December 4, 2013 Newsletter

Dear Friends,

Tangents:

On this day, December 4^th, 1862, Thomas Carlyle wrote to his brother Dr. John Carlyle:

This day is my sixty-seventh birthday.  Time, Death, Eternity:  what an element this is that all of us have!  We are such stuff as dreams are made of; and our little life is rounded with a sleep! –In my utter solitude I live much in these contemplations; which are not joyous, but perhaps better, and have a grandly quieting character, and lift one above the world and its beggarhoods.  If I were only done with my Book!  But really now it is getting to be high time.  My weariness of it, occasionally, no tongue can tell; at other times I am rather pleased to feel myself shaping, according to ability, so long as I live, something cosmic and true out of the  chaotic mendacious and unknown.  O that I had done with it, done!

This Book was Frederick the Great, on which he worked for fourteen years; the last volume was published in 1865.

Photos of the day

A man walks his dogs as joggers make their way through a tree-lined Johannesburg suburban street in thick early morning mist in Johannesburg, South Africa. Most parts of South Africa are experiencing heavy rains as the southern hemisphere heads towards mid summer with soaring temperatures. Denis Farrell/AP

The US Capitol Christmas tree is lit against the early morning sky in Washington. The tree was officially lit Tuesday night to kick off the holiday season in the Nation’s Capital. J. David Ake/AP

Market Closes for December 4^th, 2013

International Markets

Bonds

Currencies

Commodities

Market Commentary:

Canada

By Eric Lam

Dec. 4 (Bloomberg) — Canadian stocks fell to a one-month low after a report showed U.S. employers hired more workers than forecast, spurring concern the Federal Reserve will begin tapering stimulus.

Royal Bank of Canada, the nation’s largest lender, lost 0.8 percent to pace declines among financial stocks. CGI Group Inc. dropped 3.9 percent after Newsweek reported that James Chanos has taken a short position on the company, citing people familiar with the matter. Air Canada, the nation’s largest airline, rose 3.5 percent after Bank of Montreal analysts raised their price estimate for the stock.

The Standard & Poor’s/TSX Composite Index fell 14.95 points, or 0.1 percent, to 13,304.92 at 4 p.m. in Toronto, the lowest since Nov. 7. The benchmark equity gauge has risen 7 percent this year, the fourth-worst performer among developed markets ahead of Austria, Hong Kong and Singapore.

“This is a case where good news is perceived as bad news,” said Bob Decker, fund manager with Aurion Capital Management in Toronto. He helps manage about C$6 billion ($5.62 billion) with the firm. “We’re in a transition zone between when QE was driving the market and when earnings growth and economic activity will drive the market, so it’s created a choppy environment.”

U.S. companies boosted payrolls by 215,000 in November, a report from the ADP Research Institute said, ahead of the 170,000 median projection from a Bloomberg survey of economists.

November non-farm payrolls and unemployment rate data are scheduled to be released by the Bureau of Labor Statistics on Dec. 6.

Bank of Canada Governor Stephen Poloz kept his main interest rate unchanged at 1 percent, where it’s been for more than three years, as expected by economists surveyed by Bloomberg. The risks of inflation staying below target “appear to be greater” in an economy that’s two years away from reaching full output, the central bank said.

Financial stocks lost 0.6 percent as a group as nine of 10 industries in the S&P/TSX declined.

AGF Management Ltd. slumped 9.3 percent, the most since 2009, to C$13. The company reported assets under management of C$34.4 billion as of the end of November, a 12 percent decline compared with a year ago.

Royal Bank slipped 0.8 percent to C$69 and Bank of Nova Scotia lost 0.8 percent to C$63.68. The two banks are scheduled to report earnings in the next two days, along with Toronto- Dominion Bank and Canadian Imperial Bank of Commerce.

