January 24, 2014 Newsletter

Dear Friends,

Tangents:

I was happy to receive so much feedback from you on Armagnac after my comments in my newsletter last night.  I guess I’m in the minority – I didn’t realize how popular it is!  One of my clients who lives in Ottawa sent me an email, well, in her words, she’s “an Armagnac fan and during the winter months, I usually have one every evening!  I buy ‘Armagnac de Montal’ (more recent than 1961!) which we can get in Ottawa for about $58.00 a bottle.  Lovely!”

We’re off to see Seattle opera’s performance of Rigoletto this weekend….glad I converted those C$ to U$ when we were at par – not so long ago.  I’m also happy speaking with all my clients these days, telling them what their US$ RRSPs and RRIFs are worth in $C.

It’s hard to believe that today is the 30^th anniversary of the unveiling of apple’s first McIntosh.   One of my clients told me today that he remembers its unveiling during a commercial during the Superbowl that year.  You can still watch it on Youtube.  Just go to Youtube.com and search Mac 1984 superbowl ad.

Photos of the day

Revelers wear costumes as they stretch whilst welcoming others to Morning Glory, at a venue in Hackney, London, January 22nd. Morning Glory is a nightclub which operates once a month from 6:30 to 10:30 am, at which revelers drink fruit smoothies, coffee and dance to high energy music, sometimes in their sleepwear. Andrew Winning/Reuters

Irving Finkel, curator in charge of cuneiform clay tablets at the British Museum, poses with the 4,000-year-old clay tablet containing the story of the Ark and the flood during the launch of his book ‘The Ark Before Noah’ at the British Museum in London. The book tells how he decoded the story of the Flood and offers a new understanding of the Old Testament’s central narratives and how the flood story entered into it. Sang Tan/AP

Market Closes for January 24^th, 2014

International Markets

Bonds

Currencies

Commodities

Market Commentary:

Canada

By Callie Bost

Jan. 24 (Bloomberg) — Canadian stocks fell a second day, with the benchmark index dropping the most in seven months, as concern that a slowdown in China will hurt economic growth triggered a rout in global equities.

Thompson Creek Metals Co. and HudBay Minerals Inc. sank at least 4 percent to lead a gauge of mining stocks lower. Air Canada dropped 3.3 percent as industrial shares declined. Open Text Corp. soared 11 percent to an all-time high after saying it plans to spend another $3 billion on deals.

The Standard & Poor’s/TSX Composite Index decreased 215.18 points, or 1.5 percent, to 13,717.79 at 4 p.m. in Toronto. The gauge lost 1.2 percent this week after closing Jan. 20 at the highest since April 2011. Trading in S&P/TSX stocks was 16 percent higher than the 30-day average at the close.

“People are concerned that if China starts to weaken they should worry about commodity prices,” Irwin Michael, a fund manager at ABC Funds in Toronto, said in a phone interview. His firm manages about C$850 million ($768 million). “The market was looking for an excuse to check back and they found it with PMI. The China number is just a smokescreen and we believe that the economic numbers will start to improve again.”

Emerging-market shares extended the worst start to a year since 2009, while a measure of European stocks tumbled the most since June and U.S. equities retreated a to a one-month low. The MSCI All-Country World Index declined 1.9 percent, the biggest drop since June.

Data yesterday from China indicated factory output may contract this month, based on a preliminary Purchasing Managers’ Index from HSBC Holdings Plc and Markit Economics. Prices for industrial metals sank as the data fell below economists’ forecasts. China is the world’s biggest consumer of the metals such as copper and Canada’s second-largest trading partner.

Copper tumbled to a one-month low in New York, while zinc reached a two-week low in London.

Investors also assessed a report from Canada today that showed the nation’s inflation rate last month accelerated less than forecast, reinforcing policy-maker warnings that gains will be sluggish.

Eight of the 10 main industries in the index retreated.  Producers of raw materials plunged 1.9 percent, while energy companies dropped 1.3 percent.

