February 19, 2014 Newsletter

Dear Friends,

Tangents:

On this day in 1945, 30,000 marines landed on Iwo Jima.

Reading about the escalating violence in Kiev and Thailand, Syria, North Korea…will we ever learn???  Violence/ war is not the answer.  I visited a client yesterday at her home; she grew up in Dusseldorf and was there during the war.  She was showing me pictures of what the city looked like in 1945 – full of crumbling buildings.  Practically every building had bombed – it looked like a wasteland.

51 years ago – on February 19^th, 1963, feminist crusader Betty Friedan’s book, The Feminine Mystique is published.  Ditto about learning.

I came across this fantastic photo today – not since 1979 have the Great Lakes been almost entirely frozen over:

Reuters

Sightseers on frozen Lake Superior near Cornucopia, Wis., check out the icicles that formed at the mouth of a sea cave.

Photos of the day

Ted Ligety of the US clears a gate during the second run of the men’s alpine skiing giant slalom event at the Rosa Khutor Alpine Center, Wednesday, Feb. 19. Picture taken with multiple exposure function. Dominic Ebenbichler/Reuters

Norway’s Ingvild Flugstad Oestberg (l.) and Marit Bjoergen celebrate winning the gold after the women’s cross-country team sprint competitions, Wednesday, Feb. 19, in Krasnaya Polyana. Matthias Schrader/AP

Market Closes for February 19^th, 2014

International Markets

Bonds

Currencies

Commodities

Market Commentary:

Canada
By Eric Lam and Callie Bost

Feb. 19 (Bloomberg) — Canadian stocks rose an 11th day, extending the longest advance in almost two decades, as banks gained and energy stocks rallied amid a takeover.

Canadian Natural Resources Ltd. jumped 4.9 percent for the biggest intraday gain since October after agreeing to buy Devon Energy Corp.’s oil and natural-gas fields. Crew Energy Inc. and Birchcliff Energy Ltd. climbed at least 2.8 percent as energy shares added 1.1 percent. Air Canada soared 4.8 percent, halting a four-day slide. Sherritt International Corp. plunged 12 percent as the metals miner cut its dividend.

The Standard & Poor’s/TSX Composite Index rose 79.38 points, or 0.6 percent, to 14,156.85 at 2:36 p.m. in Toronto.  The benchmark equity gauge has jumped 5 percent in 11 days for the longest rally since March 1995 and is trading at the highest level since 2011.

“Commodities didn’t have a very good year last year,”  John Kinsey, who helps manage about C$1 billion ($910 million) at Caldwell Securities Ltd. in Toronto, said in a telephone interview. “We’re looking for that to change this year, with Europe, Japan and China stimulating growth and the U.S. looking like it’s gaining some traction. All of that combined bodes well for commodities and it looks like that has been helping out recently.”

The S&P/TSX is 0.8 percent below its peak of 14,270.53 reached on April 5, 2011, the highest level since June 2008. The Canadian equity benchmark trades at 19.5 times earnings, its highest valuation since April 2011.

Gains in Canadian stocks this year have been led by gold and silver producers, after the materials-producers group plunged 31 percent in 2013. Detour Gold Corp. has soared more than 130 percent in 2014, while OceanaGold Corp. and Fortuna Silver Mines Inc. advanced about 60 percent. Materials producers retreated today as gold dropped from a three-month high and silver ended its longest winning streak in more than three decades.

Six of 10 main industries in the gauge advanced today. Industrials jumped 0.5 percent and financials gained 0.6 percent. Royal Bank of Canada jumped 1.3 percent to C$72.04 and Bank of Montreal rose 0.9 percent to C$72.33, for a 10th straight advance.

Canadian Natural added 4.9 percent to C$41.08, the highest level since February 2012. Canadian Natural will purchase the assets from Devon Energy in a deal worth C$3.13 billion ($2.86 billion).

The purchase will add production near Canadian Natural’s fields in western Canada, the company said today in a statement.  Canadian Natural expects production to climb about 7 percent this year, while Devon’s assets will provide about $75 million in cash.