Thompson Creek Metals Co. slumped 9.2 percent to C$2.48, the biggest decline since May 2012. Daniel Earle, an analyst with TD Securities, said the mining company will not be able to generate enough cash to repay $1 billion in debt maturities in 2017 and 2019 assuming the price of gold is $1,300 an ounce and $3 a pound for copper.

CGI Group, the developer behind the U.S. government’s medical-insurance exchange website, lost 3.9 percent to C$37.03, for the largest retreat since September. The Newsweek report said Chanos, who predicted the collapse of Enron Corp. in 2001, includes CGI Group among his largest short positions. The stock has rallied 62 percent this year.

Air Canada, the best-performing stock in the S&P/TSX this year, gained 3.5 percent to C$8. Fadi Chamoun, an analyst with BMO Capital Markets, raised his share-price target for Air Canada to C$10 while maintaining an outperform rating, the equivalent of a buy. Air Canada has soared 357 percent this year.

“The combination of lower costs and growing revenues should enable strong improvement in margins and return on invested capital,” Chamoun said in a report.

USA

By Nick Taborek and Nikolaj Gammeltoft

Dec. 4 (Bloomberg) — U.S. stocks fell a fourth day, the longest slump in 10 weeks for the Standard & Poor’s 500 Index, as investors weighed economic data for clues on the timing of Federal Reserve stimulus cuts amid optimism over a budget deal.

Sears Holdings Corp. plunged 8.3 percent after Edward Lampert, the hedge-fund manager who for the past eight years tried to turn around the company, cut his stake to below 50 percent. Teradata Corp. lost 6.2 percent after Morgan Stanley reduced its rating on the stock. CF Industries Holdings Inc. jumped 11 percent after the fertilizer producer said its considering partnership structures.

The S&P 500 fell 0.1 percent to 1,792.81 at 4 p.m. in New York. The gauge fluctuated during the session, rising as much as 0.3 percent and declining 0.9 percent at its lowest. The Dow Jones Industrial Average dropped 24.85 points, or 0.2 percent, to 15,889.77. About 6.6 billion shares changed hands on U.S. exchanges, 7.6 percent above the three-month average.

“The market just seems real jittery,” Walter Todd, who oversees about $950 million as chief investment officer of Greenwood Capital Associates LLC in Greenwood, South Carolina, said by phone. “We’ve got maybe 20 trading days left in the year, and it’s been a really good year. Investors are a little bit on edge. They’d like to close the books out today if they could.”

The S&P 500 has surged 26 percent this year, poised for the best annual gain since 2003, as the Fed has refrained from reducing its monthly bond purchases. Central-bank policy makers have been scrutinizing data to determine whether the economy is robust enough to withstand a reduction in their support. They specifically cited during their last meeting fiscal drag and budget standoffs as being among “several significant risks” that remained.

Data today showed companies boosted payrolls in November by the most in a year. Labor Department data on Friday may show the unemployment rate fell to 7.2 percent, matching the lowest level since 2008.

A separate report indicated service industries in the U.S. expanded at a slower pace than forecast in November, showing uneven progress in the biggest part of the economy. Purchases of new U.S. homes surged in October by the most in three decades, signaling buyers are starting to take higher mortgage rates in stride.

Gains in manufacturing, technology and housing kept the economy expanding at a “modest to moderate” pace from early October through mid-November, the Fed said today in its Beige Book business survey, which contains anecdotal reports from the 12 Fed district banks.

The Fed has said it will start paring stimulus if the economy improves in line with its forecasts. Policy makers, who next meet Dec. 17-18, will probably wait until their March 18-19 session before reducing monthly bond purchases to $70 billion from $85 billion, according to the median estimate in Bloomberg’s latest survey of economists conducted on Nov. 8.

“Everyone’s worried about the taper,” Ben Schwartz, the Chicago-based chief market strategist at broker Lightspeed Financial Inc., said in a phone interview. “It’s a really delicate situation with the amount the market has run up this year. People are kind of questioning their positions and there’s still a lot of uncertainty with the economy.”