The S&P/TSX Diversified Metals & Mining Index dropped 2 percent for a fourth straight decline, as nine of 10 members in the gauge retreated. Thompson Creek Metals Co. fell 6.7 percent to C$2.80.  HudBay Minerals declined 4 percent to C$8.93 and Capstone Mining Corp. slipped 3.2 percent to C$3.01.

Industrial companies in the S&P/TSX dropped 2.6 percent as Air Canada’s Class B shares decreased 3.3 percent to C$9.23, extending losses for the carrier to almost 5 percent in two trading sessions.

The stock rallied 8 percent on Jan. 22 after the company said its Canadian pension plans are estimated to be in a small surplus position as of Jan. 1.

Open Text soared 11 percent to a record C$110.82. Chief Executive Officer Mark Barrenechea said the business software company is ready to spend $3 billion on acquisitions over the next five years.

Open Text bought GXS Group Inc., a seller of cloud-based software integration services, for $1.17 billion on Jan. 16.  Yesterday, Waterloo, Ontario-based Open Text reported profit and sales that beat analysts’ average estimates and announced a 2-for-1 stock split.

USA

By Nick Taborek

Jan. 24 (Bloomberg) — U.S. stocks sank the most since June, capping the worst week for benchmark indexes since 2012, as a selloff in developing-nation currencies spurred concern global markets will become more volatile.

Caterpillar Inc., General Electric Co. and Boeing Co. slid at least 2.6 percent to pace losses in the Dow Jones Industrial Average. Kansas City Southern plunged 15 percent, the biggest retreat since 2008, after reporting lower-than-estimated earnings. International Game Technology tumbled 15 percent as the maker of slot machines posted first-quarter profit that missed analysts’ projections.

The Standard & Poor’s 500 Index retreated 2.1 percent to 1,790.29 at 4 p.m. in New York to close at the lowest level since Dec. 17. The benchmark index declined 2.6 percent this week. The Dow slid 318.24 points, or 2 percent, to 15,879.11 today. The 30-stock gauge lost 3.5 percent this week. About 8.8 billion shares changed hands on U.S. exchanges, the busiest trading day of the year.

“The volatility of the emerging markets and the currency impacts are affecting U.S. markets,” Eric Teal, who helps oversee $3.5 billion as the chief investment officer at First Citizens BancShares Inc. in Raleigh, North Carolina, said by phone. “Following the strong gains of last year, I think it’s to be expected that you might have an overreaction here of selling.”

Emerging-market currencies had their worst selloff in five years yesterday as Argentine policy makers devalued the peso by reducing support in the foreign-exchange market. The Turkish lira plunged, Ukraine’s hryvnia sank to a four-year low and South Africa’s rand weakened beyond 11 per dollar for the first time since 2008. China’s banking regulator ordered its regional offices to increase scrutiny of credit risks in the coal-mining industry, said two people with knowledge of the matter, signaling government concern about possible defaults.

Investors are losing confidence in some of the biggest developing nations, extending the rout in currencies that began last year when the Federal Reserve signaled it would slow the pace of its monthly purchases of Treasuries and mortgage bonds.

The S&P 500 fell 0.9 percent yesterday and the Dow dropped to a one-month low after a gauge of manufacturing activity in China unexpectedly contracted.

The MSCI Emerging Markets Index lost 1.5 percent today, extending its decline for the year to more than 5 percent, while Europe’s equity benchmark slid the most since June.

Three rounds of Fed monetary stimulus have helped the S&P 500 rise about 165 percent from a 12-year low in 2009. The U.S. equity benchmark rallied 30 percent to a record last year, the most since 1997. Equities have since pared those gains, with the index down more than 3 percent for 2014.

“You’ve had a massive selloff in these emerging-market currencies,” Nick Xanders, a London-based equity strategist at BTIG Ltd., said by telephone. “Ruble, rupee, real, rand: they’ve all fallen and the main cause has been tapering. A lot of companies that have benefited from emerging-markets growth are now seeing it go the other way.”

