January 3rd, 2012 Newsletter

Dear Friends,

“You must take your chance.”

           — William Shakespeare

Market Commentary

Canada

 By Matt Walcoff

 Jan. 3 (Bloomberg) — Canadian stocks rose the most since Nov. 30 as oil and metals gained after indexes of U.S., U.K. and Chinese manufacturing surpassed most economist forecasts and German unemployment fell to a 20-year low.

Suncor Energy Inc., Canada’s largest oil and gas producer, increased 5.5 percent as crude futures advanced after Iran said it produced its first nuclear fuel rod. Barrick Gold Corp., the world’s biggest gold producer, climbed 4.5 percent as the U.S. Dollar Index declined the most in a month. Potash Corp. of Saskatchewan Inc., the world’s biggest fertilizer producer by market value, rallied 5.1 percent after an analyst at Susquehanna Financial Group raised his rating on the shares.

The Standard & Poor’s/TSX Composite Index rose 253.34 points, or 2.1 percent, to 12,208.43, the highest close since Nov. 15. “Manufacturing globally looks like it’s picking up,” Jennifer Radman, a money manager at Caldwell Investment Management Ltd. in Toronto, said in a telephone interview. The firm oversees about C$1 billion ($991 million). “As we get more comfortable the world isn’t going to fall apart, investors will increasingly be tolerant of taking on more risk in their portfolios.”

Canada’s benchmark index retreated 11 percent in 2011, led by raw-materials and energy producers, on concern the European debt crisis will hamper global growth. The two industries make up 47 percent of Canadian stocks by market value, according to Bloomberg data. The Institute for Supply Management’s U.S. manufacturing index advanced to 53.9 in December from 52.7 the previous month, the Tempe, Arizona-based organization said today. Economists had forecast an increase to 53.5, according to the median estimate in a Bloomberg survey.

 The euro gained today after Germany said unemployment dropped to 6.8 percent last month, the lowest since at least 1991, from 6.9 percent in November. Most economists in a Bloomberg survey had forecast no change.

U.K. and Chinese purchasing managers’ indexes exceeded most economists’ estimates in Bloomberg surveys as well. The factory index for China indicated expansion, while all 15 surveyed economists had forecast a second-straight month of contraction. Stocks extended their advances after the U.S. Federal Reserve said some members of its Federal Open Market Committee “indicated that current and prospective economic conditions could well warrant additional policy accommodation” at their Dec. 13 meeting. Crude oil rallied to the highest settlement price since May on the New York Mercantile Exchange. Suncor gained 5.5 percent to C$31. Canadian Natural Resources Ltd., the country’s second- largest energy company by market value, rose 4.5 percent to C$39.86. Oil-sands developer BlackPearl Resources Inc. surged 9.5 percent to C$4.50.

 Vero Energy Inc., a western Canadian oil and gas producer, soared a record 27 percent to C$2.65 after saying it will sell some assets for C$209 million. Gold futures advanced the most in 10 weeks on the Comex in New York. Barrick increased 4.5 percent to C$48.13. Kinross Gold Corp., Canada’s third-largest gold producer by market value, climbed 6.8 percent, the most since May 2010, to C$12.42. Banro Corp., which explores for gold in Africa, jumped 10 percent to C$4.17.

Base-metals and coal producers in the S&P/TSX gained as copper futures advanced for a third day. Teck Resources Ltd., Canada’s largest company in the industry, increased 6.9 percent to C$38.37. First Quantum Minerals Ltd., the country’s second- biggest publicly traded copper producer, rose 4.4 percent to C$20.94. Lundin Mining Corp., which produces base metals in Europe, surged 9 percent to C$4.22.

 Potash Corp. gained 5.1 percent to C$44.26 after Don Carson, an analyst at Susquehanna, boosted his rating on the shares to “positive” from “neutral.” “We see strong grower demand this coming spring based on our expectation of increased corn acreage planted in the U.S.,” Carson wrote in a note to clients. Agrium Inc., a fertilizer producer and farm retailer, rallied 5.5 percent to C$72.11 as corn futures climbed to the highest since November on the Chicago Board of Trade.

The S&P/TSX Financial Index advanced to a two-month high. Royal Bank of Canada, the country’s largest lender by assets, rose 1.6 percent to C$52.82. Bank of Nova Scotia, Canada’s third-biggest lender, increased 1.5 percent to C$51.59. Manulife Financial Corp., North America’s fourth-largest insurer, climbed 3.2 percent to C$11.20.

 BlackBerry maker Research In Motion Ltd. rallied 5.9 percent to C$15.67 after the Financial Post said the company “is preparing to unveil a corporate shakeup.” Barbara Stymiest, a former TMX Group Inc. chief executive officer and current RIM board member, “is believed to be the leading candidate” to replace co-chairmen Jim Balsillie and Mike Lazaridis as head of the board, the Toronto-based newspaper said, citing unnamed sources familiar with the matter. RIM shares plunged a record 75 percent in 2011.

US

 By Stephen Kirkland and Ksenia Galouchko

 Jan. 3 (Bloomberg) — Stocks surged, driving the Dow Jones Industrial Average to the highest level since July, and commodities rallied on signs of increasing manufacturing output around the world. The dollar weakened and U.S. Treasuries fell.

