July 17, 2013 Newsletter

Dear Friends,

Tangents:

I read an amazing story today reported by correspondent Liz Fuller-Wright about an ancient forest that was recently discovered off the coast of Alabama, sixty feet underwater, 10 miles from shore, which has been buried for tens of thousands of years.  She writes, “While most of the once-majestic trees are gone, sonar data has found between 50 and 100 stumps, as well as an unknown number of logs.  The forest itself has been dead at least 50,000 years, say scientists at the Lawrence Livermore Laboratory in California who dated samples from the trees by looking for carbon-14, a radio-active isotope that is found in every living organism but that steadily decays after the organism dies.  The scientists had expected to find that the trees were about 12,000 years old – the age of the last big ice age, when sea levels were low – so they were surprised to find that the trees had no carbon-14 at all, which puts them older than 50,000 years.

Another surprise: The wood still seemed fresh.   Ben Raines, one of the first scuba divers to explore the site, tweeted a picture showing the sap-rich wood:

BEN RAINES/AI.COM/AP

TREE REMAINS: Fish swim past a stump that remains from an ancient forest found in the Gulf waters 10 miles off the coast of Mobile, Ala.

As the story goes, a fisherman went out to sea shortly  after hurricane Katrina scoured the Gulf Coast.  He found an unusual run of red snapper, and after fishing it for several days, he asked a scuba-diving friend to check out what could be causing the usually flat and boring seafloor to teem with life.  ‘It’s a forest,’  the diver reported.

The underwater forest remained a closely guarded secret until Raines tracked down the rumors and headed out with a camera.  His photos reveal that new life has sprung up from these long-dead trees.  [Dr. Grant] Harley [from the University of Southern Mississippi] and paleoclimatologist Kristina DeLong, the Louisiana State University research scientist who prepared the samples for carbon dating, are eager to get back to the forest and gather more samples, in hopes of piecing together a picture of the ancient forest.

They’re just waiting for the jet stream to warm and calm the waters of the Gulf, which should happen by late summer.  They don’t want to wait any longer than that – another hurricane could sweep into the area and rebury the site at any time.”

On this day, July 17^th, in 1959, Mary Leakey found a rare hominid skull in Africa believed to be a human ancestor.  The artifact leads to new theories about the origins of civilization.

Photos of the Day –July 17th, 2013

A monkey plays in a pond surrounded by carp at a wildlife park in Hefei, Anhui province, July 16, 2013. Reuters

German electronic band Kraftwerk performs with a 3D stage set during the 47th Montreux Jazz Festival in Montreux, Switzerland. Denis Balibouse/Reuters

Market Closes for July 17^th, 2013

International Markets

Bonds

Currencies

Commodities

Market Commentary:

Canada

By Katie Brennan and Eric Lam

July 17 (Bloomberg) — Canadian stocks rose to the highest in six weeks after lenders rallied as the central bank raised its 2013 growth forecast and investors analyzed testimony from U.S. Federal Reserve Chairman Ben S. Bernanke.

Royal Bank of Canada, the nation’s largest lender, climbed to a seven-week high. Pengrowth Energy Corp. surged 8.3 percent as at least two analysts upgraded the company. Cineplex Inc. advanced to a record high after offering to acquire a digital signage company. B2Gold Corp. and Torex Gold Resources Inc. sank at least 7.8 percent as the price of gold slumped.

The Standard & Poor’s/TSX Composite Index rose 51.88 points, or 0.4 percent, to 12,568.77 at 4 p.m. in Toronto, the highest close since June 4. Trading was 5.6 percent lower than the 30-day average.

“The banks are up off of U.S. banks, like Goldman Sachs, whose results so far are pretty good,” said John Goldsmith, deputy head of equities with Montrusco Bolton Investments in Toronto. The firm manages about C$5.6 billion. “Until the end of the month when Canada earnestly kicks off its earnings season, a lot of it will be led by earnings from the States.”

The Fed’s Bernanke said in prepared testimony to Congress this morning that the central bank’s asset purchases “are by no means on a preset course” and could be either reduced or expanded as conditions warrant.

Bank of Canada Governor Stephen Poloz kept his main interest rate unchanged at 1 percent in his first policy decision since taking over the job in June. He said there will be a “gradual normalization” of borrowing costs over time as slack in the economy disappears and inflation picks up.

The central bank raised its economic growth forecast for this year to 1.8 percent from an April prediction of 1.5 percent, while lowering the 2014 prediction to 2.7 percent from 2.8 percent.

Poloz is counting on exports and business investment to accelerate growth in the world’s 11th largest economy. Expansion has been slowed by weak foreign demand, leading to the longest streak of trade deficits in a quarter century.

More than 60 Canadian companies on the TSX are scheduled to report second-quarter earnings in the next two weeks. Bank of America Corp. beat analysts estimates today, posting a 63 percent gain in second-quarter profit. Goldman Sachs Group Inc. said yesterday it doubled its earnings, beating forecasts.

