August 20, 2012 Newsletter

Dear Friends,

Tangents:

We discovered a new (for us) musician on Friday night at Jazz Alley in Seattle.  Her name is Karrin Allyson and even though we had never heard of her, let alone see her live, it turns out she has been nominated Grammy’s three times.  At the end of the show I was standing in line to buy CDs and chatted with the woman in front of me who was visiting from the east coast and told me she had been listening to her for years and how incredible all her CDs are.  Her last one came out in 2011 and is entitled Round Midnight.  I highly recommend it.  She sings Paul Simon’s April Come She Will beautifully and Turn Out the Stars.  Check out www.karrin.com.

And on this day in…

1667 – John Milton publishes Paradise Lost, an epic poem about the fall of Adam and Eve.

1921 – Jacqueline Susann, writer, was born.

1940 – Radar is used for the first time, by the British during the Battle of Britain. Also on this day, in a radio broadcast, Winston Churchill makes his famous homage to the Royal Air Force: “Never in the field of human conflict was so much owed by so many to so few.”
1941 – Adolf Hitler authorizes the development of the V-2 missile – beginning of the age of rockets.

1942 – Plutonium first weighed.

In three words I can sum up everything I’ve learned about life:  It Goes On.  –Robert Frost.

photos of the day August 20, 2012

Ecuador’s Tungurahua volcano spews large clouds of gas and ash near Banos. The authorities are encouraging residents living near the volcano to evacuate due to the increased activity of the volcano. The volcano has been in an active state since October 1999.

Carlos Campana/Reuters

A girl sits on a floor painting that creates a three-dimensional optical illusion at a shopping mall in Hong Kong.

Bobby Yip/Reuters

Market Closes for August 20, 2012:

North American Markets

International Markets

Bonds

Currencies

Commodities

Market Commentary:

Canada

By Eric Lam

Aug. 20 (Bloomberg) — Canadian stocks fell for the first time in five days as a rally in oil halted and European policy makers disagreed over plans for government bond purchases.

Teck Resources Ltd. slipped 0.2 percent as copper fell on speculation that higher Chinese home prices will deter officials from adding economic stimulus. Cenovus Energy Inc. dropped 1.1 percent.

The Standard & Poor’s/TSX Composite Index lost 13.86 points, or 0.1 percent, to 12,076.03 at the close. The index briefly erased losses in an afternoon rebound and has gained 3.5 percent this month.

“We’ve had a decent rise and the market is resilient on the downside,” Greg Eckel, a fund manager with Morgan Meighen & Associates, which manages about C$1 billion ($1 billion), said in a phone interview. “A lot of investors are looking for a near-term catalyst to take their cue from as to where we will go from here.”

The benchmark index for Canadian stocks fell after Germany’s Bundesbank stepped up its criticism of the European Central Bank’s plan to embark on potentially “unlimited” government bond purchases, widening a rift on how to deal with the sovereign debt crisis.

“The Bundesbank holds to the opinion that government bond purchases by the Eurosystem are to be seen critically and entail significant stability risks,” the Frankfurt-based central bank said in its monthly report today.

The comments suggest Bundesbank President Jens Weidmann won’t support a measure the ECB is rushing to design to help reduce governments’ borrowing costs and win them time to implement fiscal reforms.

Teck Resources, Canada’s largest diversified mining company, slumped 0.2 percent to C$29.33 after copper prices fell the most in two weeks on bets that higher Chinese home prices will deter officials from adding stimulus to boost economic growth. Copper futures for December delivery slid 1.4 percent to settle at $3.379 a pound on the Comex in New York, the biggest drop since since Aug. 2.

Cenovus retreated 1.1 percent to C$32.87 after oil futures fell for the first time in five days. Crude fell 4 cents to settle at $95.97 a barrel in New York.

Harry Winston Diamond Corp. tumbled 5.1 percent to C$12.72 after posting an update on its Diavik diamond mine, located about 300 kilometers north of Yellowknife in the Northwest Territories. The new figures suggest the mine’s valuation may be reduced by as much as 25 percent from previous estimates of $1.2 billion, said Edward Sterck, analyst with BMO Capital Markets in London.

“A reduction to cash flows and valuation would be negative,” he said in a note to clients. Harry Winston owns a 40 percent stake in the mine, but does not operate it.

Rona Inc. lost 2.2 percent to C$13.50 after potential suitor Lowe’s Cos. said it wasn’t planning an imminent bid for Canada’s largest home improvement retailer.

Precious-metals producers in the S&P/TSX gained as gold and silver rose in New York. Barrick Gold Corp., the world’s largest gold-mining company, added 1.2 percent to C$36.01. Silver Standard Resources Inc. surged 5.5 percent to C$13.14 for the biggest percentage gain in the stock gauge. Silvercorp Metals added 3.2 percent to C$5.44.

Gold gained 0.2 percent to settle at $1,623 an ounce in New York. Silver jumped 2.1 percent to $28.678 an ounce, the biggest gain since Aug. 3.

US

By Inyoung Hwang

Aug. 20 (Bloomberg) — Most U.S. stocks fell, after the Standard & Poor’s 500 Index rose to its highest level since April, as investor concern about Europe’s debt crisis overshadowed a rally in technology and financial companies.

Best Buy Co. lost 10 percent after saying its founder declined an offer from the board to conduct due diligence and go to shareholders with his buyout offer. Apple Inc. jumped 2.6 percent to its highest price ever, pacing a technology rally.

Bank of America Corp. and JPMorgan Chase & Co. added at least 1.1 percent as financial companies recovered from early losses.

