February 29, 2016 Newsletter

Dear Friends,

Tangents:

Calendars That Leap

  -by Amanda Foreman, WSJ

Every four years on Feb. 29, we are reminded of one of life’s most puzzling conundrums: Time is both arbitrary and immutable. The “leap” making its appearance this Monday shows that the Western calendar on which we place so much reliance is a conceit—a piece of fiction introduced by Pope Gregory XIII in October 1582.

Despite the provisional nature of calendars, two real phenomena govern almost all of them: the phases of the moon and the rotations of the sun. Our Mesolithic ancestors were the first people to harness the movements of the cosmos to provide a fixed notion of the past, the present and the future. The oldest known calendar in the world was discovered in a Scottish field in 2013, notched into the earth some 10,000 years ago. Our forebears had created it by shaping 12 specially dug pits around a 164-foot arc to mimic the phases of the moon and track the months.

The design was sophisticated and yet simple enough that it could be modified easily. However, as with the lunar Islamic calendar today, the ancient Scots were constantly having to adjust for the differences between the lunar and solar calendars. To help with realignments, they tied their calibrations to a notch in the ground that marked the rising sun of the midwinter solstice.

Since a solar year is 365 days, five hours and about 49 minutes, every culture and civilization until the global adoption of the Gregorian calendar had to have a method for accommodating the leap days. In ancient times, the Babylonians would add a month at intervals of two and three years. The early Romans had a calendar of only 355 days, which led them to insert an extra month into late February every other year so that religious festivals wouldn’t occur out of season. After Julius Caesar’s reforms in 46 B.C., the Roman year had 12 months, 365 days and a leap year every four years. Even so, the calendar needed resetting every 131 years.

The Mayans made the most ingenious attempt at tackling the accuracy problem. They perfected a system using three corresponding calendars simultaneously. The last of them, the Long Count, measured the universe in life cycles of 7,885 solar years. (Much New Age quackery resulted from the belief that the end of the last cycle on Dec. 21, 2012, signified the end of the world.

Pope Gregory XIII’s calendar was able to prevent Christmas and Easter from creeping forward with a one-time leap forward of 10 days in October 1582. The calendar also used a more-accurate mathematical formula for leap years that excludes from the leap-year calendar any century years unless they’re exactly divisible by 400. But for all its brilliance, the new calendar couldn’t solve the problem that all of history before Oct. 15, 1582, became unmoored from its original dates.

Britain and its colonies stubbornly clung to the old Julian calendar until 1752, when they were also forced to change New Year’s Day from March 25 to Jan. 1.

Among those caught up in the calendar wars was George Washington. He was brought up believing he had been born on Feb. 11, 1731. But by the time he died in 1799, he had not only gained a different birthday but also grown a year younger; the New Year’s Day change had resulted in his birth date moving to Feb. 22, 1732.

Perhaps it’s just as well that his birthday is now celebrated on the uncertain date of the third Monday of every February.

PHOTOS OF THE DAY

A farmer sleeps near cows at the International Agricultural Show in Paris Monday. The show runs from Feb. 27 to March 6.Benoit Tessier/Reuters

A monkey walks on power lines above a busy market in the old quarters of Delhi Monday. Cathal McNaughton/Reuters

Market Closes for February 29^th, 2016

International Markets

Bonds

Currencies

Commodities

Market Commentary:

Canada

By Eric Lam

     (Bloomberg) — Canadian stocks rose a third day to halt a three-month slide on February’s final trading day, as advances among commodities producers overshadowed a plunge in Valeant Pharmaceuticals International Inc.

     Shares of the drugmaker, facing intense scrutiny from investors and lawmakers over its pricing practices, plunged 18 percent Monday and widened losses in a flurry of late-afternoon trading after a company spokeswoman confirmed the U.S. Securities and Exchange Commission is investigating Valeant in a previously undisclosed probe. The company has canceled an analyst conference call after it withdrew its guidance and delayed its fourth-quarter results originally scheduled for today.

     The Standard & Poor’s/TSX Composite Index still managed to end the day higher, climbing 0.5 percent to 12,860.35 at 4 p.m. in Toronto to erase February losses. The benchmark equity gauge rebounded 6.4 percent from a Feb. 11 low and is less than 1.2 percent from erasing declines for the year. The index narrowly avoided a ninth loss in the past 10 months with a 0.3 percent February increase.