Eight of 10 groups in the S&P/TSX advanced, with financial stocks rising 1 percent as a group.

Royal Bank added 2 percent to C$63.80, the highest close since May 29. Bank of Nova Scotia gained 1.6 percent to C$58.04 and Canadian Imperial Bank of Commerce added 1.5 percent to C$77.12.

Pengrowth Energy surged 8.3 percent to C$5.88, the biggest gain since March 2009, after the oil producer said yesterday it has agreed to sell C$700 million of non-core assets that will be used to fund the first phase of its Lindbergh oil-sands project.

Jeremy Kaliel, analyst with CIBC World Markets, and Jonathan Fleming, analyst with Cormark Securities Inc., each raised their ratings for the stock.

Cineplex, Canada’s largest movie theater chain, added 1.4 percent to C$38.22, the highest close since its initial offering in 2003. The Toronto-based company said today it has offered to acquire London, Ontario-based EK3 Technologies Inc. for an initial price of C$40 million. That figure could rise to C$78 million if certain operating targets are achieved in 2015.

Torex Gold retreated 7.8 percent to C$1.30 and B2Gold lost 7.9 percent to C$2.55 as gold futures for December delivery fell 1 percent to settle at $1,278.80, the biggest loss since July 5.

US

By Alex Barinka and Nikolaj Gammeltoft

July 17 (Bloomberg) — U.S. stocks rose, after the Standard & Poor’s 500 Index snapped an eight-day rally yesterday, as Federal Reserve Chairman Ben S. Bernanke said the central bank’s asset purchases are not on a preset course.

Bank of America Corp. and Bank of New York Mellon Corp. gained more than 1.9 percent after earnings topped forecasts.

Yahoo! Inc. advanced 10 percent as its profit beat estimates.

American Express Co. retreated 1.9 percent after analysts said a European Union proposal would cut profits. Caterpillar Inc. dropped 1.7 percent after short seller Jim Chanos said the company is being hurt by a slowdown in commodities demand.

The S&P 500 rose 0.3 percent to 1,680.91 at 4 p.m. in New York, after falling from a record high yesterday. The Dow Jones Industrial Average climbed 18.67 points, or 0.1 percent, to 15,470.52 today. Almost 5.7 billion shares traded hands on U.S. exchanges today, or 12 percent below the three-month average.

“The market is responding to the fact that the Fed is not going to create an arbitrary definition of when and how the QE program is going to end,” Stephen Wood, the New York-based chief market strategist who helps oversee about $174 billion at Russell Investments, said by phone. “They want to maintain flexibility in their policies.”

Bernanke said the central bank’s bond purchases, or quantitative easing, “are by no means on a preset course” and could be reduced more quickly or expanded as economic conditions warrant.

“We’re going to be responding to the data,” Bernanke said today to the House Financial Services Committee. “If the data are stronger than we expect, we’ll move more quickly” to reduce purchases. If data “don’t meet the kinds of expectations we have about where the economy’s going, then we would delay that process or potentially increase purchases for a time.”

Central bank stimulus has helped fuel a surge in stocks worldwide, with the benchmark U.S. index jumping 148 percent from its March 2009 low. Fed policy makers have been debating the timing and pace of any cuts in the central bank’s $85 billion in monthly bond purchases. Bernanke has said any reduction will be tied to sustained improvement in the labor market or an increase in inflation.

The U.S. economy maintained a “modest to moderate pace” of growth in recent weeks, the Fed said today in its Beige Book business survey.

“Residential real estate and construction activity increased at a moderate to strong pace in all reporting districts,” the Fed said in the survey, which is based on anecdotal reports from its 12 regional banks. “Manufacturing expanded in most districts since the previous report.”

Data today showed U.S. housing starts unexpectedly fell in June to the lowest level in almost a year. Work began on 836,000 houses at an annualized rate last month, the least since August 2012 and down 9.9 percent from a revised 928,000 pace in May, figures from the Commerce Department showed today in Washington.

The Chicago Board Options Exchange Volatility Index, which measures the cost of protecting against swings on the S&P 500, dropped 4.4 percent to 13.78. The equity volatility gauge, which moves in the opposite direction as the S&P 500 about 80 percent of the time, reached a six-month high on June 20 and has fallen 33 percent since.

Nine out of 10 industries in the S&P 500 advanced, with phone, raw-material and financial companies increasing more than 0.5 percent.

Some 21 companies, including EBay Inc. and International Business Machines Corp., were due to release results today. Per- share earnings topped estimates at about 71 percent of S&P 500 members that have reported for the quarter so far, data compiled by Bloomberg show.

