January 21, 2015 Newsletter

Dear Friends,

Tangents:

KINDNESS

     -Naomi Shihab Nye

…before you know kindness as the deepest thing inside,
you must know sorrow as the other deepest thing.
You must wake up with sorrow.
You must speak to it till your voice
catches the thread of all sorrows
and you see the size of the cloth.
Then it is only kindness that makes sense anymore
…only kindness that raises its head
from the crowd of the world to say,
“It is I you have been looking for,”
and then goes with you everywhere
like a shadow or a friend.

PHOTOS OF THE DAY

Tamborilleros’ wearing their uniforms march in the traditional ‘La Tamborrada’, during ‘El Dia Grande’, the main day of San Sebastian feasts, in the Basque city of San Sebastian, northern Spain, Tuesday. From midnight to midnight companies of perfectly uniformed marchers parade through the streets of San Sebastian playing drums and barrels in honor of their patron saint. Alvaro Barrientos/AP

People hide behind a tree while others throw turnips at the Jarramplas as he makes his way through the streets beating his drum during the Jarramplas Festival in Piornal, Spain, Tuesday. Jarramplas wears a costume and a devil-like mask and beats a drum through the streets of Piornal while residents throw turnips as a punishment for stealing cattle. Daniel Ochoa de Olza/AP

Market Closes for January 21^st, 2015   

International Markets

Bonds

Currencies

Commodities

Market Commentary:

Canada

By Eric Lam, Ari Altstedter and Greg Quinn

     (Bloomberg) — Canadian stocks surged, government bond yields slumped to a record and the dollar slid to the weakest in more than five years after the nation’s central bank unexpectedly slashed interest rates amid the collapse in crude.

     The benchmark Standard & Poor’s/TSX Composite Index soared 1.8 percent, led by the biggest rally in financial services stocks in three months. The Canadian dollar, nicknamed the loonie because of the waterfowl on its C$1 coin, dropped 1.8 percent to the lowest since April 2009 versus the greenback. The yield on Canada’s benchmark 10-year government bond fell to as low as 1.365 percent.

     “Every economist I’ve seen or read or heard from today wasn’t expecting this, so I’d say the market was completely caught off-guard,” said Gareth Watson, vice-president of investment management and research at Richardson GMP Ltd. in Toronto. His firm manages about C$28 billion ($22.7 billion). “You’re getting a boost here on the Canadian side to anything that’s interest-sensitive. And people are bailing out of the currency altogether. That’s a function of the lack of expectations of this happening today.”

     Stephen Poloz, governor of the Bank of Canada, cut the rate on overnight loans between commercial banks to 0.75 percent from 1 percent, a decision none of the 22 economists in a Bloomberg News survey predicted. The rate had been unchanged since September 2010.

     Canada, the largest exporter of oil to the U.S., is loosening monetary policy as a plunge in crude prices raises the risk of deflation globally. Oil has dropped more than 10 percent this year following a decline of almost 50 percent last year, the most since the 2008 financial crisis. The U.S. pumped crude at the fastest rate in more than three decades and the Organization of Petroleum Exporting Countries resisted calls to reduce supply.

     “It’s a big shock,” David Doyle, a strategist at Macquarie Capital Markets, said by phone from Toronto. “They’re going to try to provide the necessary medicine here for the soft landing from slowing debt growth, from slowing investment in the oil sands, and I think they thought it needed some stimulus here.”

     Canada, the Group of Seven’s biggest crude exporter, is already feeling the effects of oil dropping below $50 a barrel, as companies such as Calgary-based Suncor Energy Inc. reduce staffing and investment. Canada’s oil sands are among the most expensive reserves to develop.

     The central bank lowered its 2015 forecast for economic growth in Canada to 2.1 percent from 2.4 percent previously, and forecast it will average about 1.5 percent in the first half of the year. The International Monetary Fund early this week made the steepest cut to its global-growth outlook in three years.

     The Bank of Canada’s move comes amid efforts by central banks around the world to stimulate the global economy. The European Central Bank is expected to announce Thursday it will buy as much as 1.1 trillion euros ($1.3 trillion) of debt through December 2016 in a push to fend off deflation. The Bank of Japan has already boosted its asset purchases and the Bank of England said two policy makers had dropped their call for rate increases.

     “We expected the Bank of Canada to open the door a crack to a potential cut, but Governor Poloz decided to swing it wide open,” said Peter Buchanan, economist with CIBC World Markets Inc., in a report today. “Today’s outright target reduction comes as a surprise.”

     Eight of 10 major groups in the S&P/TSX advanced on Wednesday, with energy and health-care shares leading the gains. A measure of volatility of S&P/TSX 60 options sank 12 percent to 18.74, the biggest drop in almost five weeks.

