February 27, 2014 Newsletter

Dear Friends,

Tangents:

Poet Henry W. Longfellow was born on this day in 1807.  We always think of Paul Revere’s Ride when we think of Longfellow.  This poem is lesser known:

Mezzo Cammin

Half of my life is gone, and I have let

The years slip from me and have not fulfilled

The aspiration of my youth, to build

Some tower of song with lofty parapet.

Not indolence, nor pleasure, nor the fret

Of restless passions that would not be stilled,

But sorrow, and a care that almost killed,

Kept me from what I may accomplish yet;

Though, half-way up the hill, I see the Past

Lying beneath me with its sounds and sights, –

A city in the twilight dim and vast,

With smoking roofs, soft bells, and gleaming lights, –

And hear above me on the autumnal blast

The cataract of Death far thundering from heights.

-Henry Wadsworth Longfellow

Photos of the day

Revelers dressed in carnival costumes celebrate the start of the street-carnival with its tradition of entering the town halls and women cutting off men’s ties with scissors on carnival’s so called ‘Old Women’s Day’ in Dusseldorf, Germany. Frank Augstein/AP

A man holding flowers walks at a memorial for the people killed in clashes with the police, at Kiev’s Independence Square, the epicenter of the country’s current unrest, Ukraine. Emilio Morenatti/AP

Market Closes for February 27^th, 2014

International Markets

Bonds

Currencies

Commodities

Market Commentary:

Canada
By Callie Bost and Eric Lam

Feb. 27 (Bloomberg) — Canadian stocks rose, with the benchmark index near a three-year high, as banks rallied on better-than-forecast earnings and U.S. Federal Reserve Chair Janet Yellen said stimulus cuts could slow if growth weakens.

Toronto-Dominion Bank climbed 0.8 percent after Canada’s largest lender raised its dividend and reported better-than- estimated profit. Valeant Pharmaceuticals International Inc. added 1.6 percent after the company reported earnings that surpassed analysts’ forecasts. Catamaran Corp. plunged 11 percent after giving forecasts for 2014 that missed estimates.

The Standard & Poor’s/TSX Composite Index rose 25.77 points, or 0.2 percent, to 14,214.35 at 4 p.m. in Toronto. The benchmark equity gauge has advanced 3.8 percent in February and is 0.4 percent below its high from April 2011. Trading volume is 7.2 percent below the 30-day average.

“The bank earnings are front and center for a lot of investors, coming in a little better than expected,” Bob Decker, a fund manager with Aurion Capital Management Inc. who helps manage about C$6 billion ($5.39 billion), said by phone from Toronto. “Most of the debate now is how temporary is the weather-induced weakness in the economy and how much snapback there will be from that.”

TD Bank and Canadian Imperial Bank of Commerce raised their dividends after posting record first-quarter profit that beat analysts’ estimates. The two lenders join Royal Bank of Canada and Montreal-based National Bank of Canada in posting net income that topped forecasts as contributions from acquisitions helped lift earnings. Bank of Nova Scotia will report earnings March 4.

Yellen said today in the testimony on monetary policy before the Senate that the Fed is likely to maintain its strategy of gradually trimming asset purchases, even as policy makers monitor data to determine if recent weakness in the economy is temporary.

She repeated that it would take a “significant” change in the economic outlook for the Fed to alter its strategy of gradually reducing asset purchases, while adding that the reductions are “not on a preset course.”

Investors have also been watching events in Ukraine after Russia said it has begun military exercises near the Crimean border. Gunmen occupied Ukraine’s Crimea regional parliament and raised the Russian flag as lawmakers in the capital meet to approve a new cabinet after last week’s ouster of Viktor Yanukovych as leader.

“I’m sitting here, trying to get my arms around this if it’s a flash in the pan or signaling a more material threat to the western interests,” David Bianco, chief U.S. equity strategist at Deutsche Bank Securities Inc., said in an interview with Michael McKee and Tom Keene on Bloomberg Radio’s “Bloomberg Surveillance.”

Seven of 10 main industries in the S&P/TSX advanced today, with technology and phone companies rising at least 0.6 percent to pace gains. BlackBerry Ltd. climbed 1.7 percent to C$11.68, boosting its gains this week to 15 percent.

Telus Corp. increased 0.8 percent to C$38.89 to snap two days of losses and BCE Inc. added 0.7 percent to C$48.17, the highest close since May.

Financial stocks in the index increased 0.5 percent. TD Bank rose 0.8 percent to C$49.80. Canadian Imperial added 1 percent to C$91.47, the highest price since November.

Valeant Pharmaceuticals climbed 1.6 percent to a record C$164.96. The drugmaker posted cash fourth-quarter earnings of $2.15 per share, higher than analysts’ estimates of $2.06. Valeant reaffirmed its outlook for sales of as much as $8.6 billion this year, exceeding analysts’ forecasts of $8.4 billion in revenue for the period.

Catamaran plunged 11 percent to C$51.26, the biggest drop since October 2011, after the pharmacy technology services company forecast adjusted earnings of $2.04 to $2.19 a share in 2014, short of the average $2.38 projection of analysts surveyed by Bloomberg.