IBM rose 1.7 percent at 5:25 p.m. New York time, as the computer-services company topped earnings estimates and raised its full-year forecast after the end of regular trading. Among other companies reporting after the market close, eBay tumbled 6.3 percent and Intel Corp. slid 3.4 percent as their revenue forecasts fell short of estimates.

Bank of America added 2.8 percent to $14.31 during regular trading. The second-biggest U.S. lender beat analysts’ estimates by posting a 63 percent gain in profit that was driven by lower provisions for bad credit and a drop in expenses.

Bank of New York Mellon climbed 1.9 percent to $30.92. The world’s largest custody bank said profit rose 79 percent as the stock-market rally boosted assets and fees for overseeing them.

Yahoo rose 10 percent to $29.66, the highest level since February 2008. The company reported second-quarter earnings of 35 cents a share, beating analysts’ estimates. The company made $225 million in earnings in the quarter from its equity interest in both Alibaba Group Holding Ltd. and Yahoo Japan Corp., up from $180 million in the same period last year.

DuPont Co. jumped 5.3 percent, the most in the Dow, to $57.25 after the New York Times’s Andrew Ross Sorkin said Trian Fund Management LP’s Nelson Peltz amassed a “very big” stake in the largest U.S. chemicals company by market value. Sorkin spoke at the CNBC Institutional Investor Delivering Alpha Conference in New York.

Anne Tarbell, a spokeswoman for Trian, declined to comment on DuPont. Michael Hanretta, a spokesman for Wilmington, Delaware-based DuPont, didn’t immediately return a call seeking comment.

An index of U.S. airlines rose 3.7 percent to the highest since 2007 after Morgan Stanley said it expects “more beats than misses” for carriers’ second-quarter earnings. All 10 members in the index advanced.

United Continental Holdings Inc., the world’s largest carrier by passenger traffic, surged 8.1 percent to $33.69, climbing above its average price for the past 50 days. Delta Air Lines Inc. soared 3.3 percent to $19.92, the highest since November 2007.

St. Jude Medical Inc. advanced 5.2 percent to $51. The Minnesota-based maker of heart-rhythm devices surged after second-quarter revenue fell less than analysts had estimated.

U.S. Bancorp, the nation’s largest regional lender, fell 1.4 percent to $36.74 after the firm said it expects mortgage revenue to continue to decline this year. Second-quarter net income climbed 4.9 percent to $1.48 billion, or 76 cents per share, matching the average estimate of 34 analysts.

American Express slipped 1.9 percent to $76.80. The European Commission will propose that interchange fees paid by retailers on card transactions should be capped at 0.2 percent for debit card payments and 0.3 percent for credit cards, according to draft plans obtained by Bloomberg.

The proposal would reduce New York-based American Express’s earnings-per-share by about 3.7 percent because the company gets 11 percent of its business from Europe, Morgan Stanley analysts said in a research note. Credit Suisse analysts said the plan would hurt American Express more than MasterCard Inc. or Visa Inc., which have already agreed to provisionally cap some fees.

American Express reported earnings after the close of regular trading, beating analyst estimates.

Mattel Inc., the largest U.S. toymaker, fell 6.8 percent to $43.16. Second-quarter profit fell short of analyst forecasts, as declining demand for the aging Barbie doll line and increased costs to expand the American Girl chain hurt results. Hasbro Inc. fell 2.4 percent to $46.03.

McDonald’s Corp. slid 0.8 percent to $100.10. Janney Montgomery Scott LLC downgraded the world’s largest restaurant chain to neutral from a buy rating, with a 12-month price target of $105 a share.

Caterpillar dropped 1.7 percent to $86.67. The largest maker of construction and mining equipment “is tied to the wrong products at the wrong time in the cycle,” Chanos said today in a speech at the CNBC Institutional Investor Delivering Alpha Conference in New York.

Chanos, the president and founder of Kynikos Associates Ltd., said he’s shorting the stock and the company is “being aggressive with their acquisitional accounting.”

Jim Dugan, a spokesman for Caterpillar, declined to comment on Chanos’s statements.

American Tower Corp. fell 1.1 percent to $73.87 after short-seller Carson Block said the company is engaged in a “value-destroying investment binge” that will knock shares down 40 percent. Shares of the operator of cell-phone antennas have almost tripled since 2008.

The company has overstated the value of acquisitions in the U.S. and Brazil, and the shares are worth $44.57 a share, Block’s firm, Muddy Waters Research, wrote in a report published on its website today.

Matt Peterson, an American Tower spokesman, didn’t respond to messages seeking comment.

Have a wonderful evening everyone.

Be magnificent!

The spiritual can never be attained,

until the material has been extinguished.

Swami Vivekananda, 1863-1902

As ever,

Carolann

Press on.  Nothing in the world can take the place of persistence.  Talent will not: nothing is more common than unrewarded talent.  Education alone will not: the world is full of educated failures. Persistence alone is omnipotent.

-Calvin Coolidge, 1872-1933

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