February 21, 2014 Newsletter

Dear Friends,

Tangents:

In October, Sting previewed his upcoming Broadway play, The Last Ship, at a special performance at New York’s Public Theater, bringing people into his creative process.  It inspired his album of the same name, his first in nearly a decade, which celebrates a passing way of life in his shipbuilding coastal hometown in the north of England.  PBS will air the concert film, The Last Ship on Great Performances tomorrow night February 21^st at 9 PM.

Tonight Sting and Paul Simon are in concert in Vancouver; I am so looking forward to seeing them – two awesomely talented artists.

Photos of the day

Australia’s Scott Kneller, Finland’s Jouni Pellinen and Switzerland’s Armin Niederer perform a jump during the men’s freestyle skiing skicross 1/8 final in Rosa Khutor, Thursday, February 20. Dominic Ebenbichler/Reuters

The Olympic rings are reflected in the goggles of Norway’s Haavard Klemetsen as he makes his attempt during the ski jumping portion of the Nordic combined Gundersen large hill team competition, Thursday, Feb. 20, in Krasnaya Polyana. Dmitry Lovetsky/AP

Norway’s Joergen Graabak (r.) crosses the finish line to win gold ahead of silver medal winner Germany’s Fabian Riessl (l.) during the cross-country portion of the Nordic combined Gundersen large hill team competition, Thursday, Feb. 20, in Krasnaya Polyana. Matthias Schrader/AP.

Market Closes for February 20^th, 2014

International Markets

Bonds

Currencies

Commodities

Market Commentary:

Canada

By Eric Lam
Feb. 20 (Bloomberg) — Canadian stocks rose a 12th day, extending the longest advance in almost two decades, after Quebecor Inc. bought airwaves to expand its wireless services and Loblaw Cos. reported better-than-estimated earnings.

Quebecor surged 8 percent after spending C$233 million ($210 million) yesterday to buy spectrum in four provinces. Loblaw climbed 4.8 percent. TransAlta Corp. sank 7.2 percent as it cut its dividend and agreed to sell its stake in a U.S. electricity generation company to raise cash. Tim Hortons Inc. and CCL Industries Inc. rose at least 1.8 percent after the companies boosted their dividends.

The Standard & Poor’s/TSX Composite Index rose 90.64 points, or 0.6 percent, to 14,210.37 at 4 p.m. in Toronto. The benchmark equity gauge has jumped 5.4 percent in 12 days for the longest rally since March 1995. The index is trading at its highest level since 2011.

“I like this market, not just because it keeps on going up, but that there’s some logic to it,” said David Cockfield, fund manager at Northland Wealth Management in Toronto. He helps manage about C$270 million with the firm. “It seems to be a much more rational market, where things go up for a rational reason like better earnings.”

The S&P/TSX is 0.4 percent below its peak of 14,270.53 reached on April 5, 2011, the highest level since June 2008. Of the 241 stocks in the benchmark Canadian equity gauge, 159 have advanced this year. The S&P/TSX trades at 19.6 times earnings, its highest valuation since April 2011, according to data compiled by Bloomberg.

Eight of 10 industries in the S&P/TSX rose and trading volume was 10 percent above the 30-day average.

Large-cap fund managers posted their best return relative to the S&P/TSX in 12 years in 2013, with 94 percent of managers besting the benchmark equity gauge’s 13 percent gain, according to a report from Russell Investments. The median return for the year was 19 percent, after fund managers avoided the slump in gold stocks by being about 3.5 percent underweight in the industry last year, the report said.

Loblaw climbed 4.8 percent to C$44.29, the biggest gain since July, to pace gains as consumer staples stocks rallied 2 percent as a group. The company posted adjusted fourth-quarter earnings of 65 Canadian cents a share, ahead of analysts’ projections of 55 cents. Same-store sales rose 0.6 percent, boosted by timing of the Canadian Thanksgiving holiday, the company said in a statement.

Quebecor rallied 8 percent to C$25.50, for the biggest gain since November 2009. The company is positioned to become Canada’s fourth national wireless operator after purchasing seven licenses in the 700-megahertz spectrum, useful for penetrating dense urban areas.

