August 19, 2011 Newsletter

Dear Friends,

Tangents:

G & M: August 19, 1942, DIEPPE RAID ENDS IN DISASTER  Canada suffered 3,367 casualties, including 913 deaths….some historians say it provided lessons in tactics and use of equipment, ones employed in the successful operation two years later.

Those summer daydreams

From The Huffington Post:

Ø  “What you said in June:  ‘It’s so nice out.  I’m definitely going to start jogging every day.  It was the cold weather that was holding me back before.  Beach body, here I come!’”

Ø  “What you said in July:  ‘Sweet Jesus it’s hot.  I definitely can’t go running now.  I’m not being lazy. It’s just a health hazard to run in temperatures above [28 C].  I have to be mindful of my health.’”

Ø  “What you’re saying now: ‘Okay, maybe jogging isn’t for me.  I mean, I went that one time and it was really boring.  If not for the excruciating cramps and the need to stop every minute to pretend to tie my shoe, I probably would have died of boredom.  Maybe I’ll join a gym in the fall.  Yeah.  I’ll definitely do that.’”

Bill Clinton’s Birthday: August 19, 1946

Proverb: When spider webs unite, they can tie up a lion.

30  YEARS AGO: Seasoned Judgment ~ Calling her a “person for all seasons,” President Ronald Reagan nominates Arizona appeals court judge Sandra Day O’Connor to the U.S. Supreme Court, August 19, 1981.  The first female nominee to the high court, O’Connor faces opposition from anti-abortion groups concerned about her record.  At her confirmation hearing, she describes the role of the judiciary as “interpreting and applying the law, not making it”;  she is confirmed by a unanimous vote in the Senate on September 21.  O’Connor’s 25-year tenure is marked by centrism, and hers is often the swing vote. -The Smithsonian

Photos of the day

August 19, 2011

Bulgarian artist Kristina Yosifova works on the sand sculpture ‘Quaternion Beasts’ at the Sand Sculptures Festival in Rorschach at Lake Constance, Switzerland. Arnd Wiegmann/Reuters.

Shaun McLaughlin of Natick, Mass., who was born without a right foot, learns to surf Thursday with help from Dana Cummings of AmpSurf during a Learn-to-Surf clinic at Long Sands Beach in York, Maine. AmpSurf, a California-based organization, teaches people with disabilities how to surf. Gregory Rec/Portland Press Herald/AP.

Market Commentary:

Canada

By Matt Walcoff

Aug. 19 (Bloomberg) — Canadian stocks fell, extending a weekly drop, as banks declined on concern the global economic recovery is slowing.

Toronto-Dominion Bank, Canada’s second-largest lender by assets, lost 2.7 percent after Citigroup Inc. and JPMorgan Chase & Co. cut their U.S. growth forecasts. Penn West Petroleum Ltd., a western Canadian energy producer, decreased 3.2 percent as crude oil headed for its fourth-straight weekly retreat. Barrick Gold Corp., the world’s biggest gold producer, rose 1.3 percent as the metal extended a record.

The Standard & Poor’s/TSX Composite Index fell 47.72 points, or 0.4 percent, to 12,138.99 at 12:46 p.m. in Toronto, extending its weekly decline to 3.2 percent.

“The market has been reacting to the financial situation in Europe and the global economic slowdown,” Murray Leith, a money manager at Odlum Brown Ltd. in Vancouver, said in a telephone interview. The firm oversees C$7.5 billion ($7.6 billion). “We’ve had a big economic slowdown in North America, driven by the United States.”

The S&P/TSX lost 5.9 percent this month through yesterday as oil plunged 14 percent. The fuel retreated as data on U.S. housing and employment and European gross domestic product reflected a slowing economic rebound. Energy companies make up 26 percent of Canadian stocks by market value, according to data compiled by Bloomberg.

In a note to clients today, JPMorgan said U.S. GDP will increase one-third as much as it had formerly forecast in the first quarter of 2012. Citigroup cut its 2012 U.S. economic- growth estimate to 2.1 percent from 2.7 percent.                       

The S&P/TSX Banks Index fell to head for its biggest two- day tumble since May 2009.

TD, which has more than 1,000 U.S. branches, dropped 2.7 percent to C$72.03. Royal Bank of Canada, its bigger rival, slipped 2 percent to C$49.45. Bank of Nova Scotia, Canada’s third-largest lender by assets, declined 3.2 percent to C$50.80.

Manulife Financial Corp., the country’s biggest insurer, lost 1.8 percent to C$12.71.

Peter Routledge, an analyst at National Bank of Canada, cut his earnings estimates for the six largest banks after markets closed yesterday, citing economic pessimism in a note to clients.