West Texas Intermediate crude rose for a second day, touching the highest intraday level since Oct. 10, and natural gas futures surged past $6 per million British thermal units for the first time since 2010 as inclement weather in the U.S. stoked demand for heating fuels.

Crew Energy increased 3.3 percent to C$7.81, the highest level since November 2012. Birchcliff Energy climbed 2.8 percent to C$10.

Air Canada rose 4.8 percent to C$5.87. The stock had lost 28 percent in four days of losses through yesterday after the carrier forecast a drop in first-quarter profit on Feb. 12 because of a weaker Canadian dollar and “severe” winter weather. Air Canada was the best performer in the S&P/TSX last year, rising 323 percent.

Sherritt International lost 12 percent, its biggest drop since October 2009, to C$3.03. The metals producer reported adjusted losses per share of 13 Canadian cents during the fourth quarter, missing analysts’ estimates of 1 Canadian cent earnings per share for the period. Sherritt also cut its quarterly dividend to 1 Canadian cents from 4 Canadian cents and said it wouldn’t pursue its Sulawesi nickel project.

USA
By Nick Taborek

Feb. 19 (Bloomberg) — U.S. stocks fell, after the Standard & Poor’s 500 Index rose to within one point of a record close, as the International Monetary Fund warned of risks to global growth and Federal Reserve indicated stimulus cuts will likely continue.

U.S. Steel Corp. lost 7 percent after the Department of Commerce rejected its claim that South Korea is selling steel tubing in the U.S. below cost. JPMorgan Chase & Co. and Bank of America Corp. lost at least 1.6 percent as financial shares led declines. Nabors Industries Ltd., CF Industries Holdings Inc. and Garmin Ltd. jumped at least 5 percent after earnings beat analysts’ estimates. Signet Jewelers Ltd. added 18 percent after agreeing to buy Zale Corp. for $21 a share.

The S&P 500 slipped 0.7 percent to 1,828.75 at 4 p.m. in New York after climbing as high as 1,847.5. The Dow Jones Industrial Average decreased 89.84 points, or 0.6 percent, to 16,040.56. About 6.9 billion shares changed hands on U.S. exchanges, 8.9 percent above the three-month average.

“So far tapering seems to be orderly and they seem to be committed to it,” Erik Davidson, the San Francisco-based deputy chief investment officer for Wells Fargo Private Bank, which oversees $170 billion, said by phone. “While it is data- dependent, it is long-term data dependent, certainly not short- term-noise data-dependent. Investors should recognize that this is the beginning of a very, very, very long process.”

Investors had dismissed weaker-than-forecast economic data over the past two weeks, helping stocks recover from their worst start of a year since 2010. The S&P 500 had slumped as much as 5.8 percent since reaching a record on Jan. 15 as concern over Fed tapering fueled an exodus in emerging markets. The index has since rebounded, leaving it down less than 1.1 percent in 2014.

U.S. equities rose last week as Fed Chair Janet Yellen pledged to maintain her predecessor’s policies by scaling back stimulus in “measured steps.” Economic growth has strengthened and there is “broad improvement” in the labor market, she said, adding that only a notable change in the outlook for the economy would prompt the central bank to slow the pace of tapering.

“Several” Fed officials said that in “the absence of an appreciable change in the economic outlook, there should be a clear presumption in favor of continuing to reduce the pace” of the Fed’s bond purchases at each meeting, according to minutes released today.

The Fed decided at its January meeting to press on with a second cut of $10 billion to its bond buying. Three rounds of stimulus have helped push the S&P 500 up as much as 173 percent from a 12-year low in 2009.

Homebuilders declined today, led by losses of at least 1.9 percent in MDC Holdings Inc. and M/I Homes Inc., after a report showed the pace of U.S. home construction declined more than forecast in January, indicating an unusually harsh winter probably played a role in slowing projects.

