July 30, 2012 Newsletter

Dear Friends,

Tangents:

Think before you answer

We now know why smart people make stupid mistakes.  Remember those geniuses who ran the global economy in the 1990s, and then ran it into the ground in 2007?  It seems that smart people take mental shortcuts.  They hear a question and assume, before the question is fully asked, they know the answer.

Consider this math problem posed by Richard West at James Madison University and Keith Stanovich at the University of Toronto, to a group of undergrads, and see if you get the answer right:  “In a lake, there is a patch of lily pads.  Every day, the patch doubles in size.  If it takes 48 days for the patch to cover the entire lake, how long does it take for the patch to cover half the lake?

For the answer, you should read the June 12 New Yorker blog post by Jonah Lehrer, or look below.

Answer: 47 days.

Other recently reported numbers:

38.8:  Percentage drop in median US family’s net worth between 2007 and 2010, the biggest drop since the Federal Reserve’s survey started.

1/5: Cut in prize money to be awarded to Nobel Prize winners, starting December, to $1.1 million.

60: percentage of recent high school grads not enrolled in college full time who live with parents, other relatives.,

Summer of the Bee: Get stories, videos, and ideas for supporting honeybees at www.wholefoodsmarket.com/sharethebuzz. Natural foods grocer Whole Foods is hoping to increase awareness of the plight of the honeybee with its summer initiative, Share the Buzz.

The moment one gives close attention to anything, even a blade of grass, it becomes a mysterious, awesome, indescribably magnificent world in itself. –  Henry Miller.

And on this day in…

1818 –Author Emily Bronte was born.

1848 – Sculptor Henry Moore was born.

1938 – George Eastman demonstrates his color motion picture process.
1940 – A bombing lull ends the first phase of the Battle of Britain.

1967 – General William Westmoreland claims that he is winning the war in Vietnam, but needs more men.

1975 – Jimmy Hoffa, Teamster leader disappears, last seen coming out of a Bloomfield Hills, Michigan restaurant.

Today at the Olympics July 30, 2012

Nico Delle-Karth and Nikolaus Resch of Austria sail in the first race of the 49er class in Weymouth and Portland, southern England.

Benoit Tessier/Reuters

Denis Mesples of France competes with his horse Oregon De La Vigne in the equestrian eventing cross-country stage in London.

Jae C. Hong/A

Britain’s Catherine, Duchess of Cambridge, and Britain’s Prince William, the Duke of Cambridge read a program as they watch the equestrian eventing cross country phase at the 2012 Summer Olympics, Monday.

David Goldman/AP

Market Closes for July 30, 2012:

North American Markets

International Markets

Bonds

Currencies

Commodities

Market Commentary:

Canada

By Eric Lam

July 30 (Bloomberg) — Canadian stocks declined, after swinging between gains and losses, as gold rose while oil snapped a four-day advance amid speculation that policy makers will act to solve Europe’s debt crisis.

Banks, consumer-discretionary and raw-materials shares contributed most to the decline in the Standard & Poor’s/TSX Composite Index among 10 industries, while telecommunications stocks gave it the biggest boost. Potash Corp. of Saskatchewan Inc., the world’s largest fertilizer company, fell 2 percent.

BCE Inc., Canada’s largest phone company, rose 0.3 percent.

The S&P/TSX declined 8.48 points, or 0.1 percent, to 11,757.88. The benchmark index fell as much as 0.4 percent and gained as much as 0.3 percent during the day. Trading was down 27 percent from the 30-day average. The S&P/TSX had advanced 2.6 percent in the previous three sessions.

“Gold is up and banks are off, but none of it feels very urgent in one direction or another,” Bruce Campbell, president with Campbell & Lee Investment Management Inc. in Oakville, Ontario, said in a phone interview.

Crude oil for September delivery fell 0.4 percent to settle at $89.78 a barrel on the New York Mercantile Exchange. Suncor Energy Inc., the nation’s largest oil company, slipped 1.6 percent to C$31.39.