An index of S&P/TSX energy stocks retreated after plunging 4.9 percent yesterday. Penn West dropped 3.2 percent to C$17.74.

Precision Drilling Corp., Canada’s largest drilling company by market value, declined 3.4 percent to C$11.99 to extend its two- day slump to 13 percent. Bankers Petroleum Ltd., an oil and gas producer with operations in Albania, fell for a sixth day, sinking 5 percent to C$4.16.                        

Gold futures rallied as much as 3.3 percent to head for their seventh-straight weekly advance as the U.S. dollar slid to a postwar low against the Japanese yen.

Barrick gained 1.4 percent to C$49.98. Goldcorp Inc., the world’s second-largest gold producer by market value, climbed 2 percent to C$50.46. Silver Wheaton Corp., Canada’s fourth- largest precious-metals company by market value, rallied 4.8 percent to C$38.59 as silver jumped as much as 4.8 percent.

 RIM gained 6 percent to C$27.03 after Peter Misek, an analyst at Jefferies & Co., raised his rating on the stock to “hold” from “underperform.” RIM could sell its patents for about $2 billion, Misek wrote in a note to clients. The shares have soared 11 percent this week, the most since October.

US

By Jeff Sutherland and Rita Nazareth

Aug. 19 (Bloomberg) — U.S. stocks fell, capping a fourth straight weekly slump for the Standard & Poor’s 500 Index, as the cheapest price-earnings ratios since 2009 failed to lure investors amid concern the global economy is weakening. The yen touched a post-World War II high against the dollar.

The S&P 500 dropped 1.5 percent to 1,123.53 at 4 p.m. in New York, after rising as much as 1.2 percent. The Stoxx Europe 600 Index fell 1.6 percent to its lowest close since July 2009.

The Japanese yen reached 75.95 per dollar, its strongest postwar level as investors sought refuge in the currency. Oil slid 0.1 percent as it swung from gains to losses. Gold futures topped $1,880 an ounce for the first time. Ten-year Treasury yields rose less than one basis point after yesterday’s record low.

Citigroup Inc. and JPMorgan Chase & Co. lowered their growth forecasts for the U.S. economy. German Chancellor Angela Merkel stepped up her rejection of jointly issued euro-area bonds, following speculation the European Union will start joint bond sales. Technology stocks in the S&P 500 retreated 2.8 percent, the most among a group of 10 in the index, as Hewlett- Packard Co. slumped 20 percent, its biggest drop since 1987 on a closing basis.

“The market is trading off of really primal fear,” Peter Kenny, a managing director in institutional sales at Knight Capital Group Inc. in Jersey City, New Jersey. “There’s fear that Europe represents a risk to the global markets, there’s fear of a recession. This is a very policy-driven approach to pricing amid a lack of enthusiasm on the part of the Europeans, specifically the Germans, not willing to assume any more risk. The reason that the market is not selling off more broadly today goes back to the sense that valuations beg for attention.”

The S&P 500 has fallen 18 percent from an almost three-year high on April 29 amid concern about Europe’s debt crisis and a global economic slowdown. The decline through Aug. 8 drove the index to a valuation of 12.2 times reported earnings, the lowest level since March 2009. Its price-earnings ratio is 12.3, compared with the average of 16.4 since 1954, according to data compiled by Bloomberg. The benchmark for U.S. equities lost 4.7 percent this week.

Global stocks fell today, extending the week’s slump in the MSCI All-Country World Index to 3.9 percent, as Citigroup cut its U.S. gross domestic product growth estimate to 1.6 percent in 2011 from 1.7 percent, and lowered its forecast for 2012 to 2.1 percent from 2.7 percent. JPMorgan said GDP will grow 1 percent in the fourth quarter rather than the 2.5 percent previously forecast and 0.5 percent in the first quarter of 2012 instead of 1.5 percent. Citigroup also reduced its earnings estimates for S&P 500 companies for this year and next.                       

Stock futures pared early losses amid optimism European Union regulators may push for joint bond sales by euro-area nations to help contain the debt crisis, putting pressure on Germany to drop its opposition. The European Commission said it may present draft legislation on euro bonds when completing a report on the feasibility of common debt sales. The commission, the EU’s regulatory arm in Brussels, opposed such a step earlier this year because of Germany.

 German Chancellor Merkel rejected the idea of jointly issued euro-area bonds, saying that a “collectivization” of the region’s debt would leave euro members worse off. “We don’t want that,” Merkel told members of her Christian Democratic Union today in Hameln, Germany.

