July 15, 2013 Newsletter

Dear Friends,

Tangents:

Birthday: July 15, 1606, Rembrandt.

Rembrandt was born in Leiden, the Netherlands on this day in 1606, Rembrandt Harmenszoon van Rijn.  He was the son of a miller.  Despite the fact that he came from modest means, he was able to study art, and by age 22, took his first pupils.  He married Saskia van Uylenburgh, the cousin of a successful art dealer, in 1634.  Rembrandt’s family life was marked by misfortune.  Between 1635 and 1641 Saskia gave birth to four children, but only the last, Titus survived.  Saskia in 1642, at the age of 30.  Hendrickje Stoffels, who became Rembrandt’s housekeeper in 1649, eventually became his wife and was the model for many of his paintings.  Despite Rembrandt’s success as an artist, teacher, and art dealer, his flamboyant living forced him to declare bankruptcy in 1656.  His beloved Hendrickje in 1663, and his son Titus, in 1668 at only 27 years of age.  Eleven months later, on October 4^th, 1669, Rembrandt died in Amsterdam.

Our doubts are traitors, and make us lose the good we oft might win by fearing to attempt. –William Shakespeare.

Photos of the Day –July 15th, 2013

A Peking opera troupe performs at the 49th International Festival of Carthage at the Roman Theatre of Carthage in Tunis, Tunisia. Anis Mili/Reuters

A cygnet is lifted for inspection by the Queen’s Swan Uppers during the annual Swan Upping ceremony on the River Thames between Shepperton and Windsor in southern England. The five-day census of the swan population dates back to the twelfth century when the Crown claimed ownership of all mute swans. Luke MacGregor/Reuters

Market Closes for July 15^th, 2013

International Markets

Bonds

Currencies

Commodities

Market Commentary:

Canada

By Katie Brennan

July 15 (Bloomberg) — Canadian stocks rose, sending the benchmark index to the highest level in almost six weeks, after Loblaw Cos. agreed to the biggest takeover of a Canadian retailer and existing home sales rose in June.

Loblaw jumped 5.4 percent afteragreeing to buy Shoppers Drug Mart Corp. for C$12.4 billion ($11.9 billion). Shoppers surged 24 percent to a record. Endeavor Silver Corp. added 12 percent as the company restated its second-quarter revenue higher. Catamaran Corp. gained 1.5 percent after ISI Group boosted its rating on the stock. Colossus Minerals Inc. plunged 50 percent after delaying gold output at a mine in Brazil.

The Standard & Poor’s/TSX Composite Index rose 66.17 points, or 0.5 percent, to 12,528.35 at 4 p.m. in Toronto, the highest since June 4. The benchmark gauge jumped 2.7 percent last week, its biggest five-day rally since November, to erase a loss for the year.

“The Loblaw deal put a good tone to everything and consumer stocks are all generally higher as a result,” said Bob Decker, fund manager with Aurion Capital Management in Toronto.

He helps manage C$6 billion ($5.8 billion) at the firm. “The housing data is a testament to the resilience of the Canadian housing market and will continue to frustrate bearish commentators.”

Canadian existing home sales rose 3.3 percent in June, almost matching the previous month’s gain that was the fastest in more than two years, as the nation’s housing market defies predictions of a major correction. Recent data suggest the market for residential real estate, while moderating, remains robust.

China’s gross domestic product rose 7.5 percent in the April-to-June quarter from a year earlier. The pace was slower than the 7.7 percent in the first quarter and above the year-ago rate. Comments last week by China’s finance minister that 6.5 percent or 7 percent growth wouldn’t be a “big problem” raised concern the economy of Canada’s second-largest trading partner was cooling faster than estimated.

“It was good the China GDP number didn’t hit the more bearish whisper numbers that were out there,” Decker said. “It was not as bad as feared.”

Eight of the 10 industries in the S&P/TSX advanced, led by a 7 percent surge among producers of consumer staples. Trading volume was 24 percent lower than the 30-day average.