Potash Corp. retreated 2 percent to C$44.98. Agrium Inc., Canada’s second-largest fertilizer company, fell 1.1 percent to C$96.26.

Toronto-Dominion Bank, Canada’s second-largest lender, slipped 0.6 percent to C$79.03. Manulife Financial Corp., Canada’s largest insurer, slipped 0.9 percent to C$10.70.

BCE advanced 0.3 percent to C$42.52.

Gold prices rose for a fourth day. Barrick Gold Corp., the world’s largest producer of the metal, advanced 1.9 percent to C$33.10.

European Central Bank President Mario Draghi, who sparked a global market rally last week by pledging to do whatever it takes to preserve the euro, is trying to build consensus among governments and central bankers for a plan to ease borrowing costs in Spain and Italy before policy makers convene on Aug. 2.

He is attempting to win over Bundesbank President Jens Weidmann, a critic of ECB bond purchases.

US

By Rita Nazareth

July 30 (Bloomberg) — U.S. stocks declined amid concern that a rally which gave the Standard & Poor’s 500 Index its biggest two-day gain in 2012 has outpaced the economic outlook.

JPMorgan Chase & Co. retreated 2 percent after Deutsche Bank AG lowered its recommendation for the shares. Loews Corp.

slumped 5.2 percent as Chief Executive Officer James Tisch said he’s “very concerned” about the global economy after profit fell for a third-straight quarter. A measure of homebuilders in S&P indexes dropped 2 percent as Citigroup Inc. said the industry’s shares may decline after this year’s surge.

Three stocks fell for every two that rose on U.S. exchanges at 4 p.m. New York time. The S&P 500 declined 0.1 percent to 1,385.30, after rallying 3.6 percent in two days. The Dow Jones Industrial Average slid 2.65 points, or less than 0.1 percent, to 13,073.01. Volume for exchange-listed stocks in the U.S. was 5.8 billion shares, or 14 percent below the three-month average.

“You have the jobs report on Friday, the Fed meeting before that and that’s getting people a little nervous,” said Keith Wirtz, who oversees $14.7 billion as chief investment officer for Fifth Third Asset Management in Cincinnati. “You’ve got concerns about a weakening economy and slowing earnings. It’s a terribly difficult trading environment.”

Stocks declined ahead of an Aug. 3 report that may show the pace of hiring in July failed to reduce the U.S. jobless rate, which has been stuck above 8 percent for more than three years.

Policy makers meeting this week are looking for new monetary tools after the Federal Reserve lowered its benchmark interest rate to near zero in December 2008 and purchased $2.3 trillion of securities to spur the economy.

American equities fell even as European stocks rallied to their highest level since April on speculation policy makers will take action to ease the debt crisis. U.S. Treasury Secretary Timothy F. Geithner and German Finance Minister Wolfgang Schaeuble backed a commitment by European leaders to do everything needed to defend the euro area while failing to mention its weakest link, Greece.

“Policy makers are saying: hey, we have another card to play,” said Ann Miletti, fund manager for Wells Fargo Advantage Funds in Menomonee Falls, Wisconsin. Her firm manages $201 billion. “It’s a positive to have indications out of Europe that they are willing to do things that the market feared they weren’t willing to do before, such as buying bonds.”

JPMorgan lost 2 percent, the most in the Dow, to $36.14.

The shares were cut to hold from buy at Deutsche Bank, which said earnings expectations may be too high.

Loews slumped 5.2 percent, the biggest decline since Aug.10, to $39.54. It has been pursuing growth at subsidiaries that sell insurance, manage hotels and produce energy. Second-quarter profit fell 78 percent to $56 million as the company took an impairment at its HighMount Exploration & Production LLC tied to lower natural gas prices.

