January 6, 2014 Newsletter

Dear Friends,

Tangents:

On this day in 1540, Henry VIII of England married his fourth wife, Anne of Cleves. Anne was relatively luckier than most of Henry’s wives. The marriage was never consummated and quickly annulled, she got a large settlement from the king, and she outlived each of his other five wives (which isn’t saying much, as a few of them had fairly brief life spans). –Steven Russolillo, WSJ, 01/06/14.

I finished reading a terrific novel over the holidays which I highly recommend.  It is entitled The Gift of Rain by Tan Twan Eng; nominated for the Man Booker Prize in 2007, when it was first published.

Sticks and stones may break our bones but words will break our hearts. –Robert Fulghum, 1937-

Photos of the day

People watch and photograph enormous waves as they break on Porthcawl harbor in South Wales, United Kingdom. Residents along Britain’s coasts are braced for more flooding as strong winds, rain and high tides lash the country. Ben Birchall/PA/AP

Members of the Edo Firemanship Preservation Association display their balancing skills atop bamboo ladders during a New Year demonstration by the fire brigade in Tokyo. Yuya Shino/Reuters

Market Closes for January 6^th, 2014

International Markets

Bonds

Currencies

Commodities

Market Commentary:

Canada

By Eric Lam

Jan. 6 (Bloomberg) — Canadian stocks fell for a third day, leaving the benchmark gauge at a two-week low, as declines among energy producers and banks overshadowed gains in precious metals producers.

Telus Corp. and BCE Inc. slid at least 0.6 percent to lead a decline in phone shares. Talisman Energy Inc. dropped 1.6 percent as crude retreated to a five-week low. Detour Gold Corp. jumped 4.7 percent as gold producers rallied. BlackBerry Ltd. added 5.2 percent after the smartphone maker hired Ron Louks, a former HTC Corp. and Sony Ericsson executive, to run its devices business.

The Standard & Poor’s/TSX Composite Index fell 53.32 points, or 0.4 percent, to 13,495.54 at 4 p.m. in Toronto. The gauge has fallen 0.9 percent in the past three sessions.

“Investors are still looking for an overriding theme for the year,” said Patrick Blais, a fund manager at Manulife Asset Management Ltd. in Toronto. His firm manages about C$265 billion ($248.8 billion). “We’re waiting for quarterly earnings to start. This is the year companies need to start delivering in the top line and in the bottom line.”

Valeant Pharmaceuticals International Inc. retreated 3.7 percent to C$119.99 for a second day of losses as health-care stocks sank 3.2 percent, the most in the S&P/TSX. Six of 10 industries dropped in the benchmark equity gauge on trading volume 13 percent lower than the 30-day average.

Bank of Nova Scotia, the third-largest lender in Canada, dropped 1.1 percent to C$64.74 to pace declines among financials stocks. Toronto-Dominion Bank of Canada lost 0.9 percent to C$97.99 and Royal Bank of Canada fell 1 percent to C$70.70.

Federal Finance Minister Jim Flaherty said Canada’s housing market was cooling and he was less worried about a bubble forming, in part due to changes his government has made to mortgage-lending rules.  “We’ve tightened the rules four times on mortgage insurance and if we have to tighten them again we will,” Flaherty said in an interview broadcast yesterday on CTV’s “Question Period.”

Telus declined 1.2 percent to C$36.35 and BCE fell 0.6 percent to C$45.33. Telus on Jan. 3 lost a court battle with the federal government over the mobile-phone carrier’s request for a judicial review of a decision to limit the amount of wireless spectrum the nation’s largest carriers were allowed to buy in an upcoming auction, the Globe and Mail reported. The frequencies are necessary for use with high-speed data devices.

Energy shares slid 0.3 percent for a third day of declines as crude fell to a five-week low in New York. Talisman Energy dropped 1.6 percent to C$12.16.

Detour Gold Corp., the worst-performing stock in the S&P/TSX in 2013, jumped 4.7 percent to C$5.17 and B2Gold Corp. rallied 2.6 percent to C$2.35. The price of gold settled little changed in New York after earlier falling as much as 2.1 percent.

Tourmaline Oil Corp. gained 3.9 percent to C$46.41, for a record close. The oil producer estimated its daily production volumes reached a record of 111,200 barrels of oil equivalent per day in the second half of December following the start up of two gas plant expansions.

The company said it will reach its 2014 forecast average daily production of 118,000 barrels a day in the second half of February.

BlackBerry climbed 5.2 percent to C$8.51, the highest level in two months. Chief Executive Officer John Chen has replaced several members of his senior management team since taking over in November as BlackBerry works to reignite demand for its smartphones.

USA

By Nick Taborek

Jan. 6 (Bloomberg) — U.S. stocks fell for a third day, the longest stretch of declines to start a year for the Standard & Poor’s 500 Index since 2005, after slower-than-forecast growth in service industries.

Twitter Inc. fell 3.9 percent after Morgan Stanley said investors should sell the shares because the microblogging service may lose online advertising revenue to larger rivals like Facebook Inc. Whole Foods Market Inc. fell 3.5 percent after an analyst report cited risks from increased competition.  Verizon Communications Inc. climbed 0.6 percent after T-Mobile US Inc. agreed to buy airwaves from Verizon Wireless for about $2.4 billion. Financial shares in the S&P 500 added 0.2 percent, the second-biggest gain among the 10 main industries.

The S&P 500 slid 0.3 percent to 1,826.77 at 4 p.m. in New York. The Dow Jones Industrial Average lost 44.89 points, or 0.3 percent, to 16,425.10. About 6.5 billion shares changed hands on U.S. exchanges, about 9 percent above the three-month average, according to data compiled by Bloomberg.

