February 14, 2014 Newsletter

Dear Friends,

Tangents:

Happy Valentine’s Day!

So, it was an interesting evening with economist Nouriel Roubini last night.  One of the more cogent insights was his reflection on the 100^th anniversary of the onset of the First World War this year – 1914-2014.  He feels that there is a comparison to be made between the tensions that existed within Europe then which led to the outbreak of war and the tensions that are on the rise between China and Japan right now.  Both countries have boats patrolling the disputed waterways between the islands both claim and all it would take for an escalation is for one side to make some stupid mistake which can easily happen under such tensions.

Another point is the spectre of declining job creation as a result of ever more impressive technology whereby more workers are replaced by robots and software.

Photos of the day

China’s Cheng Shuang performs a jump during the women’s freestyle skiing aerials qualification round in Rosa Khutor, February 14. Lucas Jackson/Reuters

A person climbs on the Bolshoi Dome, one of the ice hockey venues, before the medals ceremony, February 14. /Marko Djurica/Reuters

Market Closes for February 14^th, 2014

International Markets

Bonds

Currencies

Commodities

Market Commentary:
Canada
By Eric Lam

Feb. 14 (Bloomberg) — Canadian stocks rose a ninth day, the longest streak in a decade, as gains in gold companies offset weaker-than-forecast data on U.S. and Canadian manufacturing.

OceanaGold Corp. and Detour Gold Corp. rallied at least 4 percent as gold mining companies led gains in the Standard & Poor’s/TSX Composite Index. Just Energy Group Inc. jumped 11 percent after reporting third-quarter earnings ahead of estimates as it added customers. Silvercorp Metals Inc. plunged 13 percent after reducing its dividend.

The S&P/TSX rose 53.11 points, or 0.4 percent, to 14,054.76 at 4 p.m. in Toronto. The benchmark equity gauge has jumped 4.2 percent in nine days for the longest rally since November 2003 and closed at its highest level since April 2011. Canadian markets will be closed on Feb. 17 for the Family Day holiday in Toronto.

“It’s gold, gold, gold,” said Philip Petursson, director of institutional equities at Manulife Asset Management Ltd. in Toronto. The firm manages about C$265 billion ($241 billion).

“Gold has been the dominant driver of performance on the TSX and it’s kind of surprised me it’s done as well as it has. Lump in the other precious metals in there too, and it’s been reflected in the producers the past few weeks.”

Canadian factory sales unexpectedly declined 0.9 percent to C$49.9 billion in December, led by slumping sales in aerospace products and motor vehicles. The median estimate of 17 economists was for little change to the measure, according to data compiled by Bloomberg.

Federal Reserve figures showed U.S. factory production slumped 0.8 percent in January, the most since May 2009, amid severe winter weather conditions. Median estimates had called for a 0.1 percent advance.

Detour Gold climbed 5.7 percent to C$9.89, the highest since September, and OceanaGold jumped 4 percent to C$2.59 as raw-materials stocks rallied 1.3 percent as a group, the most in the S&P/TSX. Eight of 10 industries in the benchmark Canadian equity gauge advanced on trading volume 1.7 percent higher than the 30-day average.

Detour Gold has been the best-performing stock in the S&P/TSX in 2014 with a 141 percent gain, after being the worst performer a year ago.

All but two of 23 members of the S&P/TSX Gold Index advanced as the industry measure rallied 2 percent for the highest close since August. Gold climbed 1.4 percent to $1,318.60 an ounce in New York and rallied 4.4 percent in five days, the biggest weekly advance since August.

First Majestic Silver Corp. increased 4.5 percent to C$13.38 and Silver Standard Resources Inc. gained 4.5 percent to C$11.35 as silver futures rallied 5 percent in New York. Silver prices have risen for 10 days, the longest rally since 2008, and are up 11 percent this year.

Silvercorp Metals plunged 13 percent to C$3.16, the biggest drop since September 2011, after cutting its quarterly dividend to 0.5 Canadian cents a share from 2.5 cents as net income plunged 58 percent in the third quarter.

