December 18, 2012 Newsletter

Dear Friends,

Tangents:

Got a new brain?

“Technology has changed the way people think, creating a ‘new brain,’ two Italian psychology experts say,” reports United Press International.  “Psychologist Maria Beatrice Togo, who collaborated with psychotherapist Tonino Cantelmi on a new book…Technoliquidity, postulates entertainment technology such as video games ‘has triggered an evolutionary leap, just like the written word 3,000 years ago.  It has changed our memory; our brain has lost certain connections… Some circuits have been lost and others have developed, circuits that are more closely linked to perception.  The human brain has not changed on an anatomical level but it now works differently.  It is a new brain…[T]he ones with a ‘new brain’ are the children and adolescents of today.’”  -from The Globe & Mail, 12/18/12

On this day in 1912, the skeletal remains of the Piltdown Man, a purported missing link between man and ape, were “discovered” in a gravel pit in Sussex, England. It would take 41 years, but eventually the find was exposed as a hoax.  –Paul Vigna, WSJ, 12/18/12

And also on this day in…

1737 – Antonio Stradivari, violin maker, was born.

1787 – New Jersey became the third state to ratify the U.S. Constitution.

1892 – Peter Tchaikovsky’s “The Nutcracker Suite” premiered in St. Petersburg, Russia.

1947 – Steven Spielberg, filmmaker was born.

1957 – The first nuclear facility in the United States to generate electricity, the Shippingport Atomic Power Station in Pennsylvania, went online.

1958 – The world’s first communications satellite was launched by the United States aboard an Atlas rocket.

1987 – Ivan F. Boesky was sentenced to three years in prison for plotting Wall Street’s biggest insider-trading scandal.

2003 – A jury in Chesapeake, Va., convicted teenager Lee Boyd Malvo of two counts of murder in the Washington-area sniper shootings. (He was later sentenced to life in prison without parole.)

What is life?  It is a flash of a firefly in the night.  It is the breath of a buffalo in the wintertime.

It is the little shadow which runs across the grass and loses itself in the sunset. –Crowfoot (last words).

photos of the day

December 18, 2012

A girl looks out of the door of a temple as her mother offers daily prayers inside in Lalitpur, Nepal.

Navesh Chitrakar/Reuters

Qatari Heritage policemen ride camels during National Day celebrations in Doha, Qatar.

Fadi Al-Assaad/Reuters

A pine grosbeak chews on a berry in a tree in Montpelier, Vt.

Toby Talbot/AP

Market Closes for December 18th, 2012:

International Markets

Bonds

Currencies

Commodities

Market Commentary:

Canada

By Eric Lam

Dec. 18 (Bloomberg) — Canadian stocks rose as energy and financial shares advanced on optimism U.S. policymakers are moving closer to a budget compromise.

Athabasca Oil Corp. added 4.8 percent after it outlined its 2013 budget and analysts with UBS Securities raised the stock’s rating. Rubicon Minerals Corp. dropped 6.5 percent after saying the Wabauskang First Nation filed a lawsuit related to its gold project in Ontario, citing media reports. Canadian Natural Resources Ltd. and Encana Corp. increased at least 1.2 percent as crude oil gained for a third day.

The Standard & Poor’s/TSX Composite Index rose 52.99 points, or 0.4 percent, to 12,334.34 in Toronto. The equity gauge has gained 3.2 percent this year.

“What’s driving the Canadian market is what’s driving the U.S. and global markets at this point, and that is the fiscal cliff,” said Anish Chopra, managing director and fund manager with TD Asset Management Inc. in Toronto. The firm manages about C$204 billion ($207 billion). “As negotiations appear more favorable for a resolution, we’ll see a risk-on trade.”

U.S. President Barack Obama lowered his tax revenue demand by $200 billion and offered to start tax rate increases at $400,000 in income instead of $250,000. House Speaker John Boehner said he will push a budget “plan B” measure that will include tax increases on income of more than $1 million, while he continues to negotiate with Obama.

Government leaders are negotiating to avoid more than $600 billion in automatic spending cuts and tax increases set to begin in the new year.