“Today is just noise back and forth, up a little down a little,” Donald Selkin, who helps manage about $4 billion as the New York-based chief market strategist at National Securities Corp., said by phone. “I think we’re just going to go sideways until we see the Fed’s minutes and the jobs report on Friday.”  The ADP Research Institute reports the change in companies’ payrolls on Wednesday and minutes from the Fed’s Dec. 17 to 18 meeting will be released the same day. The Labor Department will provide the unemployment rate and new hiring figures for last month on Friday.

Stocks trimmed losses earlier after Blackstone Group LP’s Byron Wien forecast U.S. economic growth of more than 3 percent for 2014. Wien, vice chairman of Blackstone’s advisory services unit, said in his annual “10 Surprises” list that economic growth will top 3 percent this year. He predicted the S&P 500 will advance about 20 percent in 2014 after a sharp correction.

“It’s a relatively quiet news day, so a relatively bullish forecast by a respected strategist didn’t hurt at all today, and may have helped,” Richard Sichel, chief investment officer at Philadelphia Trust Co., said in a telephone interview. He helps oversee $1.9 billion. “There’s still good values out there. With reasonable price-earnings ratios, we think that people should be investing.”

The gauge has declined in each of the year’s first three trading sessions, losing 1.2 percent, for the first time since 2005, according to data compiled by Bloomberg. The S&P 500 slid 2.3 percent in the first three days of 2005, and recovered to gain 3 percent for the year.

Before this year, the S&P 500 had fallen each of the first three trading days of the year seven times since data on the index began in 1928. It posted an annual gain in six of those seven years, according to the data.

The Institute for Supply Management’s non-manufacturing index decreased to 53 in December from 53.9 in the prior month, a report from the Tempe, Arizona-based group showed today. The median projection in a Bloomberg survey of 69 economists was 54.7. Estimates ranged from 53 to 57.7.

Twitter dropped 3.9 percent to $66.29. Morgan Stanley lowered its rating on the social-networking company to underweight, or sell, from equal weight, or hold.

“Twitter stock is trading above our $61 bull case and appears to price in an approximate tripling of Twitter’s share of the socially enabled ad market within three years,” the brokerage wrote in a report to investors. “In our view, success is far from guaranteed at this early stage.”

The company’s shares have more than doubled since their market debut in November.

Whole Foods lost 3.5 percent to $54.30. Longbow Research LLC analyst Philip Terpolilli said in a report that the company’s profit margin may fall as it increases discounts amid higher competition.

EBay Inc. slid 2.8 percent to $51.78. Morgan Stanley cut the online auction company to equalweight from overweight.

First Solar Inc. lost 9.7 percent to $51.26 for the biggest drop in the S&P 500. Goldman Sachs Group Inc. analyst Brian Lee cut the stock to sell from buy, saying the company’s valuation may contract as earnings decline.

Verizon, the largest U.S. wireless carrier, gained 0.6 percent to $48.69. T-Mobile agreed to buy airwaves from Verizon Wireless for about $2.4 billion in cash as part of a spectrum swap that will give both companies more network capacity in areas where they need it. T-Mobile, the fourth-largest U.S. wireless carrier, advanced 3.7 percent to $33.48.

Boston Scientific Corp. climbed 3.4 percent to $12.33.  Morgan Stanley raised the maker of the Watchman heart implant to overweight, or buy, from equal weight, or hold. The brokerage said the company’s sales will improve in 2014 and future years, while the shares may reach $15 a piece.

Valuations in the S&P 500 increased by the most since the financial crisis last year as 460 stocks rose, more than any year since at least 1990. Neither are reasons to bet against equities now.

While Wall Street strategists are the most cautious in almost a decade after the broadest U.S. rally on record sent price-earnings ratios up 19 percent, expanding multiples have preceded advances twice as often as they have retreats, data compiled by Bloomberg show. Since 1936, the S&P 500 has risen 69 percent of the time following quarters when valuations widened, the data show. The average return is 14 percent in years after more than 400 constituents climbed, according to data compiled by Strategas Research Partners.

“One sign that things are becoming more popular is they’re more expensive,” Michael Shaoul, the chief executive officer of Marketfield Asset Management LLC, which oversees about $19 billion, said in a Jan. 2 interview in New York. “I would be quite surprised if this bull market didn’t continue for another two to three years.”

Markets for stocks, currencies, bonds and commodities are the calmest in at least 12 years amid investor confidence that central bank stimulus is spurring economic growth.

Expectations for price swings have fallen to the lowest on record for 29 assets, including U.S. equities, interest rates, the euro and oil, based on data since 2002 compiled by New York- based hedge fund Lake Hill Capital Management LLC. The implied volatility, a gauge of options prices, for the markets reached an average of 15.3 on Nov. 22, compared with an all-time high of 44.2 in 2008, data on two-month exchange-traded contracts show.

Have a wonderful evening everyone.

Be magnificent!

Wise people are concerned only with what lies behind all these things.

Just as bees fly from one blossom to another, looking only for the essence of each one,

wise people look only for the essence of every person they meet.

Wise people, who know and understand the soul, are indifferent to both pleasure and pain;

they have risen above sensations.  They are indifferent to the past and the future; they have risen above time.

They are indifferent to danger; they have risen above fear.

Wise people know that what is here, is also there;

that what was, will also be.

They see unity, not division.

Katha Upanishad

As ever,

Carolann

We are ever dying to one world and being born

into another.

-Henry David Thoreau, 1817-1862.

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