August 7, 2013 Newsletter

Dear Friends,

Tangents:

I read this today in the most recent edition of Barron’s:

The August Effect

In August 1913, exactly 100 years ago, General Motors’ stock surged nearly 20% for the month.  Folks were loving Buicks – and besides, it was August.  Stocks generally rose in August in those days, and that remained the case through the early ‘60s.  From 1913 to 1963, gains for the month averaged a strong 2%, says the Bespoke Investment Group.

Then something happened.  For the next 50 years, stocks were flat in August, and eventually they tended to decline.  For the past 20 years, Bespoke says, the Dow averaged a loss of 0.7% for August, the third-worst showing of any month.

We chalk it up to the changing nature of summer vacations.  In the old days, investors took their ease for weeks, sometimes months, at a time, opening their minds to truly fresh ideas as they boarded steamships to Europe or kicked back on the yacht-club porch.  A GM buy order was just a telegram away.

By the ‘50s, vacationers were packing up their Country Squire station wagons and crowding the nascent highway system, all thoughts of investing pushed aside by the loud demands of children and the harrowing antics of fellow drivers.  Stocks went nowhere.

Now, of course, no one really ever gets away, tethered to the market by the Internet.  Frazzled, anxious, and easily unnerved, legions of investors have turned their cellphones into sellphones.  Maybe this August it’s time to take a cue from our forebears and genuinely unplug.  It could do wonders for the market.  –Lawrence C. Strauss

Excellence is not a skill.  It is an attitude.  –Ralph Marston.

Photos of the Day –August 7th, 2013

A girl plays the piano in the park in Russia’s Siberian city of Krasnoyarsk. A group of young enthusiasts bought an old Soviet-made piano, adjusted it, painted it white and placed it in a park for free use by all visitors. Ilya Naymushin/Reuters

A child cools off from hot weather in a fountain at People’s Square in Shanghai, China. A record-setting summer heat wave continues to bake most parts of south China. Aly Song/Reuters

Market Closes for August 7^th, 2013

International Markets

Bonds

Currencies

Commodities

Market Commentary:

Canada

By Eric Lam

Aug. 7 (Bloomberg) — Canadian stocks fell, erasing gains for the year, as financials and energy producers retreated amid weaker-than-forecast housing construction and growing concern the U.S. Federal Reserve may reduce its bond purchases.

Dream Unlimited Corp., a real-estate manager and developer, lost 2.8 percent to pace declines among financial stocks.

Enbridge Inc. and Encana Corp. dropped at least 1.6 percent as energy shares slumped. BlackBerry Ltd. retreated 3.3 percent as its market share fell. Athabasca Oil Corp. surged 10 percent after winning approval for its Dover oil-sands project from an Alberta regulator. Air Canada soared 25 percent as profits topped estimates amid falling fuel costs.

The Standard & Poor’s/TSX Composite Index fell 56.59 points, or 0.5 percent, to 12,412.73 at 4 p.m. in Toronto. The benchmark Canadian equity gauge lost 1.5 percent over the past two days, and is down 0.2 percent for the year.

“I thought we needed a rest, a slight pause and a correction,” said Ian Nakamoto, director of research with MacDougall MacDougall & MacTier Inc. in Toronto. The firm manages about $4 billion. “If you go up in a straight line you’re in trouble. There’s some worry over the Fed which has caused the market to sell off, and that nervousness has spilled over into today.”

Canadian equities sank 1.1 percent yesterday as comments from a Fed official fueled concern the U.S. central bank may reduce the pace of its monthly bond buying this year. Fed Bank of Chicago President Charles Evans said he “would clearly not” rule out a decision to begin curbing bond purchases in September. Fed Bank of Cleveland President Sandra Pianalto said today that a tapering may be warranted if the labor market continues to strengthen.

Canadian building permits fell for the first time this year in June, declining 10.3 percent to C$6.65 billion ($6.38 billion) as contractors scaled back intentions for new condominiums. Economists surveyed by Bloomberg had forecast a median drop of 2.8 percent.

Dream Unlimited slumped 2.8 percent to C$12.10 as financial stocks dropped 0.6 percent.

Energy stocks declined 0.9 percent, falling the most as seven of 10 industries in the S&P/TSX retreated. Trading volume was 9.1 percent lower than the 30-day average.

