July 8, 2014 Newsletter

Dear Friends,

Tangents:

From Fanny Burney’s Diary, at Weymouth, July 8^th, 1789:

The King [George III] bathes, and with great success;  a [bathing] machine follows the royal one into the sea, filled with fiddlers, who play “god Save the King”, as His Majesty takes his plunge! –from The Book of Days.

Photos of the Day

A woman faces the Mediterranean Sea as she sits on the Promenade des Anglais in Nice, southeastern France. Lionel Cironneau/AP

The pack of riders cycles on its way during the fourth stage of the Tour de France cycling race from Le Touquet-Paris-Plage to Lille, France.Jean-Paul Pelissier/Reuters

Market Closes for July 8^th , 2014

International Markets

Bonds

Currencies

Commodities

Market Commentary:

Canada

By Eric Lam

July 8 (Bloomberg) — Canadian stocks fell a second day, paring earlier losses, as Valeant Pharmaceuticals International Inc. extended a slide while phone and technology shares slumped.

TransGlobe Energy Corp. lost 1 percent after second-quarter production at one of its facilities was affected by pump failures. Air Canada sank 3.1 percent, extending a loss after WestJet Airlines Ltd. said yesterday it’ll start flying twin- aisle jets as early as next year. Valeant dropped 1.1 percent for a sixth day of losses. Telus Corp. lost 2.1 percent after the government moved to boost competition.

The Standard & Poor’s/TSX Composite Index fell 35.75 points, or 0.2 percent, to 15,137.18 at 4 p.m. in Toronto, paring earlier losses of as much as 1 percent. The benchmark Canadian equity gauge has fallen 0.5 percent in the past two days to trim its gain this year to 11 percent.

Eight of the 10 industries in the S&P/TSX fell on trading volume 29 percent higher than the 30-day average.

Phone stocks slid 1 percent as a group, dropping to the lowest level since March, after the government yesterday set aside additional airwaves for smaller wireless carriers in an attempt to create more competition in the country.

Telus retreated 2.1 percent to C$38.47 and BCE Inc. slipped 0.6 percent to C$47.92.

Energy shares slid 0.3 percent as a group, as Advantage Oil & Gas Ltd. retreated 3 percent to C$6.72 and Raging River Exploration Inc. slipped 1.1 percent to C$10.35.

Brent crude fell below $110 a barrel for the biggest drop in more than two months, reversing a rally that started when Islamist militants seized the northern Iraqi city of Mosul almost a month ago.

TransGlobe fell 1 percent to C$7.80 after reporting average production in the second quarter at its West Gharib facility in Egypt was 9,980 barrels a day due to faulty pumps.

Air Canada tumbled 3.1 percent to C$9.55, the biggest decline in two weeks. WestJet said yesterday it plans to fly wide-body jets on routes between Alberta and Hawaii beginning in late 2015, stepping up a challenge to Air Canada, the nation’s largest air carrier.

Valeant Pharmaceuticals lost 1.1 percent to C$130.43. The stock has slid 5.6 percent in the past six sessions. Valeant is trying to acquire Allergan Inc.

Datawind Inc. sank 7.8 percent to C$4.38, the worst- performing initial offering in Canada so far this year, according to data compiled by Bloomberg. Datawind is a Mississauga, Ontario-based company that sells budget-priced tablet devices in emerging markets. The company raised about C$30 million in its IPO.

US

By Joseph Ciolli

July 8 (Bloomberg) — U.S. shares extended a selloff today, with the Nasdaq Composite Index sliding the most in two months, as Raymond James & Associates said equities are vulnerable to losses and Citigroup Inc. cited investor concerns for a “severe” pullback.

Twitter Inc. and Pandora Media Inc., which trade at more than 150 times earnings, plunged at least 7 percent to pace a Dow Jones gauge of Internet shares to the biggest drop since May. The Nasdaq Biotechnology Index headed for its steepest two- day slide since April. Goldman Sachs Group Inc. and JPMorgan Chase & Co. sank more than 1.6 percent to lead bank shares lower. Alcoa Inc., the largest American aluminum producer, rose 1.3 percent in late trading after reporting earnings that topped estimates.

The Standard & Poor’s 500 Index lost 0.7 percent to 1,963.71 at 4 p.m. in New York. The Dow Jones Industrial Average fell 117.59 points, or 0.7 percent, to 16,906.62. The Russell 2000 Index sank 1.2 percent, while the Nasdaq Composite slid 1.4 percent, the most since May 6. About 6.4 billion shares changed hands on U.S. exchanges today, 7.3 percent above the three-month average.

“Many investors wonder if the ride is over,” Tobias Levkovich, chief U.S. equity strategist at Citigroup Inc., said in a report today. “As stock indices hit new highs, there are those that fear further gains, given defensive positioning, but more worry about buying in now just in time for a severe pullback.”

The Chicago Board Options Exchange Volatility Index, the measure known as VIX that tracks investors’ volatility expectations for the S&P 500, jumped 9.8 percent yesterday from a seven-year low. The index added 5.7 percent to 11.98 today, giving it the biggest two-day rally since April 11.

