December 12, 2014 Newsletter

Dear Friends,

Tangents:

On this day in 1901, the Italian physicist Guglielmo Marconi sent a radio transmission. That wasn’t too unusual. Marconi had been experimenting with radio waves for about seven years, winning him some acclaim. What made this transmission different is from where it came and where it went: from England to St. John’s, Newfoundland, clear across the Atlantic Ocean. Marconi’s detractors said the signal would never reach North America, that the earth’s curved surface would sent the signal off into space. They were, in fact, right, but the signal bounced off the ionosphere and bounced back down to Canada.

On Dec. 12, 1963, Kenya gained its independence from Britain.

Decembrists:  Conspirators in the Russian army who made an unsuccessful attempt to overthrow Tsar Nicholas I in an uprising in Senate Square, St. Petersburg on December 14^th, 1825.The martyrdom of the revolutionaries was a source of inspiration to later generations of Russian dissidents.

Gustave Flaubert’s birthday: December 12^th,1821.

Do not read, as children do, to amuse yourself, or like the ambitious, for the purpose of instruction. No, read in order to live.  ― Gustave Flaubert.

PHOTOS OF THE DAY

Britain’s Prince William poses for a picture with servicemen after attending the ceremony for the Football Remembers memorial at the National Memorial Arboretum in Staffordshire, central England, to commemorate the 1914 Christmas Truce. Andrew Yates/Reuters

Horse riders exercise their mounts though overnight snow near Leyburn in the Yorkshire Dales, northern England. Snowfall has hits parts of northern Britain in the last few days. John Giles/PA/AP

Market Closes for December 12^th, 2014     

International Markets

Bonds

Currencies

Commodities

Market Commentary:

Canada

By Callie Bost

     (Bloomberg) — Canadian stocks tumbled with equities around the world, capping the worst week in three years, as the continuing selloff in oil fueled concerns over a global economic slowdown.

     Energy stocks dropped with oil prices as RMP Energy Inc. and Pacific Rubiales Energy Corp. slid at least 7.9 percent. Consumer-discretionary stocks sank as Amaya Inc. plunged 18 percent. Talisman Energy Inc. soared 17 percent on speculation of a deal with Repsol SA.

     The Standard & Poor’s/TSX Composite Index fell 173.22 points, or 1.3 percent, to 13,731.9 at 4 p.m. in Toronto. The equity gauge dropped 5.1 percent over five days, its worst weekly decline since September 2011. Trading in S&P/TSX stocks was 12 percent above the 30-day average at this time of day.

     Canadian equities have pared their gain for the year to 0.8 percent, after rallying as much as 15 percent to a record in September. Oil, bank and raw-material shares are the biggest laggards in Canada for the first time since at least 1988, fueling concern the nation’s economy is fading just as the U.S. is taking off.

     The three industries, which collectively account for two- thirds of the S&P/TSX, are the worst performers among 10 groups this year, led by a 19 percent slump in energy, according to data compiled by Bloomberg.

     All 10 groups in the S&P/TSX declined on Dec. 12, with materials and consumer-discretionary shares dropping 1.9 percent.                         

     Energy shares dropped 1.2 percent, posting an 11 percent decline this week. Benchmark U.S. oil prices extended losses below $58 a barrel as the International Energy Agency cut its global demand forecast for the fourth time in five months.

     RMP plunged 20 percent to C$3.60, while Pacific Rubiales Energy Corp. sank 7.9 percent to C$5.91.

     Amaya plunged 18 percent to C$28.64. The casino operator said today it’s cooperating with Quebec authorities in a probe into trading activities in Amaya securities surrounding its acquisition of Oldford Group Ltd. in 2014.

     Talisman soared 17 percent, the most in six years, to C$5.04. Senior Repsol executives are in Calgary and hope to have a deal before Christmas, the Financial Times reported, citing an unidentified person involved in the negotiations. The price being negotiated is around C$6 to C$8 a share, according to the report.

US

By Jeremy Herron and Joseph Ciolli

     (Bloomberg) — The Dow Jones Industrial Average capped the worst week since 2011, finishing with a 100-point lurch in the final half-hour of trading, as equities tumbled around the world after crude extended declines below $58 a barrel. Treasuries rose and the dollar fell on concern inflation is slipping.

     The Dow fell 1.8 percent at 4 p.m. in New York and the Standard & Poor’s 500 Index dropped 1.6 percent. The 30-stock gauge lost 3.8 percent for the week while the S&P 500 tumbled 3.5 percent, its worst performance in more than two years. West Texas Intermediate crude lost 3.6 percent to $57.81 a barrel. The Stoxx Europe 600 Index capped a 5.8 percent slide for its worst week in three years. Brazil’s Ibovespa equity benchmark entered a bear market. Ten-year Treasury note yields dropped to an eight-week low.

     “Clearly the oil situation is driving things,” Randy Warren, who manages more than $100 million at Exton, Pennsylvania-based Warren Financial Service and Associates Inc., said in a phone interview. “At first it was just oversupply of oil. But now it’s that, plus fear of a world economy that’s growing too slow. Those fears are definitely outweighing the positive signs we’re seeing domestically.”

     The selloff picked up speed in the final hour as the Dow plunged 100 points and the S&P 500 slid to 2,002.42 from 2,016.14, ending about 2 points above its average price for the last 50 days, a level monitored by technical analysts. At about 2:50 p.m., March futures on the benchmark gauge for U.S. equities slipped below 2,000 for the first time since Nov. 4.                        