     Royal Bank of Canada, the nation’s second-largest lender by assets, jumped 1.6 percent, the most since October, while Dream Unlimited Corp., a commercial and residential real estate developer, rallied 5.1 percent. The S&P/TSX Financials Index, which accounts for about a third of the broader S&P/TSX, climbed 1.5 percent.

     Energy producers increased 3.2 percent as a group. Crude futures rose 2.8 percent to settle at $47.78 a barrel in New York, retracing some of yesterday’s 4.7 percent slide. Baytex Energy Corp. and Enerplus Corp. jumped at least 5.4 percent.                        

     The 14-day average true range of the loonie, a volatility gauge that takes into account the differences between intraday highs and lows, rose to 0.013 today, the highest since November 2011.

     Goldman Sachs Group Inc. said it’s reviewing the forecast for the Canadian currency following the surprise rate decision. The New-York based bank lowered its six-month projection to C$1.20 from C$1.14 at the beginning of January.

     “The big picture is that this represents a structural break for the BOC, with policy diverging from our expectations for the Fed,” Robin Brooks, a chief currency strategist at Goldman, said in a research note. “This structural break is important and sets the stage for USD/CAD moving materially higher,” he said, referring to the value of the U.S. currency.

     There’s a 68 percent chance the Federal Reserve will raise its benchmark rate for the first time since 2006 by December, according to futures trading.

     The yield on Canada’s benchmark 10-year bond dropped to as low as 1.365 percent before trading at 1.43 percent, about 0.4 percentage point below the U.S. 10-year note yield. It’s the biggest difference since 2007.

     Yields on Canadian two-year securities touched 0.536 percent, and 30-year bond yields reached 2 percent.

US

By Jeremy Herron and Joseph Ciolli

     (Bloomberg) — U.S. stocks advanced for a third day as energy producers gained with the price of oil. European equities rose and Treasuries fell on speculation the European Central Bank will boost stimulus through asset purchases.

     The Standard & Poor’s 500 Index added 0.5 percent at 4 p.m. in New York, trimming its loss this year to 1.3 percent. The Stoxx Europe 600 Index advanced 0.6 percent to extend a seven- year high. It erased a drop of 0.8 percent as the ECB was said to propose 50 billion euros ($58 billion) of asset purchases a month through 2016. Canadian equities rallied as the country’s central bank unexpectedly cut rates. The euro traded at almost an 11-year low. The yield on 10-year Treasury notes climbed, while U.S. crude surged 2.8 percent.

     A ECB Executive Board proposal foresees asset purchases of as much as $1.28 trillion through the end of 2016, according to two euro-area central-bank officials who have seen the document. International Business Machines Corp. fell 3.1 percent, while Netflix Inc. rallied 17 percent after reporting earnings. Oil rebounded from the biggest drop in a week amid that U.S. drilling is slowing. Energy producers in the S&P 500 gained 1.8 percent.

     “The initial move after an ECB stimulus announcement was always going to be up, but the real question is how long it’s going to last,” Matt Maley, an equity strategist at Miller Tabak & Co LLC in Newton, Massachusetts, said in a phone interview. “Earnings will take a backseat for the next few days, but they’ll be back in focus before long.”

     The ECB proposal will be discussed starting Jan. 21 and could still be changed significantly, the people said, asking not to be identified as it is confidential. Purchases won’t start before March 1, one of the people said. The ECB will announce its policy decision on Jan. 22.

     Equities retreated in early U.S. trading and the euro advanced after ECB Governing Council member Ewald Nowotny said investors should not get carried away by one policy meeting. Speculation that ECB President Mario Draghi will broaden asset purchases had increased after the Swiss National Bank scrapped a cap on the franc last week.

     The euro pared gains on the stimulus proposal to trade at almost an 11-year low against the dollar. The shared currency appreciated 0.3 percent to $1.1584 after adding as much as 1.1 percent. It declined to $1.1460 on Jan. 16, the least since 2003. The euro dropped 0.5 percent to 136.57 yen. Japan’s currency strengthened 0.9 percent to 117.73 per dollar.

     The Stoxx Europe 600 Index rose for a fifth day, extending its rally since Jan. 14 to 5.3 percent.

     The yield on 10-year German bunds jumped eight basis points to 0.52 percent, while the rate similar maturity French notes added six basis points to 0.70 percent.

     Treasuries fell on stimulus bets, as the 10-year rate rose six basis points to 1.85 percent. The debt has rallied this year as falling yields around the world made U.S. more attractive on a relative basis even as investors prepare for higher borrowing costs in the U.S.

     “We’re going to see much market movement in response to central bank actions or inactions,” Rex Macey, the Atlanta- based chief allocation officer at Wilmington Trust Investment Advisors, said in a phone interview. The firm oversees $22.3 billion. “Whichever way it goes, the effect of central bank stimulus has been supportive of markets, and we expect that to continue.”

