January 14, 2013 Newsletter

Dear Friends,

Tangents:

On this day in 1952, the Yankee Clipper Joe Dimaggio and actress Marilyn Monroe were married in a ceremony that took place in San Francisco at City Hall. –Steve Russolillo, WSJ.

And also on this day in…

1784 – The end of the American Revolution.

1869 – Philosopher Albert Schweitzer was born. You must give some time to your fellow men.  Even if it’s a little thing, do something for others – something for which you get no pay but the privilege of doing it. –Albert Schweitzer

1970 – Diana Ross and the Supremes performed their last concert together, at the Frontier Hotel in Las Vegas.

1993 – Late-night TV talk show host David Letterman announced he was moving from NBC to CBS.

1994 – President Bill Clinton and Russian President Boris Yeltsin signed accords in Moscow to stop aiming missiles at any nation and to dismantle the nuclear arsenal of Ukraine.

2004 – Former Enron finance chief Andrew Fastow pleaded guilty to conspiracy as he accepted a 10-year prison sentence.

2004 – J.P. Morgan Chase and Co. struck a deal to buy Bank One Corp. for $58 billion.

2004 – President George W. Bush unveiled a plan to send astronauts to the moon, Mars and beyond.

2005 – Army Specialist Charles Graner Jr., the reputed ringleader of a band of rogue guards at the Abu Ghraib prison, was convicted at Fort Hood, Texas, of abusing Iraqi detainees. (He was later sentenced to 10 years in prison.)

2008 – Republican Bobby Jindal, the first elected Indian-American governor in the United States, took office in Louisiana.

Success is not so much what we have, as it is what we are.  Jim Rohn

photos of the day

January 14th, 2013

The crescent moon is seen behind an ice sculpture during ice and snow sculptures festival at the ‘Eight Lakes’ Park-Resort outside Almaty, Kazakhstan. Photo: Shamil Zhumatov/Reuters

A Japanese woman in a kimono attends a ceremony celebrating Coming of Age Day in heavy snowfall at Toshimaen amusement park in Tokyo. Youths across Japan are honored with special coming-of-age ceremonies when they reach the age of 20. Photo: Yuya Shino/Reuters

Market Closes for January 14th, 2013:

International Markets

Bonds

Currencies

Commodities

Market Commentary:

Canada

By Eric Lam

Jan. 14 (Bloomberg) — Canadian stocks rose for a fifth day, the longest streak since November, as a rally in acquisition targets Aurizon Mines Ltd. and Uranium One Inc. offset declines in energy shares.

Aurizon Mines soared 33 percent as Alamos Gold Inc. offered C$780 million ($793 million) for the company. Alamos sank 12 percent. Uranium One jumped 15 percent as Russian state-owned JSC Atomredmetzoloto planned to buy the rest of the company it doesn’t already own for C$1.3 billion. Research In Motion Ltd. surged 10 percent amid signs that demand for rival Apple Inc.’s iPhone 5 is slipping. Tahoe Resources Inc. slid 6.9 percent after an attack at its silver mine in Guatemala.

The Standard & Poor’s/TSX Composite Index rose 0.91 point, or less than 0.1 percent, to 12,603.09 in Toronto. The benchmark gauge has gained 1.4 percent this year. Trading volume was 43 percent higher than the 30-day average.

“It’s a bit of a quiet start to the week; some of it is nervousness after the strong start to the year,” Greg Taylor, fund manager with Aurion Capital Management, said on the phone from Toronto. His firm manages about C$8 billion. “The Alamos- Aurizon deal has people scratching their heads as there aren’t a lot of synergies. It seems RIM goes up when Apple goes down, and it probably isn’t any more complicated than that.”

RIM climbed 10 percent to C$14.70 as technology companies paced gains in the S&P/TSX. RIM, based in Waterloo, Ontario, is set to debut its BlackBerry 10 line of smartphones on Jan. 30.

A report in Japan’s Nikkei newspaper today said Apple has reduced its orders for iPhone 5 screens this quarter by about half from its original target of 65 million displays. Apple fell 3.6 percent to $501.75 in New York.

Aurizon Mines jumped 33 percent to C$4.55, its biggest gain since May 2006. Alamos Gold, a gold producer in Mexico, offered to buy the company for either C$4.65 or 0.2801 of an Alamos share for each Aurizon share. If successful, the bid would give Alamos Gold access to projects in the Abitibi region of northwestern Quebec.

Alamos, which already owns a 16 percent stake in Aurizon, plunged 12 percent to C$14.90, the biggest loss since January 2009.

