July 28, 2014 Newsletter

Dear Friends,

Tangents:

We sailed over to San Juan island on the weekend and on the way home yesterday we were accompanied by a huge pod of killer whales.  What a show they gave – jumping out of the water – it was amazing!   Ah-h-h summer!

Vincenzo Nibali won the Tour de France on Sunday, becoming the first Italian in 16 years to triumph in cycling’s greatest race by chiseling a lead over his main rivals a few seconds at a time and dominating them in the mountains.  The 29-year-old Sicilian, who called himself “a flag-bearer of anti-doping” during the race, finished in a bunch behind Marcel Kittel, who won the 21st stage in a sprint

Photos of the Day

Two elderly people sit on a bench as they look at a parascending during a sunny summer day in Nice, southeastern France. Eric Gaillard/Reuters

Two Perseid meteors (c. and lower l.) streak across the sky during the annual Perseid meteor shower above a forest on the outskirts of Madrid, in the early hours. Andres Kudacki/AP

Market Closes for July 28^th, 2014

International Markets

Bonds

Currencies

Commodities

Market Commentary:

Canada
By Eric Lam

July 28 (Bloomberg) — Canadian stocks fell, after closing last week at a record, as oil producers declined and investors awaited U.S. economic data that may signal slowing growth.

Athabasca Oil Corp. sank 7.4 percent as the oil sands producer said it is still working to close an asset sale with PetroChina Co. BlackBerry Ltd. lost 1.2 percent after Chief Executive Officer John Chen said he doesn’t have any acquisition offers on his desk as he works to turn around the company. Teck Resources Ltd. and First Quantum Minerals Ltd. added at least 0.7 percent as base metals prices advanced on industrial data showing improved demand outlook in China.

The Standard & Poor’s/TSX Composite Index fell 33.58 points, or 0.2 percent, to 15,421.46 at 10:52 a.m. in Toronto. The index closed at a record on July 25. The equity index trades at 21 times earnings, the highest level since 2010.

More than 70 companies in the S&P/TSX are scheduled to report earnings this week.

Athabasca Oil dropped 7.4 percent to C$6.37 to pace declines as oil producers retreated 0.7 percent as a group, the most in the S&P/TSX. Seven of 10 industries in the benchmark Canadian equity gauge fell on trading volume 24 percent lower than the 30-day average at this time of the day.

Athabasca has plunged 27 percent from a February high as the company works through a C$1.32 billion transaction with China’s state-owned PetroChina. The Calgary-based company is depending on the payment from PetroChina to fund drilling in its other projects.

NuVista Energy Ltd. lost 2.4 percent to C$10.85 and Bonavista Energy Corp. fell 1.7 percent to C$14.23 as crude in New York slipped for the fourth time in five days. Crude slid last week after government data showed gasoline stockpiles rose to a four-month high as demand declined.

BlackBerry retreated 1.2 percent to C$10.99 for a second day of losses. Chen is focused on turning the ailing business around independently and gave its chances of success as “better than 80/20” in a Bloomberg Television interview. The company’s stock has rallied 39 percent this year.

Teck Resources added 0.9 percent to C$25.60 and First Quantum Minerals increased 0.7 percent to C$26.38 as lead touched a 17-month high in London while aluminum advanced to extend a fourth weekly gain.

Profit at industrial companies in China rose 17.9 percent from a year earlier in June, more than double the previous month’s 8.9 percent increase, a sign growth is picking up in the country.

US
By Lu Wang

July 28 (Bloomberg) — U.S. stocks were little changed, after erasing an earlier loss, as merger activity and optimism over corporate earnings offset concern over crises abroad before a Federal Reserve policy decision.

Discount chain Family Dollar Stores Inc. soared 25 percent after Dollar Tree Inc. agreed to buy it for about $8.5 billion. Trulia Inc. jumped 15 percent as Zillow Inc. agreed to purchase the company in a $3.5 billion deal. Tyson Foods Inc. climbed 2.6 percent as it agreed to sell poultry businesses in Mexico and Brazil for $575 million. Cummins Inc. fell 3.2 percent to lead declines among industrial shares.

The Standard & Poor’s 500 Index added less than 0.1 percent to 1,978.91 at 4 p.m. in New York, erasing an earlier drop of as much as 0.6 percent. The Dow Jones Industrial Average rose 22.02 points, or 0.1 percent, to 16,982.59. More than 5.4 billion shares changed hands on U.S. exchanges, 5.7 percent below the three month average.

“The market has been very benign,” Sam Wardwell, an investment strategist at Pioneer Investments in Boston, said in a phone interview. His firm manages about $250 billion. “You got a little bit geopolitical fear out there. We’re still on track and as long as wars in the rest of the world don’t upset the upper card, the second half of this year continues to look like it’s going to be a gradually improving year.’

Mergers and acquisitions are booming amid low interest rates and growing corporate cash hoarding. More than $1.1 trillion worth of takeovers have been announced this year, exceeding the total of 2013, data compiled by Bloomberg show.

Quarterly profit growth is poised for the fastest increase in almost three years. Companies in the S&P 500 have reported an11 percent gain in second-quarter earnings, data compiled by Bloomberg show. Should the pace continue, the gain would exceed all periods since the third quarter of 2011.

Pfizer Inc., Reynolds American Inc. and American Express Co. are among some 150 S&P 500 companies reporting earnings this week. About 78 percent of U.S. companies that have posted results this season have beaten analysts’ estimates for profit, while 66 percent exceeded sales projections, according to data compiled by Bloomberg.

