January 7, 2016 Newsletter

Dear Friends,

Tangents:

100: Price (in Chinese yuan, about $1500 US) for a can filled with compressed air from Canada’s Rocky Mountains, enough for 150 breaths, according to Vitality Air.  Intended as a novelty, the first shipment to China sold out in four days, and the company is struggling to meet demand.

4.75 Trillion: Value  (n US dollars)  of global merger activity in 2015, led by the $148.6 billion Pfizer-Allergan merger.  This year exceeded the previous peak reached in 2007.

Today in History:

1927 – Commercial transatlantic telephone service was inaugurated between New York and London.

1942 – The World War II siege of Bataan began.

1953 – President Harry S. Truman announced in his State of the Union address that the United States had developed a hydrogen bomb.

1959 – The United States recognized Fidel Castro’s new government in Cuba.

1989 – Japanese Emperor Hirohito died at age 87.

1996 – A major blizzard paralyzed the eastern United States, claiming more than 100 lives.

PHOTOS OF THE DAY

People dressed in traditional Russian clothes dance during a celebration of Orthodox Christmas in St. Petersburg, Russia, Thursday. Russian Orthodox believers celebrate Christmas by the Julian calendar on Jan. 7. Dmitry Lovetsky/AP

Mongolian-born grand sumo champion Yokozuna Harumafuji (l.) performs the New Year’s ring-entering rite at the annual celebration at the Meiji Shrine in Tokyo Thursday. Yuya Shino/Reuters

Market Closes for January 7^th, 2016

International Markets

Bonds

Currencies

Commodities

Market Commentary:

Canada

By Eric Lam

     (Bloomberg) — Canadian stocks sank a seventh straight day, entering a bear market and ending a bull run that lasted two years.

     The Standard & Poor’s/TSX Composite Index sank 2.2 percent to 12,448.21 at 4 p.m. in Toronto, falling 20 percent below its September 2014 record to meet the definition of a bear market. Canada is the second Group of 7 country to see its benchmark equity gauge enter a bear market, after Germany’s DAX Index in August.

     “The cat’s out of the bag in terms of avoiding Canada,” said Ian Nakamoto, director of research at MacDougall MacDougall & MacTier Inc. in Toronto. His firm manages about C$5 billion. “It’s hard to be positive. There doesn’t seem to be any stabilization coming. When markets continue to fall, you can’t help but lose some confidence.”

     Canada’s resource-rich benchmark has been one of the worst- performing markets in the world in the past year, caught at the center of a commodity price storm and growing fears economic growth from China to Europe is slowing at the same time as the prospect of rising U.S. interest rates boosted the dollar.

     A glut in crude supplies collapsed prices to decade-lows, leaving Canada’s oil the cheapest in the world. Energy shares in the S&P/TSX slumped 26 percent last year, the worst-performing among 10 industries. Investors seeking a non-resource haven amassed around health-care stocks until leader Valeant Pharmaceuticals International Inc. plunged amid government scrutiny of its pricing practices.

     The S&P/TSX has posted its longest losing streak since November, with global stocks extending a three-month low and New York crude plunging to a 12-year nadir, pushing closer to $30 a barrel. Valuations for Canadian stocks have tumbled about 15 percent to 19.2 times earnings, from a high of 22.7 in April.

     China’s CSI 300 Index plunged 6.9 percent, triggering the second full-day trading halt this week. The country’s securities regulator later suspended the new stock circuit-breaker system after an emergency meeting to discuss the nation’s tumbling stock market. That’s after the nation’s central bank lowered the reference rate for the yuan, pushing the currency to a five-year low and raising concern about the health of the world’s second- largest economy. China is Canada’s second-largest trading partner after the U.S.

     “There’s a lot of nervousness out there,” said Som Seif, chief executive officer of Purpose Investments Inc. in Toronto. His firm manages about C$1.8 billion ($1.28 billion). “China devalued the yuan and the pace is scaring people.”

     Broad losses among Canada’s banks, energy producers, industrial and consumer stocks paced declines with the S&P/TSX. Royal Bank of Canada and Toronto-Dominion Bank, the largest lenders in the nation, lost at least 1.8 percent as financial shares dropped to a four-month low.

     The Canadian market will continue to struggle until oil prices rebound, as many of the largest and most important parts of the economy including banks are tied to the industry, said David Rosenberg, chief economist and strategist at Gluskin Sheff & Associates Inc. in an interview in Toronto.