Just Energy Group, which sells electricity and natural gas to residences in Canada and the U.S., soared 11 percent to C$8.30. The company’s subscriber base rose to 4.6 million in the third quarter, a 7 percent increase from year-ago numbers.

Air Canada, the nation’s largest airline, dropped 3.4 percent to C$5.74 for a third day of losses since forecasting a drop in first-quarter profit on Feb. 12. The stock closed at the lowest level since November.

US
By Callie Bost and Jeff Sutherland

Feb. 14 (Bloomberg) — U.S. stocks rose, sending the Standard & Poor’s 500 Index to within 10 points of its all-time high, amid better-than-forecast earnings and continued confidence in the strength of the world’s largest economy.

Occidental Petroleum Corp. gained 3.8 percent after saying it will split its operations in California as one of the final steps of a breakup plan. Cliffs Natural Resources Inc. and Campbell Soup Co. added more than 5 percent as earnings beat forecasts. Men’s Wearhouse Inc. tumbled 5.3 percent after its acquisition target, Jos. A. Bank Clothiers Inc., proposed to buy the Eddie Bauer brand.

The S&P 500 rose 0.5 percent to 1,838.63 at 4 p.m. in New York, capping its largest weekly gain of the year. The Dow Jones Industrial Average added 126.80 points, or 0.8 percent, to 16,154.39. The Nasdaq Composite Index climbed 0.1 percent to the highest level since 2000. About 6 billion shares changed hands on U.S. exchanges, the lowest volume since Jan. 3.

“I think the market is still believing that the economy is moving in the right direction,” Robert Pavlik, chief market strategist at Banyan Partners LLC, which manages $4.5 billion, said in a phone interview. “Folks are looking to buy on the dips. The pullback is still fresh and they’re looking for opportunities.”

The S&P 500 has jumped 5.6 percent from a three-month low on Feb. 3 amid speculation economic growth is strong enough to withstand further cuts to Federal Reserve monetary stimulus. The index reached a closing high of 1,848.38 on Jan. 15, before dropping 5.8 percent on signs of slowing growth in China and a rout in emerging-market currencies. The Dow remains 2.5 percent below its record reached Dec. 31.

Equities rallied for a second straight week, with the S&P 500 gaining 2.3 percent over the five days, as Fed Chair Janet Yellen said economic growth has strengthened and there is “broad improvement” in the labor market. She repeated the Fed’s outlook for further stimulus reductions in “measured steps,” adding that only a “notable change in the outlook” for the economy would prompt policy makers to slow the pace.

Federal Open Market Committee officials have twice reduced the size of the monthly asset-purchase program, lowering bond buying to $65 billion in February from $85 billion last year. Three rounds of stimulus under previous Chairman Ben S. Bernanke have helped push the S&P 500 as much as 173 percent higher from a 12-year low in 2009.

Data today showed U.S. industrial output unexpectedly declined in January by the most since May 2009, adding to evidence severe winter weather weighed on the economy. The 0.8 percent decrease at manufacturers followed a revised 0.3 percent gain the prior month that was weaker than initially reported, figures from the Fed showed. The median forecast in a Bloomberg survey of economists called for a 0.1 percent advance.

Consumer confidence in the U.S. was stronger than projected in February as Americans grew more upbeat about the economy. The Thomson Reuters/University of Michigan preliminary index of U.S. consumer sentiment held at 81.2 this month. The median estimate in a Bloomberg survey of 74 economists called for a decline to 80.2.

“The weather is so horrible everywhere, much of the data could be very distorted,” Bruce Bittles, chief investment strategist at RW Baird & Co., said by telephone from Sarasota, Florida. His firm oversees $120 billion. “The Fed is going to wait until the weather clears and until we get some more numbers in March and April to consider the data. The picture will start to clear on how great or how poor the economy is.”