Enbridge lost 1.6 percent to C$44.88 and Encana decreased 1.9 percent to C$18.07 as 42 of 58 members in the S&P/TSX Energy Index fell.

Crude for September delivery dropped 0.9 percent to settle at $104.37 a barrel in New York, after the U.S. government reported an unexpected increase in supplies of gasoline and distillate fuels. Economists had forecast stockpiles to decrease.

BlackBerry lost 3.3 percent to C$9.58, snapping five days of gains. BlackBerry’s global smartphone market share in the second quarter fell to 2.9 percent from 4.9 percent a year ago, a report from International Data Corp. said today. Google Inc.’s Android operating system was the top performer, climbing to a 79 percent market share, the report said.

Athabasca Oil jumped 10 percent to C$8.12. With the Alberta regulator approving the Dover oil-sands project, Athabasca can sell its stake in the project, worth about C$1.3 billion, to PetroChina Co. and use the funds for other projects.

Air Canada climbed 25 percent to C$2.65, the most since May 2009, after reporting second-quarter profit that topped analysts’ estimates. The company said it spent C$831 million on fuel in the second quarter, 6 percent less than the same period a year ago. Capacity will grow 9 percent to 11 percent next year as the company adds Boeing Co. 777 and 787 jets.

Valeant Pharmaceuticals International Inc. rose 2.1 percent to C$101.70, a record high, after raising its full-year earnings forecast. The drugmaker completed its $8.7 billion acquisition of Bausch & Lomb Inc. this month and expects “significantly more than” $800 million in cost synergies from the combined company.

US

By Nick Taborek and Tom Stoukas

Aug. 7 (Bloomberg) — U.S. stocks declined, giving the Standard & Poor’s 500 Index its first three-day drop since June 12, amid growing speculation the Federal Reserve will pare bond purchases this year as the economy strengthens.

Bank of America Corp. declined 0.8 percent after the Department of Justice yesterday accused the company in a lawsuit of misleading investors. Walt Disney Co. dropped 1.7 percent after quarterly profit stalled on lower earnings from films and weaker revenue at its ABC network. Time Warner Inc. fell 0.4 percent, erasing an earlier gain after an analyst downgraded the shares.

The S&P 500 slid 0.4 percent to 1,690.91 at 4 p.m. in New York. The benchmark gauge has fallen 1.1 percent this week after closing at a record on Aug. 2. The Dow Jones Industrial Average decreased 48.07 points, or 0.3 percent, to 15,470.67 today.

About 5.5 billion shares changed hands on U.S. exchanges, 12 percent below the three-month average.

“We’re just going through a period of consolidation,” Terry Sandven, chief equity strategist at U.S. Bank Wealth Management in Minneapolis, said by phone. His firm manages $112 billion. “We still like the outlook for the broad equity market, but near term we’re probably in a trading range pattern until we get greater clarity as to what happens with quantitative easing.”

The S&P 500 sank the most in six weeks yesterday as trade data and comments from a Fed official fueled concern the central bank may reduce stimulus this year. Fed Bank of Chicago President Charles Evans said he would not rule out a decision to begin tapering in September.

Fed Bank of Cleveland President Sandra Pianalto said today there has been “meaningful improvement” in the labor market and that tapering may be warranted if it continues to strengthen.

Fed policy makers are weighing data to determine whether the economy has improved enough to begin reducing its $85 billion in monthly bond purchases. The stimulus has helped propel the S&P 500 up more than 150 percent from its bear-market low in 2009.

A report Aug. 2 showed American companies added fewer workers than anticipated in July while the jobless rate fell to 7.4 percent. Separate data last week showed U.S. gross domestic product rose at a better-than-forecast rate and manufacturing expanded in July.

“The economic data is probably coming in a little better than expected, and because of that I think the market’s concerned that’s going to give the Fed the potential to begin tapering in September,” Mike Binger, who helps oversee about $360 million as senior portfolio manager at Gradient Investments LLC in Shoreview, Minnesota, said by phone.

Stocks also climbed to records amid better-than-estimated corporate earnings. Of the 436 companies in the gauge that have reported results for the second quarter, 72 percent have exceeded analysts’ profit estimates and 56 percent have beaten sales projections, data compiled by Bloomberg show.