The S&P 500 was almost unchanged at 1,418.13 at 4 p.m. in New York, within a point of a four-year high set in April. The gauge fell 0.4 percent earlier as Germany’s Bundesbank stepped up its criticism of the European Central Bank’s bond-buying program. The Dow Jones Industrial Average lost 3.56 points, or less than 0.1 percent, to 13,271.64. Seven stocks fell for every five declining on U.S. exchanges, with volume at 4.9 billion shares, 23 percent below the three-month average.

“We’re at a pretty formidable technical resistance here,” Michael Strauss, who helps oversee about $26 billion of assets as the chief investment strategist at Commonfund in Wilton, Connecticut, said in a telephone interview. “The Bundesbank does have a hard problem with this,” he said, referring to the ECB’s bond-buying program. “Germany is being put in the position as being the lender of last resort in Europe.”

The S&P 500 last week capped its longest stretch of weekly gains since January 2011 as economic reports beat forecasts and Germany backed the ECB’s bond-buying plan. Trading volume and volatility have dropped this month as vacationing traders await policy clues from the Federal Reserve’s summit at the end of the month and an ECB meeting in September.

Government bond purchases “entail significant stability risks,” the Bundesbank said in its monthly report today. The ECB’s governing council may decide at its next gathering to set yield limits on each country’s debt, Spiegel magazine reported yesterday, without saying where it got the information. The ECB said the council has not discussed any plan to target the bond yields and that “it is absolutely misleading to report on decisions,” a bank spokesman said in an e-mailed statement.

Reports in the U.S. this week will show that combined purchases of new and existing houses increased to a 4.89 million annual rate in July from a 4.72 million pace in June, according to the median forecasts in surveys of economists before releases from the National Association of Realtors on Aug. 22 and the Commerce Department the next day. Bookings for long-lasting goods may have climbed the most this year, a release from the Commerce Department will show Aug. 24, according to the median estimate.

The Fed will on Aug. 22 release minutes from the Aug. 1 meeting of the Federal Open Market Committee, when policy makers declined to initiate a third round of monetary stimulus, a policy known as quantitative easing. The S&P 500 has rallied 11 percent since June 1 on speculation the central bank may signal more easing at the Kansas City Fed’s annual conference on Aug. 30 to Sept. 1 in Jackson Hole, Wyoming.

The 13 percent rally in the S&P 500 this year through Aug.17 has lifted the gauge to its highest level ever compared with strategists’ forecasts, a sign that the best may be over for U.S. equities in 2012.

Shares have climbed 2.1 percent above the average projection of 1,389 from 13 firms from Morgan Stanley to JPMorgan tracked by Bloomberg. That’s the biggest premium on record for this time of year, according to data going back to 1999. Estimates by strategists in August have come true for the last three years, with the S&P 500 rising 11 percent on average through December, the data show.

“The core fundamentals are not really a reason to be long stocks,” said Barry Knapp, the New York-based head of U.S. equity strategy at Barclays Plc, in an interview on Bloomberg Television’s “In the Loop” with Deirdre Bolton. “Core fundamentals, earnings and revenue growth have deteriorated to a great extent.”

Phone and consumer discretionary companies posted the biggest declines out of 10 groups in the S&P 500, falling more than 0.5 percent.

Best Buy erased 10 percent for the biggest decline in the S&P 500 to $18.16. The retailer’s board proposed that founder Richard Schulze, beginning in January, be allowed to take his buyout offer to shareholders, should the board decide to reject any definitive proposal to acquire shares. Schulze didn’t accept the proposal, according to Best Buy.

Lowe’s Cos. tumbled 5.8 percent to $26.26. The second- largest U.S. home-improvement retailer reported second-quarter earnings that trailed analysts’ estimates as comparable-store sales fell. Adjusted earnings per share were 65 cents. Analysts had projected 70 cents. The retailer cut its full-year profit forecast to $1.64 a share from a projection of $1.83 a share in May.

Waste Management Inc. decreased 3 percent to $34.60 after Barron’s reported the trash handler may be poised to fall as much as 15 percent because of operating performance. Garbage volume has been little changed to down for years because of conservation, recycling and slow industrial growth, Barron’s said.

Corinthian Colleges Inc. slipped 1.2 percent to $2.42. The for-profit college operator forecast revenue in the first quarter will be no more than $405 million, missing the average analyst estimate of $406.4 million.

Financial stocks rose 0.3 percent after dropping as much as 0.3 percent earlier. Bank of America, the second-largest U.S. bank by assets, climbed 1.9 percent to $8.15. JPMorgan, the biggest bank in the nation by assets, added 1.1 percent to $37.37.

Technology stocks increased 0.3 percent. Hewlett-Packard Co. soared 2.9 percent to $20.09 for the biggest gain in the Dow.

Apple, the world’s most valuable company, advanced 2.6 percent to $665.15. The company’s market value reached $623.52 billion, higher than Microsoft Corp.’s record of $620.6 billion, according to Howard Silverblatt, senior index analyst at S&P, in a note today. The iPhone and iPad maker surpassed $600 billion in market value last week on speculation that production has started on a smaller version of the iPad tablet as well as a new television product.

Facebook Inc., the operator of the world’s largest social- networking service, jumped 5 percent to $20.01 after falling last week to a record low that was close to half the stock’s initial public offering price of $38 in May.

Health-care stocks added 0.3 percent as a group. Coventry Health Care Inc. surged 20 percent to $42.04. Aetna Inc., a health insurer, will pay $42.08 a share for the medical-care provider in cash and stock, the companies said in a statement today. Aetna’s shares climbed 5.6 percent to $40.18.

Have a wonderful evening everyone.

Be magnificent!

Life is very real – life is not an abstraction –

our problems begin when we encounter it only through images

Krishnamurti, 1895-1986

As ever,

Carolann

Posterity is as likely to be wrong as anyone else.

-Heywood Brown, 1888-1939

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