Manulife Financial Corp. advanced 3.3 percent to C$13.43 and Bank of Nova Scotia rose 1.1 percent to C$57.28 as bank and energy stocks contributed most to gains in the S&P/TSX. Eight of 10 industries advanced, with trading volume 39 percent higher than the 30-day average.

Canadian Natural Resources gained 2.2 percent to C$28.25 and Encana increased 1.2 percent to C$19.99. Crude for January delivery advanced 0.8 percent to settle at $87.93 a barrel in New York.

Athabasca climbed 4.8 percent to C$10.80. Chad Friess, analyst with UBS, raised his rating to buy from neutral while cutting his price target to C$13 from C$14 on higher oil sands spending after the company outlined a “fairly conservative” 2013 capital budget of $236 million for its light oil business.

This was offset by a surprisingly large $502 million budget on the thermal side of its business, Friess said in a note to clients.

“The 2013 budget is well funded and we see upside to production guidance,” he said.

Rubicon Minerals slumped 6.5 percent to C$2.45. The company said it has not yet received notice of the lawsuit from the Wabauskang First Nation relating to its Phoenix Gold project in Red Lake, Ontario.

Daniel Earle, an analyst with TD Securities, said the group is objecting to the ability of the province to approve the mine over the group’s concerns, citing a media report.

“We would stress that the Phoenix Gold project is fully permitted and the objections of the Wabauskang First Nation appear to be as much with the province and the mine review process as it is with the company,” he said in a note to clients.

AuRico Gold Inc. dropped 4.2 percent to C$7.92 after David Haughton, co-head of metals and mining research with BMO Capital Markets, downgraded the stock to market perform from outperform.

“The company now trades at a premium to BMO Research mid-tier gold stocks,” he said in a note today.

US

By Lu Wang and Rita Nazareth

Dec. 18 (Bloomberg) — U.S. stocks advanced, sending the Standard & Poor’s 500 Index to the highest level in two months, amid signs of progress in efforts by President Barack Obama and Republicans to reach agreement on a new budget in Washington.

An index of homebuilders gained 2.3 percent as confidence among U.S. homebuilders climbed in December to the highest in more than six years. Bank of America Corp. and Morgan Stanley rose more than 3.1 percent to pace gains in financial shares.

Apple Inc., the most valuable company, added 2.9 percent.

The S&P 500 rose 1.2 percent to 1,446.79 at 4 p.m. in New York. It has gained 15 percent so far in 2012. The Dow Jones Industrial Average added 115.57 points, or 0.9 percent, to 13,350.96 today. About 7.4 billion shares changed hands on U.S. exchanges, 20 percent above the three-month average.

“There is certain optimism that it could potentially be done before the end of the year and that would be a very positive sign to the market,” Philip Tasho, chief investment officer at Alexandria, Virginia-based Tamro Capital Partners LLC, which manages about $1.8 billion, said in a phone interview. “Once the solutions are in the rear view mirror in terms of fiscal policy, we will simply look forward. It’s a blip in the long-term trend.”

The S&P 500 sank as much as 7.7 percent from its 2012 high in September as Obama’s re-election set up a budget showdown with the Republican-controlled House of Representatives. The benchmark gauge has climbed 6.9 percent since its November low amid optimism a compromise will be reached to avoid more than $600 billion in automatic tax increases and spending cuts.

Obama lowered his tax revenue demand by $200 billion and offered to start tax rate increases at $400,000 in income instead of $250,000, moving closer to a budget deal with House Speaker John Boehner.

The president’s revised plan would raise $1.2 trillion in taxes in the next decade and cut $1.22 trillion in spending, said a person familiar with the talks. Obama wants a large enough debt ceiling increase for the next two years and would accept a new inflation yardstick that would reduce Social Security cost-of-living increases, said the person, who sought anonymity.

Boehner said he will push a budget “plan B” measure that will include tax increases on income of more than $1 million a year, while he continues to negotiate with the president.

Obama’s administration and other Democrats immediately rejected the proposal as inadequate.