     “Canada has a ‘For Sale’ sign on the front lawn,” Rosenberg said. “The key to any turnaround will be the price of oil, and not just for the energy sector.”

     Crescent Point Energy Corp. slumped 12 percent, among the biggest decliners in the S&P/TSX Energy Index. The oil producer cut its planned capital spending in 2016 by as much as 39 percent compared with 2015 estimates. Fifty-three of 55 members in the group declined.

     Base metals producers joined the retreat, with First Quantum Minerals Ltd. slumping 8.2 percent and Teck Resources Ltd. declining 8.7 percent as copper futures fell to less than $2 a pound for the first time in more than six years.

     Smartphone maker BlackBerry Ltd. sank 8.9 percent, the biggest retreat in a year, after the company said it will unveil at least one more Android device this year.

     Meanwhile, gold producers have been a relative island of calm in the Canadian market with the S&P/TSX Gold Index rallying 14 percent so far this year as the metal climbed above $1,100 an ounce. Barrick Gold Corp. jumped 10 percent to the highest level since July.

     “Gold is finally looking more positive than negative,” Kerry Smith, an analyst at Haywood Securities Inc., said by phone from Toronto. “The stocks have been beaten up for so long. It’s kind of a safe haven trade.”

US

By Oliver Renick

     (Bloomberg) — U.S. stocks tumbled to press three-month lows, with the Dow Jones Industrial Average dropping more than 390 points to post its biggest two-day retreat since August, amid a China-led rout that continued to engulf markets around the globe.

     Banks and technology companies paced the retreat, marking their biggest declines in four months, with Citigroup Inc. and Apple Inc. down more than 4.2 percent. Yahoo! Inc. slid 6.2 percent, the most since May. Boeing Co. and General Electric Co. dropped more than 4.1 percent, two of Dow’s three worst today. Energy shares in the Standard & Poor’s 500 Index declined to a five-year low.

     The S&P 500slid 2.4 percent to 1,943.09 at 4 p.m. in New York, falling to its lowest since Oct. 1 in the worst four-day start to a year in data going back to 1928. The Dow lost 392.41 points, or 2.3 percent, to 16,514.10 and has fallen more than 900 points this week. The Nasdaq Composite Index dropped 3 percent. About 10 billion shares traded hands on U.S. exchanges, 42 percent above the three-month average.

     “China devaluing its currency sparks concern that the global growth engine is starting to slow and that creates a dump of any high-flying stocks or anything people perceive as risk,” said Yousef Abbasi, a market strategist at JonesTrading Institutional Services in New York. “When you start to worry about growth, you have crude oil down and it all ties together. It’s the new year and people are scratching their heads, they’re not quite ready to buy the dip.”

     Equity markets worldwide tumbled after Chinese stock exchanges closed less than a half hour after opening, as a more than 7 percent plunge triggered a market-wide halt for the second time this week. China’s securities regulator has since suspended a new stock circuit-breaker that caused the halts.

     A flight from risky assets in the first week of the new year has wiped $2.5 trillion from global equities, made worse by China’s central bank cutting its yuan reference rate for an eighth straight day. China’s tolerance for a weaker yuan is being seen as evidence policy makers are struggling to revive an economy that’s the world’s biggest consumer of energy, metals and grains.

     The move revived the angst that sent financial markets into turmoil last summer, driving U.S. stocks to three-month lows yesterday in a selloff led by commodity producers. Comments by billionaire George Soros exacerbated market jitters after he told an economic forum in Sri Lanka today that global markets are facing a crisis and investors need to be very cautious.

    Commodity shares remained weak, with copper producer Freeport-McMoRan Inc. tumbling 9.1 percent and Alcoa Inc. down 4 percent. West Texas Intermediate crude futures briefly wiped out a drop of more than 5 percent before the rebound withered, and its settled 2.1 percent lower. Anadarko Petroleum Corp. lost 8.4 percent, and Chevron Corp. fell 3.5 percent after its biggest slide since August yesterday.

     A weaker yuan would support China’s flagging export sector, but it also boosts risks for the nation’s foreign-currency borrowers, and heightens speculation that the slowdown in Asia’s biggest economy is deeper than official data suggest.

