August 4th, 2011 Newsletter
Dear Friends,
Tangents:
Tomorrow is another day.
English proverb, early 16th century
Since it’s summer vacation time, think about…
Forgetting
Sometimes we need to release our mental burden and just to ourselves: forget it. Let all the memories, good or bad, gently flow out of our consciousness. “to close the doors and windows of consciousness for a time, “ wrote Nietzsche. “To remain undisturbed by the noise of utility organs working with and against one another…to make room for new things…that is the purpose of active forgetfulness, which is like a doorkeeper, a preserver of psychic order, repose and etiquette.” Furthermore, said Nietzsche of important pleasure: “It will be immediately obvious how there could be no happiness, no cheerfulness, no hope, no pride, no present, without forgetfulness.” -Tom Hodgkinson, The Book of Idle Pleasures
Photos of the day
August 4, 2011
The old district of Kashgar contrasts with modern high rises in Xinjiang province, China. The ‘renovation’ of the old Kashgar center is a prime example of China’s modernizing campaigns in minority ethnic regions. Many city residents have mixed feelings about the disappearance of the narrow streets and adobe homes once hailed as the best surviving example of Central Asian architecture. Carlos Barria/Reuters
A vendor arranges watermelons for sale along the side of a road in Kolkata, India. Rupak De Chowdhuri/Reuters
Market Commentary:
Canada
By Matt Walcoff
Aug. 4 (Bloomberg) — Canadian stocks fell the most in 25 months, led by oil and metals producers, as commodity prices tumbled on a stronger U.S. dollar and concern the global economy is stalling.
Suncor Energy Inc., Canada’s largest oil and gas producer, dropped 4.4 percent as crude erased its 2011 gain. Directory publisher Yellow Media Inc. plunged 43 percent after cutting its dividend 77 percent. Valeant Pharmaceuticals International Inc., Canada’s largest drugmaker, slumped 20 percent after reporting net income that missed analysts’ estimates.
The Standard & Poor’s/TSX Composite Index decreased 435.9 points, or 3.4 percent, to a 10-month low of 12,380.13. Among S&P/TSX stocks, 3.1 percent advanced, the least in a day since January 2008.
“The market is really starting to understand we’re not going to have a normal economic recovery, and the political uncertainty we see both in Europe and the U.S. isn’t doing anything for confidence,” Arthur Salzer, chief executive officer of Northland Wealth Management, said in a telephone interview. The firm oversees C$200 million ($205 million).
The stock benchmark fell 5 percent from July 22 to yesterday as data on U.S. and Canadian gross domestic product, as well as indexes of U.S. manufacturing and service-industry businesses, trailed most economists’ forecasts.
The U.S. dollar rose as much as 1.6 percent, gaining against 15 of 16 other major currencies. The Bank of Japan sold yen after that currency gained 11 percent from April 6 to yesterday. Switzerland’s central bank took steps to slow advances in the franc yesterday.
Crude oil futures dropped for a fifth day, sliding the most since May 5. Natural gas retreated below $4 per million British thermal units for the first time since April after the U.S. reported stockpiles increased more than most analysts in a Bloomberg survey had forecast.
Suncor declined 4.4 percent to C$33.12. Canadian Natural Resources Ltd., Canada’s second-largest energy company by market value, lost 1.7 percent to C$36.19 for an eighth-straight retreat, the longest streak since 2002. Encana Corp., Canada’s largest natural gas producer, slid 5.3 percent to a 29-month low of C$25.72.
Athabasca Oil Sands Corp., PetroChina Co.’s partner in oil sands development, slumped 11 percent, the most since it began trading in April 2010, to C$13.88. The company released well results that Chad Friess, an analyst at UBS AG, and Phil Skolnick, an analyst at Canaccord Financial Inc., each called “mixed” in notes to clients.
An index of S&P/TSX raw-materials producers dropped the most since June 2009 as all major base metals traded on the London Metal Exchange retreated and gold slipped from a record.
Teck Resources Ltd., the country’s largest base-metals and coal producer, decreased 6.7 percent to C$42.90. First Quantum Minerals Ltd., Canada’s second-largest publicly traded copper producer, fell 7.4 percent to C$116.19. Lundin Mining Corp., which mines base metals in Europe, dropped 15 percent to C$5.67, extending losses after reporting earnings that missed its average analyst estimate on July 29.