     Oil dropped 12 percent for the week, the 10th weekly slide since the start of October. The International Energy Agency cut its forecast for global demand in 2015. While the lower fuel prices hurts producers, that’s boosting demand for bonds as central banks in Europe and Asia maintain stimulus to fight deflation.

     More than $1 trillion was erased from the value of global equities this week. Stocks around the world fell today, with after November Chinese factory production slowed more than estimated. The MSCI All-Country World Index lost 1.4 percent, extending a weekly rout to 3.8 percent, its worst since May 2012.

     The Chicago Board Options Exchange Volatility Index, a measure of the cost of options on the S&P 500 known as the VIX, has jumped 78 percent this week, its biggest weekly rally in more than four years.                         

     This week’s retreat in stocks mirrored a tumble in speculative grade credit. The iShares iBoxx High Yield Corporate Bond exchange-traded fund plunged 3.4 percent over the five sessions, the biggest decrease since 2012. The security lost 1.4 percent on Dec. 12, falling to the lowest level since June 2012.

     Treasuries rallied, with benchmark 10-year yields sinking to the lowest since mid-October. The spread between Treasury 30- year bonds and five-year notes narrowed to as little as 120 basis points, its lowest level in almost six years as oil declines fueled demand for the longest maturities on bets inflation will slow.

     U.S. equities briefly pared losses today as data showed Americans’ confidence rose in December to an almost eight-year high, pointing to a pickup in holiday-related purchases.

     Data yesterday showed that retail sales rose 0.7 percent in November as consumers used some of the money saved at the gas pump to purchase electronics, clothing and furniture.                           

     Declining energy costs led to a faster-than-forecast drop in wholesale prices in the U.S., signaling inflation pressures remain weak even as the world’s largest economy is expanding.

     Persistently weak inflation has allowed Federal Reserve policy makers, who are scheduled to meet next week, room to keep interest rates near zero after ending monthly asset purchases in October as the economy strengthens.

     “With falling oil prices and the stronger dollar, pipeline pressures are minimal,” Scott Brown, chief economist at Raymond James & Associates Inc. in St. Petersburg, Florida, said before the report. “There’s no real threat of higher inflation. The Fed has a lot more leeway.”

     Bill Gross, who joined Janus Capital Group Inc. in September, said there is “very little liquidity” in the corporate bond markets, especially in high-yield debt. “Everyone is trying to squeeze through a very small door,” Gross said today in a Bloomberg Surveillance interview with Tom Keene.                      

     A sharp decline in the price of oil has disoriented markets including changing the perception of the creditworthiness of corporates and countries, said Gross, who left Pacific Investment Management Co. after more than four decades to run an unconstrained fund at Janus.

     In Venezuela, the government and state-run oil company owe $21 billion on overseas bonds by the end of 2016, an amount equal to about 100 percent of reserves. Those figures explain why derivatives traders aren’t only betting that a default is almost certain but that it will most likely happen within a year.

     The Bloomberg Dollar Spot Index fell 0.2 percent to extend a weekly decline to 0.6 percent. The gauge, which measures the greenback against a basket of major peers, had rallied for seven straight weeks amid signs of a strengthening U.S. economy.

     The MSCI Emerging Markets Index fell 0.8 percent, extending the slide in the past week to 4.8 percent, the worst week since June 2013.

     Brazil’s Ibovespa was down 7.7 percent in the past five days for the worst week since 2012 and entered a bear market, losing more than 20 percent from its September peak.                      

     West Texas Intermediate crude for January delivery dropped below $58 a barrel after closing yesterday at the lowest level since 2009. Brent crude slid 2.9 percent to $61.85 today.

     Gold fell 0.3 percent to $1,222.50 an ounce, trimming a second weekly advance amid declining oil prices and prospects for higher U.S. interest rates.

     The Stoxx 600 plunged 2.6 percent today, pushing its weekly slide to 5.8 percent, the most since September 2011. All 19 of the main groups in the index retreated in the past five days, with energy and resources producers leading the declines with losses of at least 8.5 percent.

     Royal Dutch Shell Plc slid 3.2 percent today and BP Plc fell 3.3 percent. Rio Tinto Group dropped 2.4 percent.

     “With oil furthering its decline, all commodities are under pressure, especially miners,” Claudia Panseri, a global equity strategist at SG Private Banking in Paris, said by phone. “The recent data is pointing to a slowdown in China. For people expecting a turnaround in world GDP growth this is clearly a disappointment.”

     All of the 18 western-European markets declined. Greece’s ASE Index extended a drop this week to 20 percent, the most since 1987, amid concern a potential snap parliamentary election will open the door to anti-austerity leadership.

     Japan’s Topix index gained 0.2 percent, paring this week’s decline to 3.2 percent. Japan heads for a parliamentary election on Dec. 14 after Prime Minister Shinzo Abe last month called for a referendum on his economic policies.
 

Have a fantastic weekend everyone.

Be Magnificent!

From Him woman was born; and from Her man was born.

From His mind the moon was born; from His eye the sun was born; from His breath the wind was born.

From His navel the atmosphere was born; from His head the sky was born;

and from His ear the four quarters of the sky were born

Thus the universe was in order.

Rig Veda

As ever,

Carolann

Love is a chain of love as nature is a chain of life.

                         -Truman Capote, 1924-1984

Carolann Steinhoff, B.Sc., CFP, CIM, CIWM

Senior Vice-President &

Senior Investment Advisor

Queensbury Securities Inc.,

St. Andrew’s Square,

Suite 340A, 730 View St.,

Victoria, B.C. V8W 3Y7