June 2, 2014 Newsletter

Dear Friends,

Tangents:

Michael Bloomberg’s Commencement address at Harvard University, May 29^th:

Repressing free expression is a natural human weakness, and it is up to us to fight it at every turn.  Intolerance of ideas – whether liberal or conservative – is antithetical to individual rights and free societies, and  it is no less antithetical to great universities and first-rate scholarship.

There is an idea floating around college campuses – including here at Harvard – that scholars should be funded only if their work conforms to a particular view of justice.  There’s a  word for that idea: censorship.  And it is just a modern-day form of McCarthyism.

Think about the irony:  In the 1950s, the right wing was attempting to repress left wing ideas.  Today, on many college campuses, it is liberals trying to repress conservative ideas, even as conservative faculty members are at risk of becoming an endangered species.  And perhaps nowhere is that more true than here in the Ivy League.

In the 2012 presidential race, according to Federal Election Commission data, 96% of all campaign contributions from Ivy League faculty and employees went to Barack Obama.

Ninety-six percent.  There was more disagreement among the old Soviet Politburo than there is among Ivy League donors.

That statistic should give us pause – and I say that as someone who endorsed President Obama for re-election – because let me tell you, neither party has a monopoly on truth or God on its side.

When 96% of Ivy League donors prefer one candidate to another, you have to wonder whether students are being exposed to the diversity of views that a  great university should offer.

Diversity of gender, ethnicity and orientation is important.  But a university cannot be great if its faculty is politically homogenous.  In fact, the whole purpose of granting tenure to professors is to ensure that they feel free to conduct research on ideas that run afoul of university politics and societal norms.

When tenure was created, it mostly protected liberals whose ideas ran up against conservative norms.

Today, if tenure is going to continue to exist, it must also protect conservatives whose ideas run up against liberal norms.  Otherwise, university research – and the professors who conduct it – will lose credibility.

Great universities must not become predictably partisan.  And a liberal arts education must not be an education in the art of liberalism.

The role of universities is not to promote an ideology.  It is to provide scholars and students with a neutral forum for researching and debating issues- without tipping the scales in one direction, or repressing unpopular views.

Requiring scholars – and commencement speakers, for that matter – to conform to certain political standards undermines the whole purpose of a university.

This spring, it has been disturbing to see a number of college commencement speakers withdraw – or have their invitation rescinded – after protests form students and – to me, shockingly – from senior faculty and administrators who should know better,

It happened at Brandeis, Haverford, Rutgers, and Smith.  Last year, it happened at Swathmore and John Hopkins, I’m sorry to say.

In each case, liberals silenced a voice – and denied an honorary degree – to individuals they deemed politically objectionable.  That is an outrage and we must not let it continue.

If a university thinks twice before inviting a commencement speaker because of his or her politics, censorship and conformity – the mortal enemies of freedom – win out.

And sadly, it is not just commencement season when speakers are censored.

Last fall, when I was still in City Hall, our Police Commissioner was invited to deliver a lecture at another Ivy League institution – but he was unable to do so because students shouted him down.

Isn’t the purpose of a university to stir discussion, not silence it?  What were the students afraid of hearing?  Why did administrators not step in to prevent the mob from silencing speech?  And did anyone consider that it is morally and pedagogically wrong to deprive other students  the chance to hear speech?

…As a former chairman of John Hopkins, I strongly believe that a university’s obligation is not to teach students what to think but to teach students how to think.  And that requires listening to the other side, weighing arguments without prejudging them, and determining whether  the other side might actually make some fair points.

If the faculty fails to do this, then it is the responsibility of the administration and governing body to step in and make it a priority.  If they do not, if students  graduate  with ears and minds closed, the university has failed both the student and society.

Photos of the day

WWII veteran Jack W. Schlegel, 91, who parachuted near Sainte-Mere-Eglise on June 6,1944, with the 508th Parachute Infantry Division of the 82nd Airborne, poses with well-wishers as he visits the American War cemetery in Colleville-sur-Mer on the Normandy coast in France. World leaders will attend ceremonies in Normandy June 6, marking the 70th anniversary of the Allied beach landings on D-Day. Pascal Rossignol/Reuters

A couple stands near the installation Sombras del Bosque (Shadows of the Woods), made with deer antlers, by Mexican artist Fernando Gonzalez Gortazar at the Museum of Modern Art in Mexico City. Gonzalez Gortazar is an architect, sculptor and urban designer. He received the Henry Moore Prize in 1989. Claudia Daut/Reuters

Market Closes for June 2^nd, 2014

International Markets

Bonds

Currencies

Commodities

Market Commentary:

Canada
By Eric Lam

June 2 (Bloomberg) — Canadian stocks rose for a second day as commodities producers advanced after manufacturing expanded at the fastest pace this year in China.

Enerflex Ltd. jumped 7.9 percent after agreeing to acquire some units of Axip Energy Services LP for $430 million. Advantage Oil & Gas Ltd. and Legacy Oil & Gas Inc. added at least 3.2 percent to pace gains among energy stocks. HudBay Minerals Inc. and Teck Resources Ltd. rose more than 1.3 percent as copper advanced. Centerra Gold Inc. plunged 20 percent after threatening to halt its Kumtor gold mine in Kyrgyzstan if it doesn’t receive government approvals for its mine plan.

The Standard & Poor’s/TSX Composite Index rose 76.56 points, or 0.5 percent, to 14,680.72 at 4 p.m. in Toronto. The gauge fell 0.3 percent in May to snap a 10-month winning streak, the longest since 1983.

“Financials and energy have to be up for our market to be up, and I see that’s the story today,” said Ian Nakamoto, director of research at MacDougall MacDougall & MacTier Ltd. in Toronto. His firm manages about C$4.7 billion ($4.31 billion). “Companies with copper exposure are up. People are being selective in the commodities they are trading. The reaction is a bit muted as people are recognizing China’s going through an economic shift here with some less emphasis on infrastructure building.”

China’s Purchasing Managers’ Index climbed to 50.8 in May, the National Bureau of Statistics and China Federation of Logistics and Purchasing in Beijing reported yesterday. Analysts surveyed by Bloomberg News projected a 50.7 median estimate. April’s reading was 50.4.

HudBay Minerals advanced 2.2 percent to C$9.77 and Lundin Mining Corp. rose 3.9 percent to C$5.91. Copper advanced the most in three weeks in New York, rising 1.4 percent. Teck Resources, the largest diversified miner in Canada, added 1.4 percent to C$24.50. Labrador Iron Ore Royalty Corp. jumped 6.4 percent to C$29.88, the biggest increase since October 2011.

Rogers Communications Inc. rose 1.4 percent to C$44.60 and Telus Corp. added 1.4 percent to C$41.45 as telephone stocks increased 1.1 percent as a group, the second-biggest gain in the S&P/TSX with seven of 10 industries advancing. Trading volume was 6 percent lower than the 30-day average.

Enerflex soared 7.9 percent to C$17.62, the biggest increase since 2011, after agreeing to buy Axip’s international contract compression and processing business as well as its after-market business. The deal includes Axip’s gas treating facilities in Mexico, Argentina and Peru.

Advantage Oil & Gas jumped 3.2 percent to C$6.73 and Legacy Oil & Gas rose 3.5 percent to C$8.80 as the S&P/TSX Energy Index rallied 0.8 percent for a fourth day of gains.

Centerra Gold slumped 20 percent to C$3.70, the biggest decrease since October. Centerra will shut all mine and