January 13, 2015 Newsletter

Dear Friends,

Tangents:

Good to be back in the land of  plunging oil and a plunging dollar after a little reprieve from news and noise over the holidays.  We just spent a few weeks in the Maldives where upon arrival, we were asked for our  shoes which quickly disappeared – at least the islands we chose to spend our time.  The mantra of our hosts  is “No Shoes.  No News.”   Being a news junkie, I must say I initially suffered some withdrawal, but quickly recovered when I discovered how pleasant it can be – to shut the world out temporarily. 

If you don’t break your ropes while you’re alive
do you think
ghosts will do it after?
-Kabir

PHOTOS OF THE DAY

A backcountry skier climbs up towards the Mederger Flue peak on Monday, in Davos, Switzerland. Gian Ehrenzeller/AP


Waterbirds swim in a canal bearing the reflection of trees in Beijing on Tuesday. Kim Kyung-Hoon/Reuters

Market Closes for January 13^th, 2015   

International Markets

Bonds

Currencies

Commodities

Market Commentary:

Canada

By Eric Lam

     (Bloomberg) — The Canadian equity market is engulfed in volatility at levels not seen since the euro area debt crisis of 2012 as a continued plunge in commodities sent stocks to a one- month low.

     Capstone Mining Corp. and First Quantum Minerals Ltd. sank at least 15 percent as base-metals producers plunged with the price of copper. Legacy Oil & Gas Inc. lost 10 percent as energy shares retreated. Onex Corp. climbed 6 percent after agreeing yesterday to buy Survitec Group Ltd. for $680 million.

     The Standard & Poor’s/TSX Composite Index fell 77.85 points, or 0.6 percent, to 14,187.16 at 4 p.m. in Toronto, erasing an earlier gain of as much as 0.7 percent. The benchmark equity gauge has dropped 3 percent this year.

     A volatility index of S&P/TSX 60 options jumped as much as 9.5 percent to 24.88, the highest level since June 2012, before closing at 23.51. Energy stocks make up about 21 percent of the S&P/TSX 60 Index, a gauge of the 60 largest, most liquid shares in Canada.

     “The VIXC is spiking, it’s all about oil, worries about deflation and slowing growth globally,” said John Stephenson, chief executive officer of Stephenson & Co. Capital Management in Toronto. His firm manages about C$50 million ($41.8 million). “Canada’s much more of a one-trick pony because of the energy weighting. The TSX will quite handily underperform the S&P 500 this year.”

     Capstone plunged 17 percent, the biggest decline since 2008, and First Quantum sank 15 percent as raw-materials shares retreated 4.7 percent as a group, the most since October. Trading volume was 11 percent higher than the 30-day average.

     Copper for delivery in three months fell 2.6 percent to $5,860 a metric ton in London, for a fifth day of losses and the lowest in more than five years.

     The S&P/TSX Energy Index fell 0.5 percent to the lowest since Dec. 15. Energy shares are the worst-performing industry in the S&P/TSX this year with a 9.9 percent decline. The group accounts for 20 percent of the broader index’s weighting.

     Investors who first started buying equities after the winter holidays are pulling back out just as quickly as they came in, said Frank Maeba, managing partner at Breton Hill Capital in Toronto. His firm manages about C$700 million.

     “When you don’t get that pop early on, the shorter term holders of risk are more willing to ditch that risk,” Maeba said. “The market is pretty choppy, choppier than it’s been in three to six months. Energy is driving a lot of that right now. When you start trying to trade equities by using oil as a proxy for risk, you’re going to get a lot of big swings.”

     West Texas Intermediate crude rose 0.1 percent in electronic trading as of 5:23 p.m. in New York. Futures fell 0.4 percent in regular trading to settle at $45.89 a barrel, the lowest since April 2009. The commodity slipped below $45 a barrel earlier, slumping as much as 4.1 percent.