     “There’s a limit to how much further you can go down,” said John Wilson, Chief Executive Officer of Sprott Inc.’s asset management unit, in a Feb. 26 interview. His firm manages C$8.5 billion ($6.28 billion). “I doubt we’ll be sub $30 a barrel for oil two years from now, and the Canadian dollar’s taken most of the punishment it’s going to take. From a valuation standpoint, there’s certainly more attractive opportunities here in Canada.”

     Global equities fluctuated and the S&P 500 erased a February gain for a third monthly loss, while crude advanced with gold after Group of 20 finance chiefs made only vague commitments to spur growth at a Shanghai meeting. China lowered requirements for the amount of cash its lenders had to lock away in a bid to soften the nation’s economic downturn.

     The S&P/TSX is one of the best-performing markets in the developed world this year, battling with New Zealand for the top spot and outpacing returns from markets in the U.S., U.K. and Germany. Shares in the Canadian benchmark trade at about 20 times earnings, roughly 16 percent more expensive than the valuation of the Standard & Poor’s 500 Index, data compiled by Bloomberg show. Canada’s resource-rich index has benefited from a surge in the price of gold and crude’s rebound from a 12-year low.

     Raw-materials producers rallied with metals prices. Gold rose for the fourth time in five days for its biggest monthly gain in four years as investors seek a haven from tumbling global equities. The precious metal is this year’s best- performing major asset, its 16 percent gain topping high-yield bonds, Treasuries, currencies and major stock indexes according to data compiled by Bloomberg.

     Canadian raw-materials producers, led by broad gains among gold and base metals producers including Kinross Gold Corp. and copper producer First Quantum Minerals Ltd., surged 18 percent in February to lead the S&P/TSX’s rebound. Consumer staples stocks, led by a 16 percent rally in beverage maker Cott Corp. after posting a surprise profit, have also contributed to gains in the broader benchmark.

     Energy companies increased 1.6 percent Monday, cutting a monthly slide to 1.5 percent. Canadian Natural Resources Ltd. added 3.3 percent and Encana Corp. surged 10 percent to pace gains. Energy and raw-materials producers account for about 29 percent of the broader S&P/TSX.

     Health-care stocks, meanwhile, trailed the 10-industry S&P/TSX with a 23 percent slide in February, as Valeant slumped 29 percent to account for the majority of the losses. Valeant shares sank earlier in the month when it first disclosed it would restate some earnings due to its relationship with a mail- order pharmacy.

US

By Joseph Ciolli

     (Bloomberg) — The Standard & Poor’s 500 Index erased a February gain Monday, despite a rally in crude oil, as a two- week rebound faltered in the month’s lightly traded final session.

     Banks and health-care shares were the biggest drags today, with lenders capping a third monthly decline, losing 6.9 percent in February. JPMorgan Chase & Co. and Wells Fargo & Co. fell at least 2.1 percent to pace Monday’s retreat. Amgen Inc. sank 3.6 percent and Endo International Plc plunged 21 percent as health- care companies had their worst decline in more than two weeks. Energy shares fell 1.2 percent to post the fourth consecutive monthly drop and ninth in the last 10.

     The S&P 500 fell 0.8 percent to 1,932.23 at 4 p.m. in New York, extending its monthly losing streak to three, the longest in more than four years. It closed 0.4 percent lower for February. The Dow Jones Industrial Average lost 123.47 points, or 0.7 percent, to 16,516.50, though it managed to snap a two- month skid. The Nasdaq Composite Index sank 0.7 percent. Crude rose 3 percent. The S&P 500 hasn’t declined on a day when oil climbed that much since Nov. 23.

     “Following a pretty good week, investors might be taking a little pause, perhaps taking some profits,” said Richard Sichel, chief investment officer at Philadelphia Trust Co., which oversees $2 billion. “There has been no upside catalyst today. Typically, the market goes in lockstep with oil, which is up today, but that connection has broken down. It would probably be a positive for stocks if they were to unlock.”

     Afternoon declines accelerated as the S&P 500 fell below its average price during the past 50 days. It closed above that level on Thursday for the first time this year. The index halted a two-day advance on Friday after signs of firming inflation spurred speculation interest rates may rise sooner than previously expected. A bank-fueled rebound of 6.5 percent since Feb. 11 through last week had briefly erased the benchmark’s losses for the month.