The S&P 500 trades at about 15.2 times the estimated earnings of its members, more than the five-year average multiple of 14.1, data compiled by Bloomberg show.

Ten companies in the S&P 500, including Procter & Gamble Co. and Bristol-Myers Squibb Co., reported results today. Of the 122 index members that have released earnings so far this season, 74 percent have beaten estimates for profit and 67 percent have exceeded sales projections, according to data compiled by Bloomberg.

Per-share profit for companies in the benchmark probably climbed 6.6 percent in the fourth quarter, while sales increased 2.6 percent, according to analysts surveyed by Bloomberg.

The Chicago Board Options Exchange Volatility Index, the gauge of S&P 500 options known as the VIX, surged the most since April, adding 32 percent to 18.14 today. The gauge rallied 46 percent this week, for the biggest weekly increase since May 2010.

All 10 main S&P 500 groups retreated today. Industrial and materials stocks lost at least 2.7 percent to pace declines.

Boeing sank 3.3 percent to $136.65 and Caterpillar lost 2.6 percent to $86.17, among the biggest declines in the Dow.

Companies whose earnings are most tied to economic swings dropped. The Morgan Stanley Cyclical Index lost 3 percent, the most since April, as Whirlpool Corp. slid 5 percent to $145.68.

An S&P gauge of homebuilders fell 3.4 percent for the steepest decline since August. D.R. Horton Inc. slipped 4.9 percent to $20.88 and PulteGroup Inc. fell 4.1 percent to $18.84.

The Dow Jones Transportation Average, which reached a record yesterday, slid 4.1 percent for the biggest one-day decline since 2011. Delta Air Lines Inc. fell 4.3 percent to $31.11.

Kansas City Southern lost 15 percent to $99.49. The railroad operator reported fourth-quarter profit that missed analysts’ estimates as energy revenue fell 17 percent due to a decline in coal shipments.

International Game Technology tumbled 15 percent to $15.04.  The Las Vegas-based company posted earnings of 25 cents a share, missing the average analyst estimate by 6 cents.

Intuitive Surgical Inc. lost 6.4 percent to $410.76. The maker of a robotic-surgery device said fourth-quarter systems revenue decreased by 23 percent from a year earlier.

Phone, utility and consumer-staples stocks, which have the highest dividend yields among 10 S&P 500 groups, fell less than 1.2 percent, as yields on 10-year Treasuries fell to an eight- week low, boosting the allure of equity income.

Procter & Gamble climbed 1.2 percent to $79.18. The world’s largest consumer-goods maker posted second-quarter profit that topped analysts’ estimates as sales of products such as Pampers diapers rose in emerging markets.

Microsoft Corp. added 2.1 percent, the most in the Dow, to $36.81. Customers flocked to the company’s game consoles and cloud software last quarter, helping sales beat analysts’ projections.

Juniper Networks Inc. rallied 6.6 percent to $27.72 for the biggest gain in the S&P 500. The networking-equipment maker reported sales that exceeded analysts’ estimates. Revenue in the fourth quarter increased 12 percent to $1.27 billion from $1.14 billion a year earlier, the Sunnyvale, California-based company said yesterday in a statement. Analysts had predicted sales of $1.22 billion.

Discover Financial Services climbed 2.8 percent to $53.88. Discover rose the most in three months after reporting profit that beat analysts’ estimates as credit-card spending and loan demand increased.

Have a wonderful weekend everyone.

Be magnificent!

Chitragupta, who is supposed to be writing out our deeds in an account book

is no other than the conscious and unconscious parts of our mind.

The Lord of Law, to whom we have to render the account,

is the Soul within us.

Gopla Singh, 1911-1963

As ever,

Carolann

Life shrinks or expands according

to one’s courage.

-Anaïs Nin, 1903-1977.

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