     While investors cope with the turbulence sparked by China, another source of consternation is looming as the corporate earnings season for 2015’s final quarter soon begins. Alcoa Inc., JPMorgan Chase & Co. and Intel Corp. are scheduled to report results next week. Analysts forecast profits for companies in the S&P 500 fell 6.1 percent last quarter.

     “The market has been in denial,” said Michael Ingram, a market strategist at BGC Partners in London. “The broader issue is that growth dynamics are weak pretty much everywhere. Make no mistake, what happens in China this year will shape the market dynamic for the next five.”                      

     The Chicago Board Options Exchange Volatility Index rose 21 percent to 24.99, its highest since Sept. 29. The measure of market turbulence known as the VIX is up 37 percent so far this month, which would be the most since a record-setting 135 percent jump in August.

     The S&P 500 has fallen 6.3 percent since Federal Reserve raised interest rates last month for the first time in nearly a decade. The central bank balked at boosting borrowing costs in September in part due to turbulence sparked by China’s August currency devaluation. The poor start to 2016 has left the benchmark index 8.8 percent below its all-time high set in May after coming within 1 percent of the record as recently as November.

     Fed Bank of Richmond President Jeffrey Lacker reiterated in a speech Thursday that the pace of interest-rate increases is expected to be gradual, but dependent on the economic outlook. He also expressed confidence inflation will move back to the Fed’s 2 percent goal “over the near term.” Chicago Fed President Charles Evans said he’s less optimistic on inflation than his colleagues, making a case for an especially cautious approach to raising rates in 2016.

     A report today showed fewer Americans filed applications for unemployment benefits last week, a sign the labor market remained robust entering 2016. The government’s December jobs report is due Friday, with economists surveyed by Bloomberg forecasting a 200,000 gain and an unemployment rate holding at 5 percent.                         

     All 10 of the S&P 500’s main industries fell Thursday, with financial, industrial and technology shares down more than 2.8 percent. Utilities slid less than 0.8 percent to end as the day’s best performers.

     The KBW Bank Index dropped for a sixth day, down 3.3 percent amid its longest streak of losses since 2012. Capital One Financial Corp. and State Street Corp. lost more than 4.5 percent, falling to their lowest in more than two years. JPMorgan Chase & Co. slid 4 percent, its worst decline in four months.

     A day after being one of the market’s bright spots, airlines were among the worst performers, with a Bloomberg index of U.S. carriers tumbling to its lowest since Oct. 8. SkyWest Inc. reversed a 4.9 percent rally Wednesday, losing 8.4 percent. JetBlue Airways Corp. fell 4.9 percent to a six-month low. The Dow Jones Transportation Average sank 3.1 percent to the lowest in more than two years.

     Homebuilders were battered for a second day, led by an 15 percent decline in KB Home, the biggest in nearly a year. The company reported fiscal fourth-quarter earnings that missed analysts’ estimates, as bad weather and labor shortages delayed some deliveries. Toll Brothers Inc. sank 5.5 percent.

     Among shares bucking today’s negative trend, Macy’s Inc. added 2.1 percent after announcing plans to cut costs and explore options for its real estate following a worse holiday period than the the largest U.S. department-store company expected.

     Beaten-down Wal-Mart Stores Inc. continued to rally, up 2.3 percent to add to its longest winning streak in two months. The retailing giant fell 29 percent last year, its worst annual decline since 1974. Gap Inc. rose for the third time in four days, up 5.7 percent. The apparel seller plunged 41 percent in 2015, the most in 14 years.

     Signet Jewelers Ltd. advanced 4.7 percent, its best gain in four months, after raising the bottom end of its fourth-quarter profit and sales forecasts. The retailer’s shares have rallied 16 percent during the past three weeks.

Have a wonderful evening everyone.

Be magnificent!

You are the product of your environment.

That is why you are not able to see beyond the habits and social conventions

that are rooted deep within you.  If you wish to see beyond them,

you must first of all free yourself from the normal way in which you interpret facts.

Swami Prajnanpad

As ever,

Carolann

It always seems impossible until it’s done.

                  -Nelson Mandela, 1918-2013

Carolann Steinhoff, B.Sc., CFP®, CIM, CIWM

Portfolio Manager &

Senior Vice-President

Queensbury Securities Inc.,

St. Andrew’s Square,

Suite 340A, 730 View St.,

Victoria, B.C. V8W 3Y7