Barrick Gold Corp., the world’s largest gold producer, slipped 4.1 percent to C$45.38. Silvercorp Metals Inc., which mines in China, declined 12 percent to C$8.78 as silver decreased the most since May.
A gauge of financial shares slid to the lowest level since September. Bank of Nova Scotia, the country’s third-biggest lender by assets, fell 1.8 percent to C$52.30. Manulife Financial Inc., North America’s fourth-largest insurer, decreased 3.3 percent to C$13.93. Brookfield Asset Management Inc., Canada’s biggest real estate company, dropped 3.5 percent to C$28.05.
Potash Corp. of Saskatchewan Inc., the world’s largest fertilizer producer by market value, declined 4.9 percent to C$52.47 as wheat futures decreased the most in five weeks.
Uranium producers retreated after Cameco Corp., the world’s largest producer of the nuclear fuel, cut its global demand estimates, citing Japan’s nuclear crisis and Germany’s decision to close reactors. Cameco lost 3.4 percent to C$23.76. Uranium One Inc., a mining company controlled by Moscow-based ARMZ Uranium Holding, retreated 9.9 percent to C$3.09.
Yellow Media sank a record 43 percent, extending its 2011 tumble to 82 percent, to C$1.10 after cutting its dividend and suspending stock buybacks. The company also withdrew its profit and sales forecasts and said it will no longer provide such estimates.
Shares of the Verdun, Quebec-based company have plunged this year on concern the company will be unable to maintain profit levels as fewer people use printed phone books.
Valeant slumped 20 percent, the most since July 2007, to C$40.22 after reporting earnings excluding some items that beat the average analyst estimate in a Bloomberg survey by 1.9 percent. Net income of $56.36 million missed the average projection by 51 percent.
The pharmaceutical company forecast earnings for the third quarter that missed some analysts’ expectations and would represent a decline from the second quarter, Corey Davis, an analyst at Jefferies Group Inc. said in an e-mail.
SXC Health Solutions Corp. lost 7.5 percent, the most since April 2009, to C$53.46. The pharmacy-benefits manager posted second-quarter profit that trailed the average analyst estimate in a Bloomberg survey by 1.3 percent, excluding certain items.
US
By Rita Nazareth
Aug. 4 (Bloomberg) — U.S. stocks plunged, driving the Standard & Poor’s 500 Index to the biggest decline since February 2009, as concern the global economy is weakening prompted a global rout.
Only three out of 500 stocks in the benchmark measure of American equities rose. Losses exceeded 10 percent for 13 of the companies including Alpha Natural Resources Inc. and Gap Inc., which fell after the retailer’s sales missed estimates. All 10 S&P 500 groups slumped, led by losses topping 5.3 percent for energy, material and industrial shares. Chevron Corp. and Alcoa Inc. fell more than 5.7 percent as Japan sold its currency, driving down commodities priced in the dollar.
The S&P 500 decreased 4.8 percent to an eight-month low of1,200.07 at 4 p.m. in New York. It has retreated 11 percent since July 22, the biggest loss over the same amount of time since March 9, 2009, when the equity bull market began. The Dow Jones Industrial Average declined 512.76 points, or 4.3 percent, to 11,383.68 today, erasing its 2011 gain. Almost 14 billion shares changed hands on U.S. exchanges at 4:27 p.m., 90 percent higher than the three-month average.
“It’s unbelievable,” David Joy, Boston-based chief market strategist at Ameriprise Financial Inc., said in a telephone interview. His firm oversees $693 billion in assets. “The emotional aspect of this is ticking higher. It’s left everybody with this mindset that things are not good. The situation in Europe is getting everyone concerned. We had the impact of the Japan intervention in the currency market. The flight-to-quality trade is going to pick up.”
Global stocks had their biggest one-day rout since March 2009. A measure of global equities fell more than 10 percent from this year’s high in May, entering a correction amid concern about a recession. The MSCI All-Country World Index of stocks in developed and emerging markets slid 4.1 percent to 311.60, falling 13 percent from its May 2 high.
Stocks tumbled from Hong Kong to London and Sao Paulo as the yen dropped by the most since October 2008 against the dollar after Japan sold its currency to stem gains that threaten the nation’s economic recovery. The euro fell against the dollar after European Central Bank President Jean-Claude Trichet said policy makers will offer banks additional cash to ease tensions in financial markets.
Trichet indicated the ECB is reluctant to shelve further rate hikes even as investors reduce bets on the ECB adding to its two rate moves in 2011. While acknowledging a “particularly high” level of uncertainty, rates are still “accommodative” and inflation risks “remain on the upside,” he said.