The Canadian government netted C$5.27 billion from the auction, including C$3.29 billion from Rogers Communications for 22 licenses. Rogers, BCE Inc. and Telus Corp. account for about 90 percent of wireless customers in Canada.

BlackBerry Ltd. advanced 4.5 percent to C$10.41 after Facebook Inc. agreed to buy mobile-messaging company WhatsApp Inc. for as much as $19 billion, highlighting the potential value of BlackBerry’s messenger service.

Tim Hortons added 1.8 percent to C$58.98, the biggest advance since December. The company raised its quarterly dividend 23 percent to 32 Canadian cents a share.

The quick-serve coffee retailer posted an 11 percent jump in sales in the fourth quarter, due to an increase in franchise fees from higher levels of renovations and restaurant development, the company said.

CCL Industries, which produces packaging and labels for consumer products, jumped 6.3 percent to a record C$87.17 after boosting its quarterly dividend to 25 Canadian cents a share.

TransAlta, an Alberta electricity producer, slumped 7.2 percent to C$13.76, the biggest decline in five years. The company trimmed its dividend 38 percent to 72 Canadian cents a share and sold its 50 percent stake in CE Generation, Blackrock development and Wailuku to MidAmerican Renewables, its partner in the holdings, for $193.5 million.

USA

By Nick Taborek
Feb. 20 (Bloomberg) — U.S. stocks rose, erasing most of yesterday’s drop, as improving manufacturing data tempered concern about the economy and Facebook Inc.’s $19 billion purchase of a messaging startup fueled optimism about deals.

Tesla Motors Inc. surged 8.4 percent after predicting sales of its Model S sedan will jump. Safeway Inc. rallied 2.1 percent as people familiar with the situation said the grocer is weighing a sale. Facebook gained 2.3 percent after agreeing to buy WhatsApp Inc., the fourth deal of at least $16 billion this year. Citrix Systems Inc. rose 5.9 percent as Evercore Partners Inc. said the company’s parts are worth more than the stock price reflects. Wal-Mart Stores Inc. slipped 1.8 percent as the largest retailer forecast profit below estimates.

The Standard & Poor’s 500 Index rose 0.6 percent to 1,839.78 at 4 p.m. in New York after retreating yesterday following an early advance that took it within one point of its closing record. The Dow Jones Industrial Average increased 92.67 points, or 0.6 percent, to 16,133.23. About 6.4 billion shares changed hands on U.S. exchanges, in-line with the three-month average.

“The underlying strength of the U.S. consumer, of U.S. corporations, is still there,” James Liu, a Chicago-based global market strategist at J.P. Morgan Funds, which oversees about $400 billion, said by phone. “On the emerging markets side, the question is whether there is contagion for the U.S. market. And I think the answer that we’ve seen is no.”

The S&P 500 slumped as much as 5.8 percent after reaching a record on Jan. 15 as investor concern about the Federal Reserve’s reductions in stimulus fueled a rout in emerging markets. The benchmark gauge has rebounded 5.6 percent since.

Investors have been dismissing lower-than-forecast U.S. economic data over the past two weeks, pointing to harsh winter weather as a reason for unexpected weakness in reports from housing to hiring. The Bloomberg ECO U.S. Surprise Index, which measures how much recent data has beaten or missed economists’ estimates, fell to minus 0.423 today, the lowest since September 2011.

Fed Chair Janet Yellen last week said the economy has strengthened enough to withstand continued cuts to monetary stimulus, adding that only a notable change in the outlook for the economy would prompt the central bank to slow the pace of tapering.

The Markit Economics preliminary index of U.S. manufacturing increased to 56.7 in February, surpassing economists’ estimates, while Labor Department figures indicated fewer Americans filed applications for unemployment benefits last week. The Conference Board’s index of U.S. leading indicators, a gauge of the outlook for the next three to six months, rose in January in line with estimates, while the Philadelphia Fed’s Business Outlook Survey for February unexpectedly declined.

Hewlett-Packard Co. and 17 other companies in the S&P 500 report results today. Earnings beat analysts’ estimates at about 74 percent of the 433 companies in the benchmark index that have posted results so far this season, according to data compiled by Bloomberg.