Loblaw, the country’s largest grocery operator by market value, surged 5.4 percent to C$50.13 for the biggest gain since December. The cash and stock deal for the country’s leading drugstore chain is the largest between two Canadian companies since Suncor Energy Inc. bought Petro-Canada in 2009. Shoppers surged 24 percent to C$60.12, helping consumer-staples stocks rise to a record as a group.

Health-care companies jumped 1.2 percent as a group.

Catamaran added 1.5 percent to C$51.91 after an analyst at ISI Group boosted the stock to a strong buy with a price target of $62. Valeant Pharmaceuticals International Inc. gained 1.1 percent to C$97.69.

Endeavor Silver added 12 percent to C$3.77, pacing gains among producers of raw materials. The company revised its second-quarter sales result to $71.3 million, 12 percent higher than originally reported on July 10.

The silver and gold miner said part of the adjustment resulted from its understating realized prices for metals in certain sales. Endeavour is scheduled to report results Aug. 6.

Colossus Minerals plunged 50 percent to C$0.80, the lowest since December 2008. The company is delaying the start of gold production at its Serra Pelada mine venture in Brazil until the fourth quarter after some de-watering wells and pumps did not perform as expected. Stifel Nicholas analyst Craig Stanley downgraded the stock to hold from buy.

US

By Alex Barinka and Nikolaj Gammeltoft

July 15 (Bloomberg) — U.S. stocks rose, giving the Standard & Poor’s 500 Index its longest winning streak since January, as better-than-estimated earnings at Citigroup Inc. overshadowed a disappointing retail sales report.

Citigroup jumped 2 percent after profit beat analysts’ estimates as stock-trading revenue surged and losses on unwanted assets declined. Leap Wireless International Inc. more than doubled after AT&T Inc. agreed to buy the company for $1.2 billion. Boeing Co. climbed 3.7 percent as a U.K. agency said last week’s fire on a 787 aircraft is unrelated to battery blazes that grounded the fleet earlier this year.

The S&P 500 climbed 0.1 percent to 1,682.50 at 4 p.m. in New York. The index has gained for eight straight days, the longest stretch since Jan. 25. The Dow Jones Industrial Average added 19.96 points, or 0.1 percent, to 15,484.26. Both gauges reached record closing highs. About 4.9 billion shares traded hands on U.S. exchanges today, 25 percent below the three-month average and the lowest level of the year for a full-day session.

“We have our focus on earnings,” James Gaul, a portfolio manager at Boston Advisors LLC, which oversees about $2.6 billion in assets, said by phone. “Citigroup had a good report this morning and the question is whether earnings will be strong enough to push us higher. That’s where the short-term focus will be.”

The S&P 500 closed at a record last week after Federal Reserve Chairman Ben S. Bernanke backed sustained monetary stimulus. The gauge added 3 percent through the five days, for a third week of gains and its biggest rally since Jan. 4.

An unprecedented three rounds of central bank stimulus have helped drive the S&P 500 up 149 percent from a 12-year low in 2009. The index slumped as much as 5.8 percent after Bernanke signaled on May 22 that the Fed could start scaling back bond purchases as soon as September. Stocks have since recovered all those losses as data on hiring and housing bolstered confidence in the economic recovery.

Profit at companies listed on the S&P 500 rose 2 percent last quarter, down from a projection of 8.7 percent six months ago, according to analyst estimates compiled by Bloomberg.

“Many companies are lowering expectations before we get into the quarter on the hope that they beat them,” Michael Mullaney, chief investment officer for Fiduciary Trust Co. in Boston, said by telephone. His firm manages $9.5 billion. “We don’t know how much longer companies can get blood from the stone.”

Retail sales rose less than projected in June. The 0.4 percent gain followed a 0.5 percent increase in May that was less than previously reported, Commerce Department figures showed today. The median forecast of 82 economists surveyed by Bloomberg called for a 0.8 percent advance. Another report showed manufacturing in the New York region expanded in July at the fastest pace in five months as the area’s factory activity stabilized amid a slowdown in growth.

China’s gross domestic product rose 7.5 percent in the April-to-June quarter from a year earlier, according to the National Bureau of Statistics in Beijing. That equaled the median forecast in a Bloomberg News survey. The economy expanded at a 7.7 percent pace in the first quarter.