U.S. benchmark indexes ended last week at all-time highs, with the Dow topping 17,000 for the first time. The S&P 500 has not had a drop of 10 percent in more than two years. The gauge trades at a valuation of 18 times reported earnings, the highest since 2011 when it was in the middle of a 19 percent slide, its biggest during the current five-year bull market.

“I do think we are vulnerable to a 10 percent to 12 percent decline in the weeks ahead, albeit within the construct of a secular bull market that has years left to run,” Jeffrey Saut, chief investment strategist at Raymond James wrote in a post on the firm’s website.

The Russell 2000 tumbled 1.8 percent yesterday, the most since April 25. The index last week recovered nearly all its losses from a two-month selloff of Internet and small-cap shares, coming within a point of an all-time high. Gauges of Internet and biotechnology companies also had climbed back from their lows for the year, retracing more than half of their earlier losses.

Small-caps and Internet shares were the biggest victims of the market retreat earlier this year as investors dumped the biggest winners of the bull market amid concern valuations advanced too far. Investors resumed selling those industries this week after a rally drove valuations on the Nasdaq Composite to 35 times reported earnings, about double that of the S&P 500.

The Dow Jones Internet Composite Index sank 3 percent today, the most since May 6. The gauge had rallied 15 percent from a low on May 8 to erase its losses for the year before falling 4.3 percent in the past two days. The barometer surged 54 percent in 2013.

Twitter sank 7 percent to $37.41, while Pandora dropped 7.3 percent to $25.79. Both stocks had the biggest declines since May 6. Facebook Inc. and TripAdvisor Inc., which rallied more than 98 percent in 2013, lost at least 3.9 percent.

The Nasdaq Biotechnology index has fallen 4.6 percent in the past two days, the most since April 11. It had surged 23 percent since a low that month.

“There’s clearly some profit-taking in names that have done extremely well,” Peter Tuz, who helps manage more than $450 million as president of Chase Investment Counsel Corp. in Charlottesville, Virginia, said in a phone interview. “Some of the stocks have pretty lofty P/E ratios, so if anything does go awry with earnings or guidance, they could have bigger declines. It’s just a little bit of rebalancing, which isn’t atypical for the start of a new quarter.”

While data from employment to housing is indicating the world’s largest economy is recovering after the worst contraction in gross domestic product since 2009, International Monetary Fund Managing Director Christine Lagarde this week signaled a cut in the institution’s global expansion forecasts, saying investment is still weak and risks remain in the U.S.

The Federal Reserve will release minutes from its June meeting tomorrow. Policy makers trimmed bond purchases last month by $10 billion for the fifth consecutive time, saying economic growth is rebounding and the job market is improving.

Officials are debating the timing for the first increase in the main interest rate since 2006. Policy makers have kept their target for overnight lending between banks in a range of zero to 0.25 percent since December 2008.

Goldman Sachs yesterday joined banks including JPMorgan Chase & Co. and Bank of Tokyo-Mitsubishi UFJ Ltd. in bringing forward it estimates for Fed rate increases after data last week showed the economy added more workers than estimated in June.

In Europe, signs the economic recovery is losing momentum sent stocks lower for a third day. U.K. manufacturing unexpectedly slumped the most in 16 months in May and German exports contracted more than estimated, data showed today.

Alcoa rose 1.3 percent to $15.05 in late trading after unofficially kicking off earnings season. The company reported second-quarter earnings and sales that beat analysts’ expectations after an increase in the price of aluminum including regional delivery premiums.The stock finished the regular session 0.8 percent higher at $14.85.

Citigroup Inc., JPMorgan Chase, Goldman Sachs, Yahoo! Inc. and Johnson & Johnson are among companies reporting financial results in the next week.

Bank shares dropped 1.2 percent for the fourth-worst performance among 24 S&P 500 groups. Goldman Sachs retreated 1.7 percent to $164.91 and JPMorgan Chase lost 1.6 percent to $55.76. Both fell to one-month lows.

Profit for S&P 500 members probably climbed 5 percent in the three months through June, while sales rose 3 percent, according to analyst estimates compiled by Bloomberg. The forecasts are lower than they were at the beginning of April, when analysts projected earnings to rise 7.3 percent and sales to increase 3.7 percent.

Three rounds of monetary stimulus from the Fed and better- than-forecast corporate earnings have driven the S&P 500 up more than 190 percent from a low reached in March 2009.

“Equities are near all-time highs and the air will only get thinner,” said Heinz-Gerd Sonnenschein, a strategist at Deutsche Postbank AG in Bonn, Germany. “We need a strong results season now to support equities because investors will keep wondering when the Fed will hike rates and this can bring some nervousness to the market.”

Have  a wonderful evening everyone.

Be magnificent!

When there is space between you and the object you are observing

you well know there is no love, and without love, however hard you try to reform the world

or bring about a new social order or however much you talk about improvements,

you will only create agony.

So it is up to you.

Krishnamurti, 1895-1986

As ever,

Carolann

There are times when fear is good. It must keep its watchful place

at the heart’s controls.

–Aeschylus, 525 BC-456 BC.

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