The Facebook acquisition was the fourth major deal this year, with Comcast Corp.’s $45.2 billion purchase of Time Warner Cable Inc. the biggest. Actavis Plc announced Feb. 18 a $21 billion deal to buy Forest Laboratories Inc. and Suntory Holdings Ltd. agreed in January to pay $16 billion for Beam Inc.

“M&A is alive and well, corporate balance sheets remain strong,” John Carey, a fund manager at Pioneer Investment Management Inc., a Boston-based firm that manages about $220 billion worldwide, said by phone. “There may be some fluctuations in the market, but when people come back and focus on the underlying fundamentals here in the U.S., I think they’re going to keep coming back to stocks.”

The Chicago Board Options Exchange Volatility Index, the gauge of S&P 500 options known as the VIX, slipped 4.6 percent to 14.79 today, following a two-day gain of 14 percent.

All 10 of the main industries in the S&P 500 rose today, as phone companies rallied 2 percent to lead gains. Verizon Communications Inc. climbed 3.4 percent to $48.12 and AT&T Inc. added 1 percent to $33.18, among the biggest advances in the Dow.

Safeway Inc. added 2.1 percent to $35.32 as it considers a sale. CVC Capital Partners Ltd. and Leonard Green & Partners LP are among the firms in talks with Safeway about buying some or all of the grocery chain as it weighs a sale, people with knowledge of the matter said.

The second-largest U.S. grocery-store chain said it plans to distribute its remaining 37.8 million shares of the Blackhawk Network Holdings Inc. gift-card business to Safeway investors and explore ways to monetize its 49 percent stake in Mexican retailer Casa Ley SA.

Tesla jumped 8.4 percent to a record $209.97. The electric- car maker said Model S deliveries will increase to 35,000 this year as sales to China begin, from about 22,450 last year. Tesla posted fourth-quarter earnings of 33 cents a share excluding some items, exceeding the 26-cent average of analyst estimates compiled by Bloomberg.

Citrix rallied 5.9 percent to $60.59. The software maker may be able to increase value by repurchasing stock, starting a dividend or committing to operating margin expansion, according to an Evercore report. The company’s individual segments may be worth $65 a share, according to the report.

Facebook rose 2.3 percent to $69.63 as the world’s biggest social network said it will pay $12 billion in stock, $4 billion in cash and $3 billion in restricted shares for WhatsApp. It is the largest Internet deal since Time Warner’s $124 billion merger with AOL in 2001, according to data compiled by Bloomberg.

Wal-Mart dropped 1.8 percent to $73.52. Chief Executive Officer Doug McMillon, who took the post earlier this month, is trying to revive Wal-Mart’s U.S. same-store sales growth after lower food-stamp payments, higher taxes and struggles to keep shelves fully stocked contributed to four straight quarterly declines. Chief Financial Officer Charles Holley said today that the economic trends, as well as higher health care costs, will continue to hurt the domestic business.

Apple Inc. fell 1.2 percent to $531.15. The iPhone maker’s market share in China declined to 7 percent in the fourth quarter from 9 percent a year earlier, market researcher Canalys said in an e-mailed statement. Samsung Electronics Co. maintained its lead over competitors as it increased its market share to 19 percent from 17 percent, the research firm said.

The S&P 500 today recouped most of yesterday’s 0.7 percent slide triggered after minutes from the Fed’s January meeting showed policy makers may soon change their guidance for interest rates as unemployment falls toward a threshold for considering an increase in borrowing costs. Several officials also said that, barring an “appreciable change in the economic outlook,” they would favor reducing the pace of bond purchases by $10 billion at each meeting.

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 as much as 173 percent higher from a 12-year low in 2009.

The International Monetary Fund said yesterday 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.

Equity futures slumped before the open of exchanges amid continued turmoil in emerging markets. The MSCI Emerging Markets Index dropped 0.9 percent as at least seven people died in new clashes after a truce declared last night by Ukrainian President Viktor Yanukovych and opposition leaders foundered.

Have a wonderful evening everyone.

Be magnificent!

Guard your tongue, for it is highly dangerous;

unguarded words can cause terrible distress.

A single bad word can destroy a vast quantity of good.

A wound caused by fire will eventually heal;

but a wound caused by the tongue leaves a scar that never heals.

Valluvar, 1479-1531

As ever,

Carolann

I’ll play it first and tell you what it is later.

-Miles Davis, 1926-1991

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