December 21, 2011 Newsletter

Dear Friends,

“Some praise at morning what they blame at night.”

           — Alexander Pope

Photo of the Day:

Christmas Decorations at Monseratte Church in Bogota, December 21, 2011. (Reuters)

Market Commentary:   

 Canada 

By Matt Walcoff

 Dec. 21 (Bloomberg) — Canadian stocks rose for a second day, led by energy producers, after the U.S. reported the biggest weekly drop in oil inventories since 2001. Canadian Natural Resources Ltd., the country’s second- largest energy company by market value, gained 1.4 percent. Goldcorp Inc., the world’s second-biggest gold producer by market value, lost 1.7 percent as the metal retreated. BlackBerry maker Research In Motion Ltd. surged 9.8 percent after Reuters reported the company has declined “takeover overtures” from companies including Amazon.com Inc. The oil-inventory report it “an indication that consumption is stronger than what everyone expected,” Tony Demarin, chief investment officer of BCV Asset Management in Winnipeg, Manitoba, said in a telephone interview. The firm oversees about C$300 million ($293 million). “Why else would oil inventories go down? The economy is doing better than people are giving credit for,” The Standard & Poor’s/TSX Composite Index advanced 36.65 points, or 0.3 percent, to 11,753.53. The index has slipped 13 percent in 2011 after surging 50 percent in the previous two years as economists have cut global growth forecasts due in part to the European debt crisis. Energy and raw-materials companies, which make up 48 percent of Canadian stocks by market value according to data compiled by Bloomberg, have led the declines. 

The S&P/TSX Energy Index climbed as crude oil rose for a third day after the U.S. reported almost five times the drop in inventories that analysts had forecast, according to the median estimate in a Bloomberg survey.

Canadian Natural increased 1.4 percent to C$36.75. Nexen Inc., an oil and gas producer with operations on five continents, rallied 4.6 percent to C$15.98. TransCanada Corp., the owner of the country’s biggest pipelines system, rose 1.4 percent to C$44.33. Corridor Resources Inc., which explores for oil and gas in eastern Canada, sank 38 percent, the most in 11 years, to C$1.13 after saying it has been unable to find a joint-venture partner for its shale-gas prospect in New Brunswick.

The U.S. Dollar Index climbed after the European Commission estimated that consumer confidence in the region fell to the lowest since August 2009 and Swiss Finance Minister Eveline Widmer-Schlumpf said the country is considering capital controls to weaken the franc.

 Raw-materials stocks in the S&P/TSX dropped. Goldcorp declined 1.7 percent to C$46.10. First Quantum Minerals Ltd., the country’s second-largest publicly traded copper producer, slipped 1.5 percent to C$18.81. San Gold Corp., which mines in Manitoba, slumped 7.7 percent to C$1.79 after soaring 41 percent yesterday on drilling results. Banro Corp., which is developing gold projects in Africa, rallied 8.1 percent to C$3.60 after saying the Twangiza mine in the Democratic Republic of the Congo is on schedule for full production in the first quarter. The S&P/TSX Telecommunications Services Index rose to the highest since January 2008 a day after a person familiar with the discussions said Globalive Communications Corp., the owner of Wind Mobile, is in talks to buy fellow carrier Mobilicity. Both companies are closely held. A decline in competitors would benefit other industry companies, Phillip Huang, an analyst at UBS, said in a note to clients dated yesterday.

 Rogers Communications Inc., the country’s biggest wireless carrier, gained 0.9 percent to C$38.60. BCE Inc., Canada’s largest phone company, advanced 1.3 percent to C$41.26, the highest close since July 2007. Telus Corp., the country’s No. 3 wireless carrier, increased 1 percent to C$57, the highest since October 2007. RIM jumped 9.8 percent to C$14.17 after closing at the lowest since December 2003 yesterday. Reuters cited unnamed people familiar with the situation in its report that Amazon is among companies that have approached the Waterloo, Ontario-based company about a potential takeover bid.

Microsoft Corp. and Nokia Oyj have considered making a joint bid for RIM, the Wall Street Journal said today, citing unnamed people familiar with the matter. Representatives of RIM, Amazon, Microsoft and Nokia declined to comment on the reports.

RIM shares tumbled 78 percent this year through yesterday as the company lost smartphone market share to Apple Inc. and phones using Google Inc.’s Android operating system. Open Text Corp., Canada’s largest software company, slumped 5.4 percent to C$51.25 after Oracle Corp. reported second- quarter earnings below the average analyst estimate in a Bloomberg survey.

US 

By Rita Nazareth

 Dec. 21 (Bloomberg) — U.S. stocks rose as gains in utilities and financial shares helped the market recover from an early drop led by technology shares following lower-than- estimated results at Oracle Corp. Bank of America Corp. rose 1.1 percent, reversing an earlier loss as it agreed to a settlement with the U.S. Justice Department. Nike Inc. rallied 3 percent after reporting earning that topped analysts’ estimates as sales of running shoes surged in North America. Oracle plunged 11 percent.