     Asian shares retreated today amid disappointment that the Group of 20 finance ministers meeting in Shanghai failed to make firm commitments to bolster the global economy. Concern over growth and a deepening rout in oil sent stocks tumbling earlier this year and stoked speculation of more support from policy makers.

     After the close of trading in Asia, China’s central bank cut the amount of cash the nation’s lenders must hold as reserve, marking a return to more traditional easing after policy makers indicated in recent weeks they would spur growth by guiding interbank markets lower and injecting liquidity through open-market operations.

     While the S&P 500 jumped 1.6 percent in the previous five trading sessions, the gains came amid the weakest volume in 2016, signaling a lack of conviction in the rally after losses of as much as 11 percent this year. The benchmark is down 9.3 percent from an all-time high reached last May. About 8.3 billion shares traded hands on U.S. exchanges Monday, in line with the three-month average.                          

     Investors are also assessing economic releases to gauge the trajectory of rate increases, before the Federal Reserve’s next decision on March 16. Data today showed contracts to purchase previously owned homes unexpectedly dropped in January by the most in two years. A February gauge on manufacturing in the Chicago area today also fell more than forecast. Data on Friday showed the Fed’s preferred measure of inflation rose by the most since October 2014.

     After last week’s batch of reports, traders raised their bets for further Fed rate increases this year, though they tempered a bit today. The probability of a June boost is 30 percent, down from 35 percent Friday. Odds of a December move reached almost 54 percent after slipping to 11 percent at the height of this month’s stock selloff on Feb. 11.

     Meanwhile, options traders aren’t currently pricing in the possibility of a Donald Trump presidential victory, Pravit Chintawongvanich, head derivatives strategist at Macro Risk Advisors, wrote in a note last week. The term structure of at- the-money options for the S&P 500 shows the market is pricing in virtually no event premium for the U.S. presidential election, he observed, meaning that the cost of insuring against a move in equities isn’t particularly elevated.

     The Chicago Board Options Exchange Volatility Index rose 3.7 percent Monday to 20.55. The measure of market turbulence known as the VIX slipped 22 percent over the previous two weeks, closing at the lowest level of 2016 last Thursday, though it finished 1.7 percent higher in February.                        

     Nine of the S&P 500’s 10 main industries declined today, with biotechnology companies dragging health-care shares lower, while energy producers retreated despite gains in crude and banks fell for the first time in three sessions. Utilities rose on the way to a third consecutive monthly increase and the fifth in the last six.

     Endo International Plc tumbled 21 percent, the most in more than 12 years. The company forecast 2016 sales and earnings that missed some analysts’ estimates, while also saying it’s winding down its Astora Women’s Health business and increasing its mesh product liability accrual. The Nasdaq Biotechnology Index dropped 2.7 percent and finished 4.9 percent lower for the month.

     Valeant Pharmaceuticals International Inc. slid 18 percent to a more than three-year low, and extended its two-day decline to 22 percent. The company said it’s under investigation by the U.S. Securities and Exchange Commission in a previously undisclosed probe. It earlier said it’s withdrawing its financial forecast and delaying the release of fourth-quarter results, as Chief Executive Officer Michael Pearson returns to the drugmaker after a hiatus.

     Energy companies in the S&P 500 slipped 1.2 percent even as West Texas Intermediate crude futures rallied 3 percent. Southwestern Energy Co. lost 9.4 percent after being cut to underperform from market perform by Raymond James Financial Inc. The company also had its rating cut by Jefferies Group LLC last week. Chesapeake Energy Corp. and Apache Corp. slipped more than 3 percent.

     SunTrust Banks Inc. and Synchrony Financial were the worst performers among financial shares in the benchmark index, falling more than 3.5 percent. For the month, financial companies fell 3.2 percent, marking a third straight monthly decline, the longest since September 2011.

Have a wonderful evening everyone.

Be magnificent!

To love is to understand and feel that the other person is different.

Swami Prajnanpad

As ever,

Carolann

Great spirits have always encountered violent opposition from mediocre minds.

                                                                     -Albert Einstein, 1879-1955

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

Portfolio Manager &

Senior Vice-President

Queensbury Securities Inc.,

St. Andrew’s Square,

Suite 340A, 730 View St.,

Victoria, B.C. V8W 3Y7