“The weak data, that’s being discounted simply because of the harsh weather, which is understandable,” Bruce Bittles, chief investment strategist at RW Baird & Co., said by telephone from Sarasota, Florida. His firm oversees $120 billion. “I think we won’t know anything about the state of the economy until March or maybe even April.”

The S&P 500 trades at almost 17 times reported operating earnings, near the highest level since 2010, according to data compiled by Bloomberg. The ratio increased about 20 percent in 2013, the biggest jump in four years, while corporate profits rose 5.6 percent. The index rallied 30 percent last year.

The IMF said today the global recovery is still weak and “significant downside risks remain,” citing increasing political tensions from Ukraine to Thailand, China’s slowdown and the Fed’s tapering of its stimulus as reasons for falling stocks and currencies in emerging markets.

Clashes between Ukraine police and anti-government activists killed at least 25 people and left hundreds injured in the bloodiest episode of the country’s three-month standoff. Violence in Bangkok killed five people.

“Capital outflows, higher interest rates, and sharp currency depreciation in emerging economies remain a key concern,” according to the IMF report prepared ahead of the Group of 20 meeting in Sydney over the weekend. “A new risk stems from very low inflation in the euro area, where long-term inflation expectations might drift down, raising deflation risks in the event of a serious adverse shock to activity.”

Earnings have beaten analysts’ estimates at 75 percent of the 416 companies in the S&P 500 that have released results so far in the reporting season, according to data compiled by Bloomberg. Sales have topped projections at 64 percent.

Hedge-fund manager David Einhorn cautioned against betting on the extension of a U.S. stock-market rally that he said was fueled by conditions that are difficult to sustain.

“In 2013, the market rewarded many companies for beating earnings after they had lowered guidance,” Einhorn said today on a conference call discussing results at Greenlight Capital Re Ltd., the Cayman Islands-based reinsurer where he is chairman. “This trend is not likely to continue indefinitely.”

Eight of 10 main industries in the S&P 500 fell today, as financial firms lost 1.3 percent to lead declines. JPMorgan Chase & Co. slid 2.1 percent to $57.26, snapping a 10-day rally, and Bank of America Corp. dropped 1.6 percent to $16.20.

U.S. Steel Corp. lost 7 percent to $24.86 for the steepest drop in the S&P 500. The nation’s largest producer of the metal by volume fell after the Commerce Department left South Korea off a preliminary list of countries whose imports of steel tubing used by oil and gas drillers would be charged anti- dumping duties.

Eli Lilly rallied 5.1 percent to $58.09. The pharmaceutical company said its Ramucirumab drug improved survival in a study of patients with non-small cell lung cancer. The company plans to submit its first application for the drug to regulators this year.

Garmin jumped 9.6 percent to $51.68. The maker of navigation systems said gains in its fitness, marine and aviation segments will help push revenue to between $2.6 billion and $2.7 billion this year. Analysts had predicted sales of $2.59 billion.

Nabors Industries Ltd. surged 13 percent to $21.15. The oil and gas drilling contractor reported fourth-quarter operating revenue above analysts’ estimates.

CF Industries rallied 5.1 percent to $237.62 after the maker of chemicals used in fertilizer said fourth-quarter sales exceeded analyst estimates.

Signet Jewelers rallied 18 percent to $93.65. The operator of the Kay and Jared brands agreed to buy Zale for about $1.4 billion, expanding its leadership as the largest jewelry chain in the U.S. Zale surged 40 percent to $20.92.

Have a wonderful evening everyone.

Be magnificent!

Violence is not merely killing another.

It is violence when we use a sharp word,

when we make a gesture to brush away a person,

when we obey because there is fear.

So violence isn’t merely organized butchery in the name of God,

in the name of society, or country.

Violence is much more subtle, much deeper,

and we are inquiring into the very depths of violence.

Krishnamurti,1895-1986.

As ever,

Carolann

Wisdom is the reward you get for a lifetime

of listening when you’d have preferred to talk.

-Doug Larson, 1926-

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