The S&P 500 has retreated 0.8 percent in the past four sessions after closing at a record on Nov. 27. The gauge reversed an early decline today as optimism grew that U.S. budget negotiators are near a deal that could avoid another government shutdown next year.

The two leaders of the bipartisan panel aiming to reach an agreement on savings to replace some automatic spending cuts set to start in January are hatching a narrow deal in which both parties would have to compromise.

Negotiations are continuing and “there are still issues to be resolved,” Senate Budget Committee Chairman Patty Murray, a Washington Democrat, said today.

Congress on Oct. 16 passed legislation funding the government through Jan. 15 as part of the agreement to end a partial shutdown, the first in 17 years.

“It seems like an olive branch is being extended from both parties right now on the budget,” Michael Mullaney, who oversees more than $10 billion as Boston-based chief investment officer for Fiduciary Trust Co., said in a telephone interview.  “That’s positive.”

The S&P 500’s rally this year has pushed valuations higher, with the gauge trading for about 16.8 times its companies’ reported earnings, up 18 percent from the beginning of 2013 when it traded at 14.2 times profit.

Investment newsletter writers are the most bullish on the U.S. stock market in more than two and a half years, with 57.1 percent predicting further gains, according to a survey by research provider Investors Intelligence. The last time the reading exceeded this level was in April 2011, when 57.3 of advisers were bullish and the S&P 500 fell 11 percent in the next four months. The bullishness measure last rose above 60 percent in October 2007, the start of a bear market.

The Chicago Board Options Exchange Volatility Index, the gauge of S&P 500 options known as the VIX, rose 1 percent to 14.70, the highest level in six weeks. The measure has rallied seven straight sessions, its longest advance since April 2012.

Six of 10 main S&P 500 industries retreated today, with energy and consumer-staples stocks dropping 0.4 percent to pace declines.

An S&P gauge of homebuilders retreated 0.6 percent for a fifth day of losses, even as new-home sales surged. Lennar Corp. dropped 2.2 percent to $34.52 and PulteGroup Inc. slid 0.4 percent to $18.35.

The Bloomberg U.S. Airlines Index fell 1.2 percent for a fourth day of losses, as the price of crude futures touched the highest level since October. JetBlue Airways Corp. declined 1.8 percent to $8.41 and Spirit Airlines Inc. dropped 1.5 percent to $43.90.

Teradata slid 6.2 percent to $42.53 for the biggest drop in the S&P 500. The data storage provider was cut to underweight from equal weight at Morgan Stanley, which said it is cautious on information-technology hardware companies because cloud- computing adoption is moving faster than previously estimated.

Sears slid 8.3 percent to $50.92, the lowest in almost three months. Lampert’s ESL Investments Inc. owns 48 percent of the Hoffman Estates, Illinois-based department store chain, down from 55 percent reported as recently as October, according to a filing yesterday with the U.S. Securities and Exchange Commission.

Express Inc. sank 23 percent to $19, the lowest in 18 months. The retailer reduced its earnings forecast for its financial year ending on Feb. 1 to no more than $1.51 a share.

It had predicted as much as $1.60. Analysts on average had estimated profit of $1.61.

CF Industries soared 11 percent to a record $237.07 for the biggest gain in the S&P 500. The largest U.S. nitrogen- fertilizer maker is in talks with financial advisers to evaluate a master-limited partnership and “MLP-like structures along with other financial options,” the company said today in a filing containing presentation slides.

Deere & Co. added 3.2 percent to $85.38. The world’s largest maker of agricultural equipment said it will repurchase as much as $8 billion in stock.

Have a wonderful evening everyone.

Be magnificent!

Your way is very good for you, but not for me.

My way is good for me, but not for you.

Swami Vivekananda, 1863-1902

As ever,

Carolann

Only those who dare to fail greatly

can ever achieve greatly.

-Robert Kennedy, 1925-1968.

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