June 19, 2014 Newsletter

Dear Friends,

Tangents:

I will be writing the newsletter on Carolann’s behalf, as she is out of town.

Photos of the day

Tibetans on horseback throw praying papers as they gather for a traditional festival called ‘Wei Sang,’ in Hongyuan county, Sichuan province, China.

A vendor walks down the stairs as fans watch the 2014 World Cup Group C soccer match between Ivory Coast and Colombia at the national stadium in Brasilia, Brazil

Market Closes for June 19^th, 2014

International Markets

Bonds

Currencies

Commodities

Market Commentary:

Canada

By Eric Lam

June 19 (Bloomberg) — Canadian stocks have rallied to a record amid a resurgence in energy producers and gold mining shares, delivering investors the second-best returns among the world’s largest markets this year.

About $1.5 trillion in value has been restored to Canadian equities since March 2009, with the Standard & Poor’s/TSX Composite Index gaining 100 percent. The S&P/TSX Composite closed yesterday at 15,109.25, topping the previous high of 15,073.13 reached six years earlier on June 18, 2008. It is up 11 percent this year, trailing only the 19 percent advance in India’s S&P BSE Sensex among the world’s 10 biggest markets.

The Canadian government’s June 17 approval of Enbridge Inc.’s Northern Gateway pipeline to British Columbia’s Pacific coast will potentially open up new markets for oil producers. As well, sectarian violence in Iraq, escalating tensions between Ukraine and Russia and the harshest North American winter in three decades have fueled concerns about energy supply and boosted oil and natural gas prices this year.

“It’s about time, is what I would say,” Barry Schwartz, fund manager at Baskin Financial Services Inc. in Toronto, said in a phone interview. His firm manages about C$700 million ($646 million). “It’s the resource stocks that had been sliced in half and are finally waking up.”

The S&P/TSX rose 2.56 points, or less than 0.1 percent, to 15,111.76 at 9:40 a.m. in Toronto, extending the record with a sixth day of gains. Raw-materials producers plunged 49 percent in the previous three years for the worst performance among 10 industries in the S&P/TSX. Energy stocks lost 7.1 percent in that time as the price spread between local Western Canadian Select oil widened to record levels against global benchmarks, hurting profits for local producers.

Oil producers and mining companies have since rallied 20 percent and 13 percent this year respectively, the top two performers in the S&P/TSX. Detour Gold Corp., the worst stock in 2013 as gold slumped the most in more than 30 years, has rebounded this year with a 239 percent advance. Gold prices have risen 6.4 percent in 2014.

Natural gas producers Birchcliff Energy Ltd. and Crew Energy Inc. have jumped more than 77 percent this year after frigid weather stoked demand for gas to heat homes and businesses in the Northeast and Midwest. Natural gas futures have surged 44 percent since Aug. 9.

A year after U.S. stocks surged to a record, Canada has caught up. Foreign investors are pouring cash into equities and the weakening Canadian dollar is helping earnings for exporters, such as New Gold Inc. and Osisko Mining Corp.

“The comeback has taken longer due to our exposure to resources,” said Gareth Watson, vice president of investment management and research at Richardson GMP Ltd. in an interview. His firm manages C$28 billion.

The Canadian benchmark took more than 63 months to climb from its March 2009 low and surpass its pre-crisis high. The S&P 500 Index achieved the same feat in less than 49 months.

Shares of Valeant Pharmaceuticals International Inc., the Laval, Quebec-based drugmaker, have soared almost 900 percent since 2009 amid an acquisition spree including an $8.7 billion purchase of eye-care firm Bausch & Lomb Inc. and its continued $54.2 billion hostile pursuit of rival Allergan Inc.

Canadian stocks aren’t likely to rise much further because the global economy isn’t strong enough to drive commodity prices higher, according to Sadiq Adatia, chief investment officer at Sun Life Global Investments Inc. The World Bank cut its global growth forecast earlier this month amid weaker outlooks for the U.S., Russia and China.

“The TSX will have a hard time keeping its gains as the fundamentals in Canada are not strong,” Adatia said in a phone interview. His firm manages C$8.1 billion. “Because they have such high levels of debt, the Canadian consumer can’t sustain the economy.” Canadian household debt levels climbed to a record 164.2 percent of disposable income in the third quarter last year, according to data from Statistics Canada. Valuations are at a three-year high, with the benchmark equity gauge trading at a price-to-earnings ratio of 20.2, according to data compiled by Bloomberg.

The S&P/TSX has risen almost twice as much as the S&P 500 this year, helping attract international investors looking for better returns. Foreigners bought C$3.64 billion in shares during April, an eighth month of purchases and the most since November, according to data from Statistics Canada. Earnings are forecast to continue improving. Per-share profit for companies in the S&P/TSX will probably rise 26 percent in 2014, according to analyst estimates compiled by Bloomberg.

Profits are being helped by declines in the Canadian dollar, which are making domestic goods cheaper compared with competition from abroad. The currency has fallen 2 percent this year against the U.S. dollar, reaching the lowest level since 2009 in March.

New Gold, Osisko Mining and oil producer Canadian Natural Resources Ltd. cited the exchange rate for reducing costs or boosting profit in the first quarter. The Canadian economy will expand 2.2 percent this year and 2.5 percent in each of the following two years, economists predict. Those would be the strongest growth rates since 2011.

“As long as the economy is rising, earnings go higher, it’s a fertile environment for increasing stock prices,” said Schwartz at Baskin Financial. “There seems to be in our minds no end to this rally in sight.”

USA

By Jacob Barach and Jeremy Herron

June 19 (Bloomberg) — Gold rose the most since September as the dollar weakened, while global stocks advanced to a record after the Federal Reserve said rates will remain low as the economy grows. Emerging-market currencies climbed.