     Crude inventories in the U.S. probably gained by 1.5 million barrels last week, a Bloomberg News survey showed ahead of government data tomorrow, raising speculation a global supply glut that’s forced prices into a bear market will continue

USA

By Jeremy Herron

     (Bloomberg) — Volatility surged in the U.S. equity market, with the Dow Jones Industrial Average erasing both a 282-point rally and a 143-point decline to close lower for a third day amid a slump in commodity prices. Copper slid with crude oil and the euro, while Treasuries advanced.

     The Chicago Board Options Exchange Volatility Index, which tracks expectations of U.S. stock swings, climbed a third day, adding 4.9 percent by 4:15 p.m. in New York. The Dow ended the session down 0.2 percent, while the Standard & Poor’s 500 Index fell 0.3 percent, after earlier jumping as much as 1.4 percent. Copper sank to its lowest price since 2009 as Brent oil fell 1.8 percent to $46.59 a barrel, briefly trading below U.S. crude for the first time in 1 1/2 years. The euro slumped to a nine-year low on bets policy makers will ramp up stimulus, while yields on 10-year Treasuries fell to match a 20-month low.

     The S&P 500 has moved an average of 0.95 percent per day so far in 2015. That’s more than double the average daily price change of 0.53 percent for 2014, which was the calmest year in U.S. stocks since 2006. Crude dipped below $45 a barrel amid speculation U.S. supplies have increased, exacerbating a global supply glut. Alcoa Inc. kicked off the U.S. reporting season with better-than-estimated profit after oil’s drop spurred analysts to cut earnings forecasts for S&P 500 companies.

     “Until we have concrete earnings data in aggregate, the market will be somewhat trendless, and trendless blended with volatility is not a good environment,” Kevin Divney, chief investment officer at Beaconcrest Capital Management LLC, said by phone. “It goes back to the same drivers we’ve been seeing for about two quarters now, where we have a very robust U.S. economy, a weak foreign economy, and our exposure to that could make the U.S. economy not as appealing.”                         

     The volatility index, known as the VIX, rose to 20.56, its highest close since Jan. 6. A gauge of stock swings in Japan also climbed, with the Nikkei Stock Average Volatility Index up 2.5 percent as the equity index slipped 0.6 percent in its first day of trading this week.

     The S&P 500 moved 49 points from peak to trough today, the biggest intraday swing since Oct. 15, when the benchmark gauge erased nearly all of its 3 percent decline.

     Trading in futures tracking the S&P 500 accelerated as U.S. stocks erased gains between 1 and 1:30 p.m. in New York. About 77,000 contracts in the Chicago Mercantile Exchange’s e-mini future changed hands between 1:10 and 1:20 p.m. and about 74,000 traded between 1:20 and 1:30 p.m., data compiled by Bloomberg show. In both cases volume was about three times greater than the 10-day average for those time intervals.                           

     Energy shares in the S&P 500 sank 0.7 percent today after a 2.8 percent slump yesterday that dragged the broader S&P 500 down 0.8 percent. The benchmark gauge has dropped 3.5 percent since reaching a record in December.

     West Texas Intermediate oil extended losses today, slipping 0.4 percent in a third day of declines to settle at $45.89 a barrel, its lowest close since April 2009. Futures touched as low as $44.20. Brent, the basis for European and African cargoes, briefly sank to $45.19 in London, trading below WTI for the first time since July 2013 amid signs U.S. exports are poised to increase.

     American crude inventories probably increased by 1.75 million barrels last week, according to a Bloomberg survey of energy analysts before government data tomorrow. The United Arab Emirates, a member of the Organization of Petroleum Exporting Countries, will stand by its plan to expand output capacity even with “unstable oil prices,” according to Energy Minister Suhail Al Mazrouei.                      

     Faster global economic growth will be needed to help absorb the oil surplus estimated at 1.8 million barrels a day, Kuwait Oil Minister Ali Al-Omair told reporters in parliament. A demand-led recovery is seen in the second half, the U.A.E.’s Governor to OPEC Ali Al Yabhouni told reporters at a conference in Abu Dhabi.

