trail most other analysts’ estimates.

TD dropped 0.8 percent to C$76.26 after Malhotra cut his rating on the stock to “neutral” from “outperform.” National Bank of Canada, the country’s sixth-biggest lender by assets, declined 0.8 percent to C$72.81. Great-West Lifeco Inc., the country’s second-biggest insurer, lost 2.5 percent to C$22.68.

Sino-Forest Corp., the forestry company fighting a short seller’s assertions of financial manipulation, tumbled for a second day after saying the independent investigation it initiated into the assertions will take until the end of the year. The shares plunged 12 percent to C$5.34 after retreating 8.4 percent yesterday.

Directory publisher Yellow Media Inc. plunged 9.1 percent to C$1.10 after gaining 64 percent in the previous three days.

Shares of the Verdun, Quebec-based company have slumped 82 percent this year on concern it will be unable to retain profitability as fewer people use printed phone books.

Yoga-wear retailer Lululemon Athletica Inc. declined 7.2 percent to C$53.26. Glen T. Senk, Urban Outfitters Inc.’s chief executive officer, said on a conference call yesterday that he is “a little concerned” about sales at the company’s Anthropologie chain of women’s clothing stores.

US

By Rita Nazareth

     Aug. 16 (Bloomberg) — U.S. stocks fell, following the biggest three-day rally since 2009, as German and French leaders proposed a financial-transaction tax and rejected selling euro bonds to halt a debt crisis threatening economic growth. NYSE Euronext and Nasdaq OMX Group Inc., two of the biggest exchange operators in Europe, dropped more than 2.7 percent.

Caterpillar Inc., Deere & Co. and 3M Co. declined at least 1.4 percent, pacing losses in companies most-tied to the economy, as Europe’s economic growth trailed estimates and U.S. housing starts slumped. Citigroup Inc. and Bank of America Corp. slipped more than 4.2 percent after billionaire John Paulson’s hedge fund said it reduced positions in both lenders.

The S&P 500 fell 1 percent to 1,192.76 at 4 p.m. in New York. The benchmark gauge advanced 2.2 percent yesterday, erasing last week’s decline. The Dow Jones Industrial Average slid 76.97 points, or 0.7 percent, to 11,405.93 today.

“Europe will continue to be an overhang until they come up with realistic policies,” Peter Jankovskis, who helps manage about $2.6 billion at Oakbrook Investments in Lisle, Illinois, said in a telephone interview. “We’ve already got disappointing economic numbers out of Europe earlier today. Then, you have a program which is not really doing anything to address that.” The S&P 500 has fallen 13 percent since April 29 on concern about an economic slowdown and Europe’s widening debt crisis.

Gauges of S&P 500 companies least-tied to economic growth, including utilities and sellers of consumer staples, fell less than the index during the slump, losing 1.7 percent and 4.5 percent, respectively. The index had rallied 7.5 percent over the three days before today amid a decline in jobless claims, an increase in retail sales and corporate takeovers.

Earlier losses in stocks today followed a report showing European economic growth slowed more than forecast in the second quarter as Germany’s recovery almost ground to a halt amid the worsening debt crisis. Gross domestic product in the 17-nation euro area rose 0.2 percent from the first quarter, the worst performance since the euro region emerged from a recession in late 2009. Economists had forecast growth of 0.3 percent, according to the median of estimates in a Bloomberg News survey.

German Chancellor Angela Merkel and French President Nicolas Sarkozy said they’ll press for closer euro-area economic integration with tougher deficit rules and stricter supervision to stamp out the debt crisis. Merkel and Sarkozy rejected euro bonds and expanding the 440 billion-euro ($633 billion) rescue fund. They also proposed a plan to resubmit a financial- transaction tax, which was rejected in 2010.

They proposed debt limits be written into national law and establishing a “euro council” to be headed by European Union President Herman van Rompuy as part of a planned “economic government” for Europe. While joint euro-region bond sales may come eventually, their introduction now would put the most stable countries of the euro zone in grave danger, Sarkozy said.

NYSE Euronext, which operates stock and derivatives exchanges in Paris, Amsterdam, Brussels, Lisbon and London, fell 8.4 percent to $26.54. Nasdaq OMX, the operator of Nordic and Baltic bourses, slumped 2.8 percent to $22.97. The Bloomberg World Exchanges Index of 25 companies lost 1.6 percent.