“The Chinese GDP data reassured investors that China will not derail the global growth recovery,” Stephane Ekolo, chief European strategist at Market Securities, wrote in an e-mail.

Citigroup rose 2 percent to $51.81. The third-biggest U.S. bank by assets posted adjusted earnings of $1.25 a share for the second quarter, beating the $1.18 average estimate of 27 analysts surveyed by Bloomberg News.

Chief Executive Officer Michael Corbat, 53, has fired thousands of workers and scaled back operations in some countries to cut costs since replacing Vikram Pandit, 56, in October. Citi Holdings, the unit created in 2009 as a home for the company’s unwanted assets after the financial crisis, posted its smallest loss ever.

Financial companies in the S&P 500 rose 0.4 percent as a group, while the KBW Bank Index added 0.6 percent to its highest level since October 2008.

Leap Wireless surged 112 percent to $16.95. AT&T, the second-biggest U.S. wireless carrier, lost 0.7 percent to $35.55. The deal adds pressure on smaller competitors such as Sprint Corp. and Dish Network Corp. to bulk up through mergers and acquisitions of their own.

Sprint rallied 4.2 percent to $6.72 and Dish jumped 3.1 percent to $44.45.

Smaller regional companies such as U.S. Cellular Corp. or NTelos Holdings Corp. also may become takeover bait, said Chetan Sharma, a wireless-industry analyst in Issaquah, Washington.

U.S. Cellular soared 8.3 percent to $38.77 and NTelos gained 6.1 percent to $17.81.

Boeing gained the most in the Dow, climbing 3.7 percent to $105.66 after the stock had its biggest drop in two years on July 12. U.K. regulators are still seeking the cause of last week’s fire on a Boeing Co. 787 parked at London’s Heathrow airport after saying they see no direct link to battery blazes that grounded the fleet earlier this year.

Tiffany & Co., the world’s second-largest jewelry retailer, added 3.6 percent to $79.78. Stifel Financial Corp. upgraded its recommendation on the shares to buy from hold, with a price target of $92.

Monster Beverage Corp. rose 1.6 percent to $60.80. Stifel said the maker of energy drinks is likely to beat second-quarter earnings estimates and raised the price target to $70 from $62.

All 11 members of an S&P index of homebuilders fell as the gauge slumped 3 percent. D.R. Horton Inc. dropped 4.6 percent to $21.72. PulteGroup Inc. sank 3.4 percent to $19.54. Lennar Corp. declined 4.1 percent to $35.55.

Wagers that U.S. stock volatility will decline have reached their highest level in almost two years as the Fed pledges to preserve stimulus and data from jobs to home sales show economic growth.

Put trading on the Chicago Board Options Exchange Volatility Index exceeded calls by 73 percent on July 11, the most since October 2011, according to data compiled by Bloomberg. The VIX, a gauge of S&P 500 option prices, dropped 0.4 percent to 13.79 today, extending its declines to an eighth day, the longest streak of consecutive losses in 21 months. The gauge is down 23 percent for the year.

“The government stands as a backstop to the marketplace, so there is no real fear about the downside,” Alan Salzbank, who helps oversee about $620 million in options and stocks as a managing partner at Gargoyle Asset Management LLC in Englewood, New Jersey, said by phone on July 12. “The VIX at this point is really in a tough spot, because when the government can’t control things any longer, the VIX will explode. But in the meantime, they’re keeping it bottled up by continuing with QE.”

Have a wonderful evening everyone.

Be magnificent!

When a man is deprived of the foundation that provides him everything,

his poverty loses its best virtue, simplicity, to become no more than disgraceful and sordid.

His wealth is no longer splendid, but becomes merely extravagant.

His appetites no longer remain within natural limits; they no longer have the one goal

of meeting the needs of his life; they become an end in themselves,

setting fire to his existence, and dancing madly by the light of the flames.

Rabindranath Tagore, 1861-1901

As ever,

Carolann

Lost time is never found again.

-Benjamin Franklin, 1706-1790

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