“People have been very fearful to move into stocks and this might be one of the things to get them go back to stocks,” Brian Gendreau, a market strategist at El Segundo, California- based Cetera Financial Group Inc., said in a telephone interview. The firm has about $20 billion in assets under management. “We see a pickup in housing. The consumer continues to spend. The recovery is there, it’s real.”

All 10 groups in the S&P 500 advanced today as energy, technology and financial companies gained at least 1.4 percent.

The Morgan Stanley Cyclical Index rose 1.8 percent to the highest level since July 2011. The Dow Jones Transportation Average jumped 1.6 percent to the highest level since May.

An S&P index of homebuilders rallied 2.3 percent to the highest level since Oct. 19. The National Association of Home Builders/Wells Fargo index of builder confidence increased to 47, the highest since April 2006, from a revised 45, the Washington-based group reported today.

Lennar Corp. climbed 2.4 percent to $39.71. D.R. Horton Inc. added 2 percent to $20.08 and PulteGroup Inc. gained 3.2 percent to $18.61.

Bank of America, the second-largest U.S. lender by assets, advanced 3.3 percent to $11.36. Morgan Stanley rose 3.2 percent to $19.12.

Apple, the world’s most valuable company, gained 2.9 percent to $533.90. Bank of America said the selloff of the stock could be overdone. Shares fell 4.4 percent last week as UBS AG cut its price estimate to $700 from $780, citing concern that growth may slow for the iPhone and iPad.

At least five analysts have cut their price targets for Apple since Dec. 16, with some saying Apple’s purchases from suppliers indicate sales of iPhones and iPads, the company’s largest sources of revenue and profit, may not meet projections.

The reports from Citigroup Inc., Pacific Crest Securities, Mizuho Securities USA, BMO Capital Markets and Canaccord Genuity mark a reversal from earlier this year, when analysts were racing to issue upbeat predictions, with at least two saying Apple would top $1,000. Instead, the shares have dropped more than 25 percent from a September record amid speculation the iPhone is saturating the market, ratcheting up pressure on Chief Executive Officer Tim Cook to introduce a new hit product.

Separately, Samsung Electronics Co. said today that it will withdraw patent lawsuits targeting Apple’s use of its technology in European countries.

Arbitron Inc. rallied 24 percent to $47.03. Nielsen Holdings NV agreed to buy Arbitron for about $1.26 billion, adding U.S. radio audience ratings to its television data as more users listen to and watch programs on the Internet and mobile devices.

Tenet Healthcare Corp. rallied 4.1 percent to $32.47, the highest since 2006. The hospital chain was rated overweight, an equivalent of buy, in new coverage at JPMorgan Chase & Co.

Smith & Wesson Holding Corp. led a decline in stocks of firearms makers as Cerberus Capital Management LP, the New York- based investment firm that owns the largest U.S. gunmaker, said it will put the company up for sale, acting four days after one of its rifles was used in the Connecticut school shootings that left 26 people dead.

Cerberus said it will seek to sell Freedom Group Inc. just hours after California Treasurer Bill Lockyer said he’ll propose that the state’s public pension funds, the two largest in the U.S., divest investments in firearm manufacturers that make guns prohibited under state law.

Smith & Wesson slid 10 percent to $7.79, plunging 18 percent over three days. Sturm Ruger & Co. declined 7.7 percent to $40.60.

General Electric Co. slipped 1.1 percent, the most in the Dow, to $21.69. The world’s largest jet-engine maker may reach an agreement to buy Avio SpA, an Italian supplier of aerospace components, from Cinven Ltd. this week, according to two people familiar with matter. A deal may be valued at about 3 billion euros ($4 billion), said one of the people, who asked not to be identified because talks are private.

Have a wonderful evening everyone.

Be magnificent!

To make a decision is an illusion.

Behind the decision

is the hidden belief

that everyone is the same.

Swami Prajnanpad, 1891-1974

As ever,

Carolann

Knowledge of what is possible is the

beginning of happiness.

-George Santayana, 1863-1952

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