The equity index has advanced 19 percent this year and is trading at 15.3 times estimated earnings, compared with an average of 13.9 over the last five years, data compiled by Bloomberg showed.

The Chicago Board Options Exchange Volatility Index, or VIX, rose 2 percent today to 12.98 for a second day of gains.

The equity volatility gauge reached its 2013 peak in June and has since fallen 37 percent.

Seven of 10 main industry groups in the S&P 500 fell today.

Shares in consumer discretionary and financial companies slid 0.8 percent for the biggest declines.

Bank of America slid 0.8 percent to $14.53, paring an earlier loss of as much as 2.7 percent. The Justice Department said the firm misled investors about the quality of loans tied to $850 million in mortgage-backed securities. The complaint chronicles friction among bank staff in 2007 and 2008 as they excluded risky Alt-A loans while leaving in wholesale debts once scorned as “toxic waste” by the firm’s then-chief.

Disney fell 1.7 percent to $65.91 for the steepest decline in the Dow. The world’s biggest entertainment company said third-quarter profit was little changed from the same time last year amid costs to market the box-office disappointment “The Lone Ranger” and shrinking revenue at ABC television network.

A gauge that tracks homebuilder shares retreated for a third day, falling 2.7 percent to the lowest level since November. All 11 members of the S&P Supercomposite Homebuilders Index declined, extending the measure’s loss this week to 7.1 percent. D.R. Horton Inc. slid 3.2 percent to $18.98 and Toll Brothers Inc. lost 3 percent to $31.23.

Ralph Lauren Corp. fell 8.6 percent to $173.13. The retailer of its namesake brand clothing issued a forecast for the current quarter that implied profit would trail analysts’ estimates.

Clothing retailers slid yesterday after a Janney Montgomery analyst downgraded the sector, citing headwinds including a high level of promotional activity. The group retreated 1.3 percent today.

First Solar Inc. tumbled 13 percent to $40.47 for the biggest loss in the S&P 500. The largest U.S. solar-panel manufacturer said yesterday profit fell short of analysts’ estimates as revenue from its current project pipeline slumped.

Today’s share-price drop was the steepest in five months.

Zillow Inc. tumbled 7.7 percent to $83.73. The operator of the largest U.S. real-estate information website reported a second-quarter loss on higher costs related to advertising and acquisition-related compensation.

The Dow Jones Transportation Average fell for a fourth day, sliding 0.7 percent, as C.H. Robinson Worldwide Inc. lost 5.5 percent to $56.31. The cargo and logistics company was downgraded to underperform from market perform by a Wells Fargo analyst after it reported yesterday sales that missed estimates.

Computer Sciences Corp. jumped 8.5 percent to $54.20 for the biggest gain in the S&P 500. The technology consultant for governments and companies forecast earnings that were higher than analysts estimated as the company cut costs and struck partnerships.

Time Warner fell 0.4 percent to $64.49. The owner of the TNT, CNN and HBO cable channels fell after a B. Riley analyst downgraded the shares to neutral from buy. The company had gained as much as 3 percent earlier in the day after reporting second-quarter profit that topped analysts’ estimates. Network advertising sales rose 11 percent, helped by the National Basketball Association playoffs on TNT and the college basketball tournament.

AOL Inc. rose 1.4 percent to $36.69 after it agreed to buy Adap.tv for about $405 million, gaining online video advertising technology used by the world’s largest brands and agencies. The purchase is the largest by AOL since Chief Executive Officer Tim Armstrong led the spinoff of the company from Time Warner in 2009.

21st Century Fox Inc.’s Class A shares advanced 1.9 percent to $31.81. Rupert Murdoch’s film and television company that in June spun off News Corp.’s publishing operation today posted a gain in fourth-quarter operating profit, bolstered by growth at cable networks including F/X and Fox News.

Have a wonderful evening everyone.

Be magnificent!

What we are about to undertake is an expedition together, a journey of discovery

into the most secret recesses of our consciousness.

And for such an adventure we must travel light, we cannot burden ourselves

with opinions, prejudices, conclusions that is, with all the baggage that we have collected

over the past two thousand years or more.  Forget everything you know about yourself;

forget everything that you have thought about yourself;

we are going to set off as if we know nothing.

Krishnamurti, 1895-1986

As ever,

Carolann

Be kind whenever possible.  It is always

possible.

-Dalai Lama, 1935-

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