“The mood right now is gloomy,” Mike Ryan, the New York- based chief investment strategist at UBS Wealth Management Americas, said in a telephone interview. His firm oversees $774 billion. “The burden of proof is for better data that show the economy is not falling into recession.”
U.S. stocks rose yesterday amid speculation the Federal Reserve may consider another economic stimulus program to avert a recession. The Fed finished its second round of so-called quantitative easing, nicknamed “QE2” by investors, at the end of June. The program helped propel a rally of as much as 28 percent in the S&P 500 after Fed Chairman Ben S. Bernanke foreshadowed the plan on Aug. 27.
Stock-futures maintained losses before the open of regular trading as a report showed that initial claims for unemployment insurance payments in the U.S. fell last week to a level that shows limited improvement in the labor market. Employers added 85,000 workers in July, economists project a Labor Department report to show tomorrow, failing to reduce a jobless rate that’s holding above 9 percent.
“Tomorrow’s payroll report is crucial,” UBS’s Ryan said.
“If we see another disappointment, the stock market will have significant downside from here.”
The Chicago Board Options Exchange Volatility Index, which measures the cost of using options as insurance against declines in the S&P 500, soared 35 percent, the most since February 2007, to 31.66. The S&P 500 moved in a 4.8 percentage-point range between today’s intraday high and low, the widest range since a 20-minute rout on May 6, 2010, erased $862 billion from the value of U.S. shares before prices rebounded. Today’s swing is more than double the 1.59 percentage-point average range in the past four weeks.
“It’s not a flash crash,” Michael Shaoul, chairman of Marketfield Asset Management in New York, said in a telephone interview. His firm oversees $1 billion. “It’s much more orderly and I don’t see any weird prints like we saw that day in individual issues. It’s a plain and simple liquidation of equities and commodities.”
Bank of New York Mellon Corp., the world’s largest custody bank, will charge clients a 13 basis point fee for “extraordinarily high” cash deposits. A basis point is one- hundredth of a percent.
“We have seen a growing level of deposits on our balance sheet from clients seeking a safe haven in light of the global interest rate and credit environment,” the company said today in an e-mailed statement.
The Morgan Stanley Cyclical Index of companies most-tied to economic growth tumbled 6.7 percent as all of its 30 stocks retreated. The Dow Jones Transportation Average of 20 stocks, considered a proxy for the economy, slumped 5.1 percent.
“The market’s essentially pricing in a greater risk of a recession,” New York-based Kevin Shacknofsky, who helps manage about $6 billion for Alpine Mutual Funds, said in a telephone interview. “It’s the cyclical, economically sensitive parts of the economy that are getting hurt the most.”
Energy and raw-material shares led the declines in the S&P 500, falling at least 6.6 percent. Chevron, the second-largest U.S. oil company, slid 5.8 percent to $96.84. Alcoa, the largest U.S. aluminum producer, sank 9.3 percent to $12.94.
Gap decreased 12 percent to $16.98. The retailer said July same-store sales fell 5 percent, compared with analysts’ estimates for a decline of 0.6 percent.
Only three stocks in the S&P 500 rose today. Motorola Mobility Holdings Inc., the handset maker spun off from parent Motorola Inc., rallied 3.6 percent to $23.09. Vulcan Materials Co., the producer of crushed stone, gained 1.6 percent to $33.54. PG&E Corp., the San Francisco-based utility owner, advanced 0.4 percent to $40.65.
The rout since July 22 dragged the S&P 500’s valuation to13.2 times reported earnings, the cheapest level since April 2009, a month after the bull market began, according to data compiled by Bloomberg.
Laszlo Birinyi, one of the first investors to recommend buying stocks when the bull market began, said he remains optimistic about U.S. equities even after the biggest nine-day slump since March 2009. “Our view continues that we’re in a long-term bull market, and in long-term bull markets you have downdrafts,” he said in a Bloomberg Radio interview today. “Everything that we’ve built our bullish case on continues to exist.”
Have a wonderful evening everyone.
Be magnificent!
What is it exactly that hurts you?
Open your heart and speak. Open your eyes and see.
At the moment that you look with your eyes wide open,
everywhere you will find differences, an infinite variety.
-Swami Prajnanpad, 1891-1974
As ever,
Carolann
Applause is the spur of noble minds,
the end and aim of weak ones.
-Charles Caleb Colton, 1780-1832