The S&P 500 advanced 0.3 percent to 1,244.42 at 3:40 p.m. New York time, recovering from an earlier decline of as much as 1 percent. The benchmark gauge for American equities yesterday rallied 3 percent. The Dow Jones Industrial Average gained 5.22 points, or less than 0.1 percent, to 12,108.80 today. The Nasdaq Composite Index slumped 1 percent to 2,578.96.

“I think investors do not want to make any big bets,” Mark Bronzo, who helps manage $23.5 billion at Security Global Investors in Irvington, New York, said in an e-mail. “Nike had good earnings, but Oracle had poor earnings. We get another look at initial unemployment claims tomorrow morning and last week they were surprisingly good. So, we are staying in a trading range.”

The S&P 500 is down about 1.1 percent this year after tumbling 19 percent from this year’s high in April through Oct. 3 amid concern Europe’s debt crisis would derail global economic growth. Since then, it has rebounded 13 percent on better-than- estimated American economic data and steps taken by European leaders to tame the crisis.

 U.S. equities followed European shares lower earlier as European banks borrowed enough cash from the European Central Bank at its first three-year offering to refinance almost two- thirds of the debt they have maturing next year on concern that markets will remain frozen. Euro-area banks need to refinance more than 600 billion euros of debt maturing next year, about three-quarters of which is unsecured, the Bank of England said this month. That’s 35 percent more than in 2011, the bank said. “What the ECB is doing is just trying to prevent a disorderly deleveraging of European bank assets,” Barry Knapp, the New York-based head of U.S. equity strategy at Barclays Plc, said in a telephone interview. “By no means it solves the financing problem for Italy or Spain or for the banks.” Utilities had the biggest gains among 10 groups in the S&P 500, rising 1.5 percent. Financial companies advanced 0.3 percent as a group, after falling 0.9 percent earlier.

 Bank of America climbed 1.1 percent to $5.23. The company agreed to a record $335 million settlement of a U.S. Justice Department probe into fair-lending lapses at its Countrywide Financial Corp. mortgage unit.

Nike rallied 3 percent to $96.40. The company has been trying to maintain profit growth amid higher raw-material and labor costs by increasing sales and raising prices. Research In Motion Ltd. surged 9.7 percent to $13.74 after reports Microsoft Corp. and Nokia Oyj mulled a bid while Amazon.com Inc. also considered buying the BlackBerry maker.

RIM “turned down takeover overtures” from Amazon because it wanted to fix shortcomings independently, Reuters reported yesterday. A Wall Street Journal article said Microsoft and Nokia “flirted with the idea of making a joint bid” in recent months. Both publications cited unidentified people familiar with the respective matters.

 Microsoft declined 1.5 percent to $25.63. Amazon slumped 4.8 percent to $173.79. Measures of software, chips and computer makers tumbled at least 1.1 percent, for the three biggest declines among 24 industries in the S&P 500. Oracle plunged 11 percent to $25.91. Business-software companies are taking longer to close deals as companies gird for slow economic growth in the U.S. and the possibility of a recession in Europe next year, said Rick Sherlund, an analyst at Nomura Holdings Inc. International Business Machines Corp., the biggest computer-services company, slipped 3.2 percent to $181.21. Hewlett-Packard Co., the largest computer maker, slid 2.1 percent to $25.36. Cisco Systems Inc., the world’s biggest maker of networking equipment, dropped 2.9 percent to $17.87. Walgreen Co. slumped 0.6 percent to $33.30. The largest U.S. drugstore chain’s profit trailed estimates as a dispute between the company and Express Scripts Inc., an employee- benefits manager, led to a loss of customers, hurting pharmacy demand. CVS Caremark Corp. and Rite Aid Corp. are trying to grab customers amid the standoff over the contract.

 Emerson Electric Co. tumbled 5.3 percent to $47.02. The St. Louis-based company reported November orders that were lower than analysts’ projections. KB Home lost 5.9 percent to $7.28. The Los Angeles-based homebuilder that targets first-time buyers reported a decline in quarterly profit and weaker gross margins. Anyone expecting the so-called January effect to turn shares of smaller U.S. companies into market leaders may end up waiting in vain, according to Steven G. DeSanctis, a strategist at Bank of America Merrill Lynch. “We do not think we will see a January effect occur in the remainder of this month or next month,” DeSanctis wrote yesterday in a report. Smaller companies have only kept pace with larger ones since the end of October. In past years, they rallied during the period in anticipation of further gains in January. Price swings linked to concern that the U.S. and European economies are faltering explain why the effect is unlikely to surface, according to DeSanctis, a small-cap stock specialist based in New York. In January, small caps beat large caps 73 percent of the time since 1926, according to his analysis of figures from the University of Chicago’s Center for Research in Security Prices.

The percentage is the highest for any month of the year. Small caps also had their best monthly performance in January, with an average gain of 4 percent, DeSanctis wrote.

Have a wonderful evening everyone!

As Always,

Kyle, For Carolann.