     “There was an anticipation that we would stabilize in oil prices and we’re really not,” Jeff Sica, president and CEO of advisory firm Circle Squared Alternative Investments, which oversees $1.5 billion, said by phone. “My contention has been that we’re beginning to see some very severe structural damage to the economy as oil prices continue to fall.”

     The Bloomberg Commodity Index retreated 0.6 percent to the lowest level since November 2002. Copper for three-month delivery dropped for the eighth day this year, slipping to $5,860 a metric ton after touching $5,774.75, its lowest intraday price since August 2009. Nickel and zinc fell more than 2 percent, while corn futures tumbled 4 percent. Silver and U.S. natural gas increased.                         

     Housing shares slumped after KB Home, a U.S. house builder, said that its first-quarter margins will contract. The stock plunged as much as 19 percent, the most intraday in more than three years. The S&P homebuilder index retreated 3.2 percent, the biggest drop in a month. D.R. Horton Inc. sank 4.8 percent and Lennar Corp. lost 1.7 percent.

     “There’s a limit to how high the market can go, and now we face the challenge of figuring out what’s going to drive it further,” Kevin Caron, who helps oversee $170 billion at Stifel Nicolaus & Co. in Florham Park, New Jersey, said in a phone interview. “The market is taking a little bit of a breather here as oil creates uncertainty.”

     Alcoa, the biggest U.S. aluminum producer, forecast global demand will grow 7 percent this year, boosting optimism in the U.S. economy. The company’s fourth-quarter profit and revenue topped analysts’ projections yesterday amid orders for the metal from the auto and aerospace industries. Alcoa shares dropped 2.3 percent today after five days of gains.                         

     JPMorgan Chase & Co., Citigroup Inc., and Intel Corp. and 16 other S&P 500 companies are due to report results this week. Earnings at companies in the gauge probably climbed 2 percent in the final quarter of 2014, analysts predict. That’s down from an average October estimate of 8.5 percent.

     The MSCI Emerging Markets Index added 0.5 percent today as Chinese exports grew more than economists estimated and oil’s decline spurred gains in consumer-discretionary shares.

     Government bonds rose around the world as lower commodity prices damped the outlook for consumer prices. Weaker inflation boosts demand for debt by preserving the value of its fixed payments. It’s also fueling speculation central banks will extend stimulus, keeping borrowing costs low to fulfill their mandates.

     The effective yield on the Bank of America Merrill Lynch Global Broad Market Sovereign Plus Index dropped to 1.21 percent yesterday, a record low in data starting in 1996.

     U.S. 10-year yields touched 1.8622 percent, matching the low reached  Oct. 15 that was the least in 20 months. Rates closed down one basis point at 1.90 percent.

     Japan’s five-year yield fell to zero and rates on the nation’s 10-year securities slipped to a record-low. Australia’s 10-year yields declined to 2.603 percent, also an all-time low. U.K. 30-year yields fell to an unprecedented 2.248 percent.

     The euro fell to its lowest level since December 2005, depreciating as much as 0.7 percent to $1.1753 as regional officials stoked speculation that the European Central Bank will begin buying government bonds as early as next week to stave off deflation.

     The yen strengthened as much as 0.7 percent to 117.54 a dollar, the strongest level since Dec. 17. The Bloomberg Dollar Spot Index, which tracks the U.S. currency against 10 major peers, gained 0.1 percent.
 

Have a wonderful evening everyone.

Be magnificent!

The energy in the world flows from God at the centre, and back to God.

The sages see life as a  wheel, with each individual going round and round through birth and death.

Individuals remain on this wheel so long as they believe themselves to be separate;

but once they realize their unity with God, then they break free.

Svetasvatara Upanishad

As ever,

Carolann

Climate is what we expect, weather is what we get.

                                  -Mark Twain, 1835-1910

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

Senior Vice-President &

Senior Investment Advisor

Queensbury Securities Inc.,

St. Andrew’s Square,

Suite 340A, 730 View St.,

Victoria, B.C. V8W 3Y7