Stocks slumped earlier in the day as fewer Americans than forecast signed contracts to buy previously owned homes in June, a sign residential real estate is struggling to strengthen. An S&P index of homebuilder shares dropped 1.2 percent to the lowest level since April.

The S&P 500 recovered today after retreating 0.5 percent on July 25 and losing as much as 0.6 percent this morning. Not since the bull market began has buying dips been a surer way of making money.

Declines in the benchmark gauge for American equity are lasting an average of 1.5 days in 2014, the shortest since at least 2009, according to data compiled by Bloomberg. Starting last year, returns on days after the index fell have averaged 0.13 percent, the highest since they were 0.38 percent in 2009.

‘‘I wouldn’t say that we’re putting on our cowboy hats and saying this is an unstoppable bull, but you have a lot of factors going in the right direction,” Patricia Edwards, Seattle-based managing director of investments at the Private Client Reserve of U.S. Bank Wealth Management, said in a phone interview. “We’re seeing continued upward momentum in the economy. You’ve got the earnings that have been coming in fairly well, and you’ve got the mergers and acquisitions.”

Outside the U.S., international pressure mounted on Israel to end its three-week offensive in the Hamas-controlled Gaza Strip, with President Barack Obama and the United Nations Security Council demanding an immediate truce.

In Europe, President Vladimir Putin faces intensifying U.S. and European sanctions aimed at forcing him to help end the separatist war in neighboring Ukraine. The Obama administration said it had satellite photos showing Russia firing across the border at Ukraine forces.

The S&P 500 ended little changed last week as investors weighed corporate earnings. The gauge closed 0.5 percent below its all-time high of 1,987.98 reached July 24. The index has rallied 7.1 percent this year, as the economy shows signs of recovering from a 2.9 percent drop in the first quarter amid renewed pledges from the Fed to continue stimulus.

The U.S. central bank announces its next policy decision at the conclusion of a two-day meeting on July 30. Investors will get a reading on second-quarter growth that same day, while the government’s labor report on Aug. 1 may show employers added 231,000 jobs this month.

“It’s another big week of earnings, with the jobs report on Friday,” Michael James, a Los Angeles-based managing director of equity trading at Wedbush Securities Inc., said in an interview. “Sentiment in the short term is a little more cautious.”

The Fed’s Open Market Committee will scale back its monthly asset purchases to $25 billion from $35 billion on July 30, according to economists surveyed by Bloomberg, keeping it on pace to end the program late this year. The policy-making committee last month repeated it’s likely to “reduce the pace of asset purchases in further measured steps” and that it expects interest rates to stay low for a “considerable time” after the bond-buying ends.

Chair Janet Yellen and her fellow policy makers are debating how long to keep interest rates near zero as the U.S. labor market improves and inflation moves closer to the Fed’s 2 percent goal.

Three rounds of monetary stimulus from the Fed and better than-forecast corporate earnings have driven the S&P 500 up 192 percent from its March 2009 bottom. The S&P 500 is trading at 18.1 times earnings of its members, around the highest valuation for the gauge since 2010.

Goldman Sachs Group Inc. said in a report last week that equities are at risk of a temporary selloff, citing rising bond yields and high valuations for lowering its rating on stocks.

The Chicago Board Options Exchange Volatility Index, known as the VIX, fell 1 percent to 12.56, reversing an earlier rally of 7.5 percent.

Seven out of the 10 S&P 500 main groups advanced as utility companies gained 1.5 percent. Industrial and consumer-staples shares declined 0.5 percent.

Dollar Tree added 1.2 percent to $54.87. Family Dollar surged 25 percent to $75.74. The deal will create a sprawling discount chain with $18 billion in sales and more locations than any other retailer in the U.S. It also fulfills the ambitions of billionaire investors Carl Icahn and Nelson Peltz, who had acquired major stakes in Family Dollar and pushed for a sale.

Trulia soared 15 percent to $65.04. The all-stock deal positions a unified Zillow and Trulia to capture a larger share of digital real estate ads as more people shift house hunting onto the Web and property agents deploy more marketing dollars onto the Internet. Zillow gained 0.9 percent to $160.32.

Tyson Foods climbed 2.6 percent to $40.56. The largest U.S. meat producer will sell poultry businesses in Mexico and Brazil as it shrinks its foreign operations and focuses on the expansion of its prepared foods segment.

Cummins slipped 3.2 percent to $145.35 even after the maker of diesel engines raised its full-year revenue forecast. Expectations were “fairly high,” Jefferies Group LLC analysts including Stephen Volkmann wrote in a note.

AcelRx Pharmaceuticals Inc. plummeted 41 percent to $6.39. The pharmaceutical company said Zalviso, a pain treatment for adult hospital patients, failed to get approval from the Food and Drug Administration, which has requested additional information on the drug.

Have a wonderful evening everyone.

Be magnificent!

Nonviolence is not a cloistered virtue to be practiced

by the individual for peace and final salvation,

but it is a rule of conduct for society,

if it is to live consistently with human dignity

and make progress towards the attainment of peace

for which it has been yearning for ages past.

Mahatma Gandhi, 1869-1948

As ever,

Carolann

The way to get started is to quit talking and begin doing.

-Walt Disney, 1901-1966

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

Senior Vice-President &

Senior Investment Advisor

Queensbury Securities Inc.,

St. Andrew’s Square,

Suite 340A, 730 View St.,

Victoria, B.C. V8W 3Y7