Concern about Europe’s crisis overshadowed a report showing industrial production in the U.S. climbed in July by the most this year. The 0.9 percent increase in production at factories, mines and utilities followed a revised 0.4 percent gain that was more the previously estimated, figures from the Federal Reserve showed. Economists projected a 0.5 percent rise in July, according to the median estimate in a Bloomberg News survey.            

Fitch Ratings affirmed its AAA credit rating for the U.S. and said the outlook is stable, citing the nation’s central role in the global financial system and the flexible, diverse economy. Fitch had put the rating under review after lawmakers reached a compromise Aug. 2 on a debt-limit agreement that prevented a U.S. default. S&P on Aug. 5 cut its U.S. credit rating to AA+ from AAA, saying lawmakers failed to cut spending enough to reduce record deficits.

“People are desperate for stability in unpredictable times,” Matt McCormick, a money manager at Cincinnati-based Bahl & Gaynor Inc., which oversees $4 billion, said in a telephone interview. “The economy and consumers are not as strong as people thought regardless of how bad they wanted the market to go up. Europe is a mess. There’s no easy answer on how to get economic growth going again.”

The Morgan Stanley Cyclical Index of companies whose earnings are most-tied to growth slumped 1.7 percent as 27 of its 30 stocks retreated. Caterpillar, the largest construction and mining-equipment maker, decreased 2.2 percent to $89.35. Deere slid 1.8 percent to $75.16. 3M fell 1.4 percent to $82.13.

Financial stocks had the biggest decline in the S&P 500 within 10 groups, falling 1.9 percent.

Citigroup slid 4.3 percent to $29.94, while Bank of America sank 4.6 percent to $7.40. Paulson & Co. sold 7.8 million shares of New York-based Citigroup in the second quarter, leaving the fund with 33.5 million shares as of June 30, according to a filing yesterday with the U.S. Securities and Exchange Commission. The fund sold 63.2 million shares of Charlotte, North Carolina-based Bank of America, leaving it with 60.4 million, according to the filing.

Financial companies posted the worst performance among 10 industry groups in the S&P 500 in the second quarter, losing 6.3 percent. The KBW Bank Index of 24 companies fell 19 percent from June 30 through yesterday, with Citigroup and Bank of America plummeting 25 percent and 29 percent, respectively.

Gauges of energy and raw-material companies in the S&P 500 slumped at least 1.4 percent as oil and copper fell. Exxon Mobil Corp. decreased 1.1 percent to $73.50. Alcoa Inc. dropped 2.4 percent to $12.26.                      

 Wal-Mart Stores Inc. gained 3.9 percent to $51.92. The world’s largest retailer boosted its profit forecast for the year after second-quarter earnings rose and the Sam’s Club wholesale chain helped the company halt a decline in sales at its U.S. stores.

Home Depot Inc. added 5.3 percent to $33.12. The largest U.S. home improvement retailer raised its full-year profit forecast after second-quarter profit exceeded analysts’ estimates, spurred by increased traffic and spending by customers.

“Corporate America is in much better shape than the public sector,” Alan Gayle, a senior strategist at RidgeWorth Capital Management in Richmond, Virginia, which oversees about $48 billion, said in a telephone interview. “Still, the soft patch remains the central focus right now.”                         

 U.S. stocks may slip to new lows in the next few weeks, setting the stage for a rally of more than 20 percent in the S&P 500, said Tom DeMark, the creator of indicators meant to identify turning points in the price of securities. The index, which closed at 1,204.49 yesterday, will probably drop below the 11-month low of 1,119.46 set on Aug. 8 before surging above 1,363.61, its peak on April 29, DeMark said during an interview in London today.

The rebound may last two to three months and also push the Dow average and Nasdaq Composite Index above their 2011 highs, DeMark said. European banks including Societe Generale SA “look like buys” after the shares tumbled this month, he said.

“We’re at the point right now where the next trip down will probably generate a buy signal,” said DeMark, the founder of Market Studies LLC. “Everything we follow is indicating the Dow Jones and the S&P should make a minor new recovery high, and probably the Nasdaq, too.”

Have a wonderful evening everyone.

Be magnificent!

Expansion is life; contraction is death.

Love is life, hatred is death.

We began to die the day we began to contract, to hate others

and nothing can prevent our death,

until we come back to life, to expansion.

-Swami Vivekananda, 1863-1902

As ever,

Carolann

Chance favours only those who court her.

                   -Charles Nicolle, 1866-1936