Gold futures rallied 3.3 percent and the Bloomberg Dollar Spot Index dropped to its lowest level in almost a month. The Standard & Poor’s 500 Index gained 0.1 percent to extend an all- time high at 4 p.m. in New York, and the MSCI All-Country World Index climbed 0.5 percent. Ten-year Treasury yields added four basis points to 2.63 percent after plunging yesterday. Brent crude rose to a nine-month high.

Fed Chair Janet Yellen said yesterday she expects rates to stay low for a “considerable time” after monthly bond purchases end. Policy makers reduced long-term estimates for growth and interest rates, while also cutting purchases by $10 billion. Reports today showed signs of steady progress in the U.S. labor market and improving consumer confidence. President Barack Obama said he’s sending as many as 300 U.S. military advisers to assist the Iraqi army battle an insurgency.

“People perceived what Yellen said yesterday as less hawkish, and that’s bringing in money to the gold market,” Scott Gardner, who helps manage $450 million at Verdmont Capital SA in Panama City, said in a telephone interview. “The dollar is moving lower, and gold is gaining because of that.”

Gold futures for August delivery rose 3.3 percent to settle at $1,314.10 in New York. Last year, gold fell 28 percent after some investors lost faith in the precious metal as a store of value amid an equity rally and muted inflation. Silver surged to a 13-week high. Yellen told reporters at the end of a two-day meeting in Washington yesterday that accommodative monetary policy, rising home and equity prices and the improving global economy should help stoke above-trend growth in the U.S. Yellen emphasized the need to put more Americans back to work and downplayed concerns about asset-price bubbles and incipient inflation.

The Conference Board’s U.S. leading economic indicators gauge, a measure of the outlook for the next three to six months, increased 0.5 percent in May after a 0.3 percent gain in April, the New York-based group said today.

Other reports todays showed fewer Americans filed applications for unemployment insurance payments last week and consumer confidence improved.

The MSCI All-Country World Index, one of the broadest measures of global equities, added 0.5 percent to a record. The Stoxx Europe 600 Index rose 0.6 percent as all 19 industry groups in the regional benchmark advanced. The MSCI AC Asia Pacific Index added 1.2 percent.

Among stocks moving in the U.S. today, BlackBerry Ltd. jumped 9.7 percent after reporting a narrower loss than analysts had projected. Red Hat Inc. advanced 2.9 percent after increasing its annual revenue forecast. Starbucks Corp. climbed 2.2 percent after UBS AG boosted its rating on the world’s largest coffee-shop chain.

“People are really taking a more constructive view to see what happens with the market here going forward,” Bill Schultz, who oversees $1.2 billion as chief investment officer at McQueen, Ball & Associates in Bethlehem, Pennsylvania, said by phone. “I think you have to see if the trend continues.”

The Chicago Board Options Exchange Volatility Index, the gauge of S&P 500 options prices known as the VIX, fell yesterday to the lowest since February 2007. It was little changed today at 10.66.

Commodities rallied for a sixth day, with the S&P GSCI gauge of 24 raw materials climbing 0.7 percent to the highest since August. Zinc for delivery in three months climbed 0.8 percent to the highest level in almost 16 months in London on concern production will fail to keep up with demand amid supply curbs and shrinking inventories. Aluminum and lead rose.

Crude advanced after a government report showed U.S. inventories shrank and amid concern that violence in Iraq will disrupt supplies.

Iraqi security forces expelled the rebel Islamic State in Iraq and the Levant, an al-Qaeda breakaway, from the Baiji refinery after overnight fighting, according to a police command statement. Exxon Mobil Corp. and BP Plc began removing employees from the country. Brent’s premium over WTI increased for a fourth day.

U.S. equities briefly extended losses today after Obama said he is prepared to take additional “targeted, precise” action in Iraq if necessary. The S&P 500 fell 0.7 percent last week as violence in Iraq pushed oil prices higher.

“The market is digesting the information regarding the Federal Reserve,” Chad Morganlander, a money manager at St. Louis-based Stifel, Nicolaus & Co., which oversees about $160 billion in assets, said by phone. “We think this is a seriously dovish statement from the Federal Reserve and that the Fed is willing to accept inflation well above 2 percent before any action will be taken. The overall broader markets are sniffing that out.”

Currencies jumped versus the dollar as a slump in foreign- exchange volatility to a record boosted demand for higher- yielding assets. The Philippine peso, Malaysian ringgit and Indonesian rupiah gained at least 0.5 percent versus the U.S. currency.

JPMorgan Chase & Co.’s Global FX Volatility Index fell to 5.57 percent, the least since Bloomberg started collecting the data in 1992, helping fuel demand for carry trades, where investors seek to profit from differences in interest rates.  The euro gained 0.1 percent $1.36036, after climbing 0.4 percent yesterday. The dollar was little changed versus the yen.

Spain’s 10-year rate tumbled four basis points to 2.72.

Australia’s 10-year yield declined eight basis points to 3.67 percent after earlier sliding to 3.64 percent, the lowest since May 29. Germany’s 10-year bund yield fell five basis points to 1.32 percent after sliding to 1.30 percent on May 16, the least in more than a year.

The search for yield amid low borrowing costs could sow the seeds of a new crisis, the two newest members of the Bank of England’s Monetary Policy Committee said yesterday. Spain can borrow for 10 years at the same rate as Britain, said Kristin Forbes a professor at the Massachusetts Institute of Technology who will join the MPC next month.

Have a wonderful evening everyone.

Be magnificent!

“Be Brave enough to live creatively.  The creative place where no one else has ever been.” – Alan Alda

As ever,

Brianna

“Unrest of spirit is a mark of life.” – Karl Menninger

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