Uranium One soared 15 percent to C$2.77, its highest close since May. Russia’s ARMZ together with other units owns 51.4 percent of Uranium One. The C$1.3 billion offer is a 32 percent premium to the company’s 20-day weighted average price in Toronto, the company said.

Harry Winston Diamond Corp. gained 4.4 percent to C$14.90, paring earlier gains of as much as 12 percent after agreeing to sell its watch and jewelry unit to Swiss watchmaker Swatch Group AG for about $1 billion.

Robert A. Gannicott, chief executive officer of the diamond miner, said in an interview that the company also is interested in acquiring Rio Tinto Group’s 60 percent stake in the Diavik mine in the Northwest Territories. Harry Winston owns 40 percent.

Tahoe Resources sank 6.9 percent to C$16.96 after the company said two security guards were killed in an ambush at its Escobal silver mine in Guatemala on Jan. 12. The attack was one of three against mining entities in Guatemala this week, Tahoe said.

Talisman Energy Inc. lost 2.6 percent to C$11.78. Talisman slumped after the stock was cut to market perform from outperform at Raymond James Financial Inc.

Encana Corp., Canada’s largest natural gas producer, slipped 2.3 percent to C$19.05 after Chief Executive Officer Randall Eresman resigned on Jan. 11. Eresman will serve as an adviser until Feb. 28. Clayton Woitas, a member of the board, will fill in as chief executive until a successor is found.

US

By Rita Nazareth and Sarah Pringle

Jan. 14 (Bloomberg) — The Standard & Poor’s 500 Index declined from near a five-year high as Apple Inc.’s slump amid concern about iPhone sales offset a rally in Dell Inc.

Apple, the most valuable company, sank 3.6 percent on reports it curbed iPhone production on weak demand. Sprint Nextel Corp. dropped 3.9 percent after the wireless carrier was cut at JPMorgan Chase & Co. Dell surged 13 percent as two people with knowledge of the matter said the company is in buyout talks with private-equity firms. Hewlett Packard Co. rose 4.9 percent as market researcher Gartner Inc. said it retook the spot as the top personal-computer maker from Lenovo Group Ltd.

The S&P 500 retreated 0.1 percent to 1,470.68 at 4 p.m. New York time. The benchmark gauge for U.S. equities trimmed a decline of as much as 0.4 percent amid Dell’s rally. The Dow Jones Industrial Average advanced 18.89 points, or 0.1 percent, to 13,507.32. About 5.6 billion shares changed hands on U.S. exchanges, or 8.1 percent below the three-month average.

“As Apple goes, so goes the market,” Frank Ingarra, who helps manage $1.4 billion at Greenwich, Connecticut-based NorthCoast Asset Management LLC, said in a phone interview.

“The problem you run into is that eventually they run out of people to sell stuff to. There’s just not enough people in the world to keep buying all these Apple products. It makes sense that it’s pulling back, and it makes sense that its effecting the market because it’s such a large weight.”

Almost 80 percent of the 28 S&P 500 companies which reported quarterly results beat analysts forecasts. Fourth- quarter profits at S&P 500 companies grew 2.5 percent, according to analysts’ estimates compiled by Bloomberg. That would be the second-slowest quarterly growth since 2009, the data show.

Consumer staples and industrial shares in the S&P 500 rose today while phone and technology companies slumped. The Chicago Board Options Exchange Volatility Index, which measures the cost of using options as insurance against declines in the S&P 500, rose 1.2 percent to 13.52. The gauge ended last week at the lowest level since 2007.

Apple sank 3.6 percent to $501.75. The Cupertino, California-based company reduced its original target to order 65 million iPhone 5 displays this quarter by about half, Nikkei said, citing an unidentified senior executive at a component maker it didn’t name. IPhone sales are slowing because smartphones have saturated developed markets, where Apple is strongest, said James Cordwell, an analyst at Atlantic Equities Service in London.

Research In Motion Ltd. added 10 percent to $14.95. The maker of the BlackBerry smartphone jumped amid signs that demand for rival Apple’s market-leading iPhone is ebbing.

Sprint Nextel slid 3.9 percent to $5.69. The company was downgraded to neutral from overweight at JPMorgan by equity analyst Philip Cusick. The 12-month share-price estimate is $6.

Scripps Networks Interactive Inc. slid 1.1 percent to $59.15. The television home of Paula Deen’s mashed potatoes was cut to hold from buy at Deutsche Bank AG by equity analyst Douglas Mitchelson. The 12-month share-price estimate is $65.