Equities have also climbed this week amid better-than- forecast corporate earnings. Seven S&P 500-listed companies reported earnings today. Seventy-five percent of the 400 companies that have posted results this season beat analysts’ estimates for profit and 64 percent exceeded sales projections, data compiled by Bloomberg show.

Earnings at S&P 500 companies rose by 8.4 percent in the fourth quarter of 2013 and sales by 2.9 percent, according to analyst estimates compiled by Bloomberg.

The Chicago Board Options Exchange Volatility Index, the gauge of S&P 500 options known as the VIX, fell 4 percent to 13.57. The gauge has fallen for seven straight days, the longest stretch since July, erasing its gain for the year.

Occidental Petroleum gained 3.8 percent to $95.76. The largest oil producer in the continental U.S. will split its operations in California into a separate publicly traded company. Occidental has embraced asset sales from North Dakota to the Persian Gulf to focus on its most profitable operations after lackluster returns in 2011 and 2012.

Cliffs Natural rose 5.8 percent to $23.16. The U.S. iron miner being targeted by an activist shareholder reported earnings that beat analysts’ estimates. The board also appointed Gary Halverson, former president and chief operating officer, as chief executive officer.

Casablanca Capital LP, the company’s fourth-largest shareholder, has pressed Cliffs to spin off foreign assets and double its dividends. The shares have rallied 20 percent this month.

Campbell Soup climbed 5 percent to $43.01 as second-quarter adjusted earnings of 76 cents a share topped analysts’ forecasts for 73 cents as U.S. soup sales increased 5 percent. The company also reaffirmed it full-year estimates.

Marijuana stocks rallied today after the Treasury Department said it would allow banks to accept accounts from those businesses, letting an industry that is illegal in a majority of U.S. states open business checking accounts and accept credit cards.

Tranzbyte Corp., which sells pot in Colorado, jumped 29 percent to 3 cents. Tranzbyte was the most-traded stock among companies with a market value of at least $50 million, according to data compiled by Bloomberg. Growlife Inc. climbed 8.6 percent to 38 cents and Medical Marijuana Inc. rose 6.8 percent to 32 cents.

Men’s Warehouse tumbled 5.3 percent to $44.07. Jos. A. Bank, which has been resisting a merger with Men’s Wearhouse, said it will buy the Eddie Bauer brand for an enterprise value of $825 million. Jos. A. Bank added 0.4 percent to $55.12.

Weight Watchers sank 28 percent to $22.10, the lowest level since April 2009. Fourth-quarter adjusted earnings per share was 58 cents, missing the 61 cents estimated by analysts. Full-year earnings will be between $1.30 and $1.60 per share, the weight- control program provider said.

GNC Holdings Inc. plunged 15 percent to $44.72. The company expects 2014 adjusted earnings to be between $3.18 and $3.24 per share, compared with an estimate by analysts of $3.46. Fourth- quarter earnings and sales also missed analysts’ targets.

Agilent Technologies Inc. fell 8 percent to $55.25. The company lowered its full-year forecast for adjusted earnings to between $2.96 and $3.16, from its earlier projection for $3.03 to $3.33.

VF Corp. slipped 5.1 percent to $56.85 after the apparel manufacturer reported fourth-quarter earnings per share that fell short of forecasts. VF has retreated 8.8 percent this year.

J.M. Smucker Co. dropped 3.5 percent to $91.81, the lowest level in almost a year. The peanut butter and jelly maker cut its earnings and sales forecasts for the current fiscal year after third-quarter results missed analysts’ estimates.

Have  a wonderful weekend everyone.

Be magnificent!

What is then worth having?

Mukti, freedom.

Swami Vivekananda, 1863-1902

As ever,

Carolann

Romance is everything.

-Gertrude Stein, 1874-1946

Carolann Steinhoff, B.Sc., CFP®, CIM, FCSI

Senior Vice-President &

Senior Investment Advisor

Queensbury Securities,

Suite 340A, 730 View St.,

Victoria, B.C. V8W 3Y7