Hewlett-Packard tumbled 20 percent after missing analysts’ forecasts and announcing strategic changes that will take at least a year to execute. Financial shares in the S&P 500 dropped 1.9 percent, the second-biggest decline among 10 industries behind technology. Citigroup retreated 4.3 percent to $26.77. JPMorgan fell 2.4 percent to $34.35.                   

Stocks in the S&P 500 are moving in lockstep with each other by the most since at least 1990, a sign that the market’s biggest retreat in three years may not be over, according to MF Global Holdings Ltd. The average correlation coefficient between the 500 companies and the index was 0.8268 yesterday, using 60 days of data, according to MF Global.

The increase shows investors are ignoring the merits of individual stocks and instead reacting to news about the economy, said Craig Peskin, co-head of technical analysis at the New York-based securities firm. High correlation “is usually the case in a bear market, when investors are liquidating equities as an asset class,” he wrote in an e-mail yesterday.

“In a bull market, when investors are differentiating, we see low or falling correlation.”

Correlation among S&P 500 stocks exceeded 0.78 twice previously, according to MF Global data. After the first time, on Dec. 1, 2008, the S&P 500 declined 17 percent to a 12-year low on March 9, 2009. Correlation peaked again on July 26, 2010, when the benchmark slipped 6.1 percent over the next month, data compiled by MF Global and Bloomberg show.

The yen rallied to the strongest level since World War II versus the dollar as the U.S. economic slowdown and Europe’s debt crisis stoked concern global growth is slumping, bolstering the refuge appeal of Japan’s currency.

Japanese Finance Minister Yoshihiko Noda signaled he’s ready to do another “surprise” intervention in markets to curb the yen’s gains. Noda said he “will keep monitoring markets carefully” and that intervention “is a measure of last resort — it would be meaningless if it were not a surprise.”

The yen has risen beyond the level that prompted Japan to unilaterally sell the currency on Aug. 4, its first intervention in currency markets since March.                          

The Japanese currency gained 5.5 percent over the past three months, making it the second-best performer among 10 major-economy currencies tracked by Bloomberg Correlation- Weighted Currency Indexes. The franc, the biggest gainer, rose 11 percent, while the dollar is down 1.7 percent.

The euro added 0.5 percent against the dollar, erasing earlier losses versus the dollar and yen amid speculation the Federal Reserve will consider measures to help ease financial market turmoil. Fed Chairman Ben S. Bernanke speaks at an economic conference next week in Jackson Hole, Wyoming. Last year at the event Bernanke foreshadowed a second round of bond purchases.

More than $6 trillion has been erased from the value of global equities this month on signs the U.S. recovery is stumbling, while the cost of insuring European sovereign debt is back to levels that triggered the region’s central bank to buy Italian and Spanish bonds on Aug. 8.                        

The Stoxx 600 closed at the lowest level in two years, as a gauge of European banks sank to the lowest level since 2009.

Daimler AG and Bayerische Motoren Werke AG slid more than 2.5 percent. Technology shares were one of two industry group among 19 in the Stoxx 600 to gain, as Autonomy Corp. surged 72 percent after the U.K. software company agreed to be bought by Hewlett- Packard.

The cost of protecting European bank bonds from default rose, with the Markit iTraxx SovX Western Europe Index of credit-default swaps linked to 15 governments climbing two basis points to 291. Two-year Greek yields surpassed 37 percent for the first time in almost a month, and 10-year yields increased 51 basis points to 16.16 percent.

Oil posted a fourth weekly decline. Futures settled 0.1 percent lower at $82.26, after falling as much as 3.9 percent and rallying 1.4 percent today. Oil in New York slipped below $80 a barrel earlier on concern that lower economic growth will curb fuel demand. Futures have dropped 18 percent since July 22, the biggest four-week decline since October 2008.                       

The S&P GSCI index of 24 commodities rose 1 percent. Gold jumped 1.7 percent to settle at $1,852.20 after trading at a record $1,887.63 earlier. The metal rallied for a seventh weekly advance, the longest run of gains since April 2007.

Treasury 30-year yields posted their biggest weekly drop since the depths of the financial crisis in December 2008.

Yields on 10-year Treasury notes increased less than one basis point to 2.07 percent. This is the second period since the 1950s in which stocks have paid higher yields than bonds, according to Birinyi Associates Inc. The 2.28 percent dividend payout for S&P 500 companies is higher than the current rate on 10-year Treasury notes, according to data compiled by Bloomberg.

Have a wonderful weekend everyone.

Be magnificent!

Differentiation, infinitely contradictory, must remain,

but it is not necessary that we should hate each other;

it is not necessary therefore that we should fight each other.

-Swami Vivekananda, 1863-1902

As ever,

Carolann

Of course you can’t gain ground

if you are standing still.

            -Bill Clinton, 1946-