     U.S. investors are also weighing corporate earnings reports, as companies from EBay Inc. to American Express Co. report financial results today. Profit at S&P 500 companies probably climbed 0.8 percent in the final three months of 2014, analysts predicted, down from an October estimate of 8.1 percent.                         

     IBM had the biggest slide in the Dow Jones Industrial Average as a disappointing forecast overshadowed profit that topped estimates. Chevron Corp. rallied 1.6 percent.

     Netflix jumped 17 percent, the most since April 2013, after saying a record gain in international subscribers boosted the worldwide total to 57.4 million. UnitedHealth Group Inc. advanced 3.6 percent to a record as earnings beat estimates.

     “Although investors are very edgy right now, U.S. equities still have a bit further to go,” said William Hobbs, head of equity strategy at Barclays Plc’s wealth-management unit in London. “The hurdle is just a little bit higher because there has been such a big consensus favoring the U.S. and sentiment is already pretty hot on growth. None of these markets are particularly inexpensive.”                       

     The Chicago Board Options Exchange Volatility Index, known as the VIX, fell for a third straight day, declining 4.8 percent to 18.93.

     The S&P 500 is trading at 16.6 times the projected earnings of its members, according to data compiled by Bloomberg. Valuations reached a five-year high at the end of last year. Profit at companies listed on the benchmark measure probably climbed 0.8 percent in the final three months of 2014, analysts predicted, down from an October estimate of 8.1 percent.

     Data in the U.S. today showed new residential construction rose more than forecast in December, capping the best year since 2007 and signaling the industry will probably keep expanding this year. Housing starts increased 4.4 percent to a 1.09 annual rate, following the prior month’s 1.04 million pace that was higher than previously estimated, a Commerce Department report showed.

     The Standard & Poor’s/TSX Composite Index rallied 1.8 percent to the highest since Jan. 2 after the nation’s central bank unexpectedly slashed its main interest rate due to the plunge in oil prices, saying the shock will weigh on everything from inflation to business spending.                      

     While the Bank of Canada became the first central bank in the Group of Seven to cut interest rates in response to plummeting oil prices, emerging market economies that rely on manufacturing may benefit, according to Mary Callahan Erdoes, JPMorgan Chase & Co.’s head of asset management.

     “People are looking at that and saying the manufacturing emerging markets countries are really going to benefit,” Erdoes said in an interview with Bloomberg TV’s Stephanie Ruhle in Davos, Switzerland. “You think about countries like India, you think about countries like Taiwan, Korea, Mexico, even China. All of those are net beneficiaries of lower oil prices which should be able to help those economies to continue to grow. You’re going to see a lot more money coming into that sector for long-term investing.”

     The MSCI Emerging Markets Index rose 1.9 percent to the highest since Dec. 8, as all 10 industry groups advanced. Energy shares in the gauge rallied 2.8 percent.

     Brazil’s Ibovespa advanced 2.8 percent.

     Oil rebounded from the biggest drop in a week amid the most volatile prices in more than three years. Oil climbed 2.8 percent to settle at $47.78 a barrel in New York, retracing a 4.7 percent slide on Tuesday. Brent for March delivery gained 2.2 percent to end at $49.03 a barrel in London.

     OPEC policies are protecting market share over revenue, Oman’s Oil Minister Mohammed Al-Rumhy said at conference in Kuwait City. The nation is not part of the Organization of Petroleum Exporting Countries.

     Silver headed for a bull market in its best start to a year in more than three decades, fueled by speculation that slowing global economic growth will spur haven demand.

     Silver futures for March delivery jumped 1.3 percent to close at $18.193 an ounce in New York. A settlement at $18.4956 would bring the gain from a four-year closing low of $15.413 on Nov. 6 to 20 percent, meeting the common definition of a bull market. Prices are up 17 percent this month.

     Gold futures for February delivery fell less than 0.1 percent to $1,293.70 in New York. The metal has gained 9.3 percent this month, after declining 1.5 percent in 2014.

     Policy makers in Europe and Asia have announced new stimulus measures amid prolonged below-target inflation, boosting demand for bullion as a store of value. On Wednesday, gold jumped to $1,300 an ounce for the first time since August.
 

Have a wonderful evening everyone.

Be magnificent!

Energy is action and movement.  All action is movement and all action is energy.

All desire is energy.  All feeling is energy.  All thought is energy.

All living is energy.  All life is energy.

If that energy is allowed to flow without any contradiction,

without any friction, without any conflict, then that energy is boundless, endless.

When there is no friction there are no frontiers to energy.

It is friction which gives energy limitations.  So, having once seen this,

why is it that the human being always brings friction into energy?

Why does he create friction in this movement which we call life?

Is pure energy, energy without limitations just an idea to him?

Does it have no reality?

Krishnamurti

As ever,

Carolann

Giving up is the ultimate tragedy.

              -Robert J. Donovan, 1939-2014

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