The Dow increased 177.02 points, or 1.5 percent, to 12,394.58 and the S&P 500 jumped 1.5 percent to 1,276.85, the highest level since October, according to preliminary closing figures at 4 p.m. in New York. The Stoxx Europe 600 Index added 1.6 percent and closed at a five-month high. The Dollar Index fell 0.8 percent, while 10-year Treasury yields increased eight basis points to 1.95 percent. Oil settled at an almost eight- month high near $103 a barrel as 23 of 24 commodities tracked by the S&P GSCI Index rose. Financial, industrial and commodity shares led the S&P 500’s gain as the Institute for Supply Management’s factory index topped estimates and government data showed construction spending grew at more than twice the forecast rate. Factory output in Australia grew for the first time in six months and reports in the past two days showed a pickup in Chinese and Indian manufacturing. “You’re starting to see people want to take more risks,”

Frank Ingarra, who helps manage the Can Slim Select Growth Fund at Greenwich, Connecticut-based NorthCoast Asset Management LLC, said in a telephone interview. His firm oversees $1.4 billion. “Manufacturing data has been pretty decent.”

  All 10 of the main industry groups in the S&P 500 advanced today except for utilities, which climbed 15 percent last year for the biggest gain. Financials, the worst-performing group in 2011 with an 18 percent drop, led gains today. Bank of America Corp., Alcoa Inc., JPMorgan Chase & Co. and Caterpillar Inc. helped the Dow extend its 5.5 percent 2011 advance.

The ISM’s manufacturing index rose to 53.9 in December from 52.7 a month before, above the reading of 50 that signals growth and topping the 53.5 median projection of economists in a survey. Construction spending climbed 1.2 percent in November, Commerce Department data showed. Forecasters at securities firms are more conservative on U.S. stocks than any time in seven years, predicting the S&P 500 will rise 6.4 percent to 1,338 in 2012 as budget deficits around the world limit gains. That’s the smallest predicted return since 2005. Adam Parker of Morgan Stanley, whose estimate for 2011 proved the most accurate among current analysts, forecast a loss of 7.2 percent as Europe’s debt crisis will keep volatility above historical levels. Federal Reserve officials will for the first time make public their own forecasts for the federal funds rate at their Jan. 24-25 meeting, minutes from the December 13 Federal Open Market Committee said today. FOMC “participants decided to incorporate information about their projections of appropriate monetary policy” into their Summary of Economic Projections starting with their next meeting, the minutes said.

 The Stoxx 600 climbed to the highest level since August as the U.K.’s FTSE 100 Index and the Swiss Market Index, both of which were closed yesterday for a holiday, climbed more than 1.9 percent to lead gains in the region.

Rio Tinto Group led a rally in mining companies, gaining 6.4 percent. Afren Plc jumped 20 percent as the U.K. energy explorer focused on Africa said production topped its forecasts. The MSCI All-Country World Index sank 9.4 percent last year, the most since 2008, as Europe’s debt crisis hurt global growth. The S&P 500 Index closed the year almost unchanged, slipping less than 0.1 percent, to beat benchmark indexes in all 24 developed markets except for Ireland.

 A benchmark gauge of U.S. company credit risk dropped to the lowest level in two months. The Markit CDX North America Investment Grade Index of credit-default swaps, which investors use to hedge against losses on corporate debt or to speculate on creditworthiness, decreased 1.8 basis points to a mid-price of 118.5 basis points. The index fell as low as 117.6, the least since Oct. 31. Contracts on Bank of America Corp. and Goldman Sachs Group Inc. also fell. The dollar weakened 0.9 percent today to $1.3055 per euro, which appreciated 0.6 percent against the yen after falling to an 11-year low yesterday. The yen weakened against 14 of its 16 most-traded peers monitored by Bloomberg, while the New Zealand dollar strengthened versus all but two of its major counterparts. Moves by the Fed to flood the world with dollars are doing little to dent the currency’s value, bolstering the appeal of U.S. assets at a time when the government needs the support of foreign investors the most.

 The U.S. Dollar Index appreciated 13 percent from a record low in March 2008 through the end of 2011 even as the Fed kept interest rates at about zero and printed cash to buy $2.3 trillion of Treasury and mortgage-related bonds, and is little changed since 1991. The International Monetary Fund said Dec. 30 that the dollar’s share of global foreign-exchange reserves rose in the third quarter by the most since 2008. The 30-year Treasury yield rose 10 basis points to 2.99 percent today as improving economic data damped demand for the relative safety of U.S. government debt. Governments of the world’s leading economies have more than $7.6 trillion of debt maturing this year, with most facing a rise in borrowing costs. Led by Japan’s $3 trillion and the U.S.’s $2.8 trillion, the amount coming due for the Group of Seven nations and Brazil, Russia, India and China is up from $7.4 trillion at this time last year, according to data compiled by Bloomberg. Ten-year bond yields will be higher by year-end for at least seven of the countries, forecasts show.

Have a wonderful evening everyone!

As Always,

Kyle, for Carolann.