H&R Block Inc. slumped 2.9 percent to $19.41. The biggest U.S. tax preparer was cut to underweight from equalweight at Morgan Stanley.

International Business Machines Corp. dropped 0.9 percent to $192.62. The company was downgraded to neutral from overweight at JPMorgan by equity analyst Mark Moskowitz. The 12- month share-price estimate is $197.

SunPower Corp. slid 6 percent to $7.70. The solar-panel company majority-owned by Total SA fell after an announcement of higher-than-anticipated restructuring costs and a downgrade by Credit Agricole Securities.

Dell surged 13 percent, the most since October 2008, to $12.29. Round Rock, Texas-based Dell is discussing going private with at least two firms, said one of the people, who declined to be identified because the talks are private. The discussions are preliminary and could fall apart because the firms may not be able to line up the needed financing or resolve how to exit the investment in the future, the people said.

“There’s nothing like a good rumor to get the market going in the absence of macro news,” Bruce McCain, chief investment strategist at the private-banking unit of KeyCorp in Cleveland, said in a phone interview. His firm oversees $20 billion.

“We’ve had a pretty decent 2012 in stocks and a good start to this year and people are watching the earnings season.”

Hewlett Packard added 4.9 percent to $16.95. While Lenovo’s sales growth of 8.2 percent from a year earlier was the fastest of the top five computer makers, Hewlett Packard’s dominance in professional PCs helped it retake the lead from Lenovo, market researcher Gartner said in a report today. Hewlett-Packard shipped 16.2 percent of PCs last quarter compared with 15.5 percent a year earlier.

Cisco Systems Inc. gained 2.4 percent to $20.97. The biggest maker of computer networking equipment was raised to outperform at both Robert W. Baird & Co. and William Blair & Co.

Sears Holdings Corp. rose 8.9 percent to $44.60 after Chairman Edward Lampert disclosed that he increased his stake in the retailer last week after being named chief executive officer.

Harry Winston Diamond Corp. jumped 4.3 percent to $15.08, the highest level since April. Swatch Group AG, the biggest maker of Swiss timepieces, agreed to buy the Harry Winston watch and jewelry unit for about $1 billion, adding a luxury label in its biggest acquisition.

Herbalife Ltd. rose 10 percent to $44.08. The shares rallied to the highest price since before hedge-fund manager Bill Ackman called the nutrition company a pyramid scheme and announced he had taken a short position in the shares.

United Parcel Service Inc. climbed 1.7 percent to $79.24.

The company said it scrapped a 5.16 billion-euro ($6.9 billion) bid for TNT Express NV after European regulators moved to block the deal. Separately, the stock was raised to market perform from underperform at Avondale Partners LLC.

Starz Class A stock gained 9.8 percent to $15.59. The rival to HBO and Showtime in the premium-cable channel market rose on its first day of trading after being broken off from Liberty Media Corp. in a spinoff. Shares of the Englewood, Colorado- based company traded under the ticker STRZA on the Nasdaq Stock Market.

Volatility will deter investors from moving into stocks from bonds in 2013 even as dividend returns exceed fixed-income yields, according to Goldman Sachs Group Inc.’s U.S. equity strategist.

“It’s the drawdown risk that is inhibiting investors from reducing bond holdings and increasing equity holdings,” David Kostin said at a presentation in London today. “You need to have more stable markets. I do not anticipate flows into equities from bonds. It should happen; it won’t happen this year.”

The forecast is at odds with Goldman Sachs Asset Management Chairman Jim O’Neill’s comment this year that funds may see a “great rotation” into equities. Investor deposits into global equity mutual funds in the first week of January were higher than any other period except one, a sign they may be returning to stocks after withdrawing cash for the past six years, according to data from EPFR Global.

The S&P 500 ended last year with a dividend yield that was 56 basis points, or 0.56 percentage points, higher than the yield on the benchmark 10-year Treasury, according to Bloomberg data. The spread reached a record weekly high of 1.16 percentage points in 2009 in favor of equities.

Have a wonderful evening everyone.

Be magnificent!

Nonviolence is the summit of bravery.

-Mahatma Gandhi, 1869-1948

As ever,

Carolann

Knowledge is a comfortable and necessary retreat

and shelter for us in advanced age, and if we do not

plant it while young, it will give us no shade

when we grow old.

-Lord Chesterfield, 1694-1773

Carolann Steinhoff, B.Sc., CFP, CIM, FCSI

Senior Vice-President &

Senior Investment Advisor

Queensbury Securities Inc.,

St. Andrew’s Square

Suite 340A, 730 View St.,

Victoria, B.C. V8W 3Y7