Nine out of the 11 stocks in a measure of homebuilders in S&P indexes retreated. The gauge had surged 51 percent this year through July 27. PulteGroup Inc., the largest U.S. homebuilder by revenue, declined 3.4 percent to $11.60 after Citigroup downgraded the stock to neutral from buy.

Solar companies slumped on concern an oversupply of panels and reduced subsidies in Europe will erode revenue. Trina Solar Ltd. sank 11 percent to $4.84 after cutting its forecast for second-quarter shipments. Suntech Power Holdings Co. tumbled 15 percent to $1.34 after the world’s largest solar-panel maker said it may have been the victim of fraud.

Progenics Pharmaceuticals Inc. plunged 50 percent, the most since 2008, to $5.39. The company failed to gain U.S. approval to expand use of its constipation medicine Relistor licensed to Salix Pharmaceuticals Ltd. Salix decreased 13 percent to $46.25.

Best Buy Co. rose 1.7 percent to $18.06. Founder Richard Schulze is recruiting executives to help lead the retailer if his attempt to take the company private is successful, according to a senior Best Buy executive.

Shaw Group Inc. surged 55 percent to $41.49. Chicago Bridge & Iron Co. agreed to buy the company for about $3 billion, expanding its nuclear building services in a portfolio of energy-related engineering and construction projects. Chicago Bridge lost 14 percent to $34.94.

Roper Industries Inc. rose 1.1 percent to $99.64 after agreeing to buy Sunquest Information Systems Inc. for about $1.42 billion to add health-care diagnostic systems that bridge its software and medical businesses.

Franklin Resources Inc. rallied 2.8 percent to $115.39. The manager of the Franklin and Templeton mutual funds beat analysts’ estimates after gathering money into its funds amid sagging global markets.

Supervalu Inc. surged 13 percent to $2.24. The supermarket chain that said earlier this month it will review strategic alternatives named board member Wayne C. Sales chief executive officer to replace Craig Herkert. The third-largest U.S. grocery chain increased the interest rate and price discount on an $850 million term loan it’s seeking to refinance debt, according to a person with knowledge of the matter.

TRW Automotive Holdings Corp. climbed 5.5 percent to $36.42. The world’s biggest vehicle-safety equipment supplier agreed to pay a $5.1 million fine to settle an antitrust investigation by the U.S. Department of Justice.

AT&T Inc. added 0.8 percent $37.43. The biggest U.S. telephone company said July 27 its board authorized a repurchase of as much as $11.1 billion in stock, doubling a buyback program the company announced in December 2010.

The Chicago Board Options Exchange Volatility Index has fallen to the lowest daily average in five years, pushed down amid optimism that policy makers will support growth and prevent Europe’s debt crisis from derailing the global recovery.

The VIX’s mean rate of 18.9 in 2012 compares with 24.2 last year and is the lowest since 17.5 in 2007, according to data compiled by Bloomberg. The benchmark gauge for options that protect against losses in the S&P 500 has held below 20.7, its two-decade average, 77 percent of the time in 2012.

Demand for options linked to the S&P 500 has fallen after the index rallied 6.2 percent during the past 12 months, the most among the world’s 10 largest developed stock markets.

“Investors aren’t paying for volatility because they believe that government intervention will put a floor on stock prices,” Sean Heron, who manages options strategies at Glenmede Trust Co., said in a phone interview last week. The Philadelphia-based firm oversees about $21 billion. “The fear of a big down market has been diminished.”

Have a wonderful evening everyone.

Be magnificent!

We gave at the present moment everybody claiming the right of conscience

without going through any discipline whatsoever

that there is so much untruth being delivered to a bewildered world.

Truth is not to be found by anybody who has not got a sense of humility.

If you would swim on the bosom of this ocean of Truth

you reduce yourself to a zero.

Mahatma Gandhi, 1869-1948

As ever,

Carolann

Efforts and courage are not enough without

purpose and direction.

-John F. Kennedy, 1917-1963

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