USA
By Lu Wang and Callie Bost

Feb. 27 (Bloomberg) — U.S. stocks rose, sending the Standard & Poor’s 500 Index to a record, as Federal Reserve Chair Janet Yellen said the central bank may change its strategy for reducing asset purchases should the economy weaken.

Phone stocks rallied the most among the 10 main industries in the S&P 500 as JPMorgan Chase & Co. added Verizon Communications Inc. to its focus list. J.C. Penney Co. surged 25 percent after predicting an increase in annual revenue and wider margins. Sears Holdings Corp. rose 6.5 percent after reporting a narrower fourth-quarter loss. Transocean Ltd. fell 1.1 percent as sales missed analysts’ forecasts at the world’s largest offshore rig contractor.

The S&P 500 increased 0.5 percent to 1,854.29 at 4 p.m. in New York. The Dow Jones Industrial Average added 74.24 points, or 0.5 percent, to 16,272.65. About 6.5 billion shares changed hands on U.S. exchanges, in line with the three-month average.

“Yellen said that they would consider pulling back on their tapering schedule if the economy slowed in a meaningful manner,” Matt Maley, an equity strategist with Miller Tabak & Co., said in an interview from Boston. “She seems to be more willing to step back on the accelerator than she was when she last spoke to Congress.”  The S&P 500’s close at a record ended three days of the index failing to sustain all-time highs throughout the sessions. The benchmark gauge is up 4 percent in February, poised for the best monthly gain since October.

Investors continue to favor equities over bonds. They added $971.8 million to U.S. equity exchange-traded funds yesterday, compared with deposits of $49.8 million to domestic bond ETFs, data compiled by Bloomberg show.

Yellen said today in the testimony on monetary policy before the Senate that the Fed is likely to keep trimming asset purchases, even as policy makers monitor data to determine if recent weakness in the economy is temporary. The S&P 500 has rallied 6.5 percent since a low on Feb. 3 amid speculation that severe winter weather explains the weakness in reports such as housing and hiring.

Reports today showed orders for U.S. durable goods fell 1 percent in January, less than forecast, a sign manufacturing was beginning to emerge from the harsh winter weather. In the labor market, more Americans than forecast filed applications for unemployment benefits last week.

Stocks in Europe declined as Russia said it has begun military exercises near the Crimean border. Gunmen occupied Ukraine’s Crimea regional parliament and raised the Russian flag as lawmakers in the capital meet to approve a new cabinet after last week’s ouster of Viktor Yanukovych as leader.

“The story today is the unfolding situation in Ukraine and whether the S&P 500 can break above the 1,840 to 1,850 level,” Ryan Larson, the Chicago-based head of U.S. equity trading at RBC Global Asset Management (U.S.) Inc., said in an interview.  His firm oversees $290 billion.  Jobless “claims are taking a backseat to broader geopolitical and technical levels,” he said.

Benchmarks tracking smaller companies also made new highs.  The Russell 2000 Index climbed 0.5 percent while the S&P Midcap 400 Index gained 0.3 percent today. The Dow is still about 2 percent below its record.       The Chicago Board Options Exchange Volatility Index slipped 2.2 percent to 14.03. The gauge of S&P 500 options known as the VIX is up 2.3 percent this year.

Phone stocks rose the most among the S&P 500’s 10 main industries, rallying 1.7 percent. Verizon climbed 2.5 percent to $47.50 as JPMorgan said shares of the wireless carrier may reach $57 over the next six to 12 months. Morgan Stanley resumed the coverage of the stock with a rating of overweight, the equivalent to buy.

J.C. Penney surged 25 percent to $7.47. Same-store sales will increase by a mid-single digit percentage and gross margin will “significantly” improve this year, the company said. Chief Executive Officer Mike Ullman forecast that the retailer’s turnaround will be completed this year.

Sears added 6.5 percent to $43.01. The retailer run by hedge fund manager Edward Lampert said its net loss narrowed to $3.37 a share from $489 million, or $4.61 a share, a year earlier. Revenue fell 14 percent to $10.6 billion.

Mylan Inc. climbed 9.4 percent to $56.27. The generic-drug maker forecast 2014 revenue of at least $7.8 billion, exceeding the average analyst estimate of $7.72 billion.

3M Co. gained 1.1 percent to $134.34. The company is working with Goldman Sachs Group Inc. to sell components of its electronics business that the industrial- and consumer-products maker has decided are underperforming, people with knowledge of the matter said.

Transocean declined 1.1 percent to $42.55. The company reported fourth-quarter revenue of $2.33 billion. Analysts on average estimated $2.36 billion, according to data compiled by Bloomberg.

Have a wonderful evening everyone.

Be magnificent!

There will have to be rigid and iron discipline

before we achieve anything great and enduring,

and that discipline will not come by mere academic argument

and appeal to reason and logic.

Discipline is learnt in the school of adversity.

Mahatma Gandhi,1869-1948

As ever,

Carolann

Everything you can imagine is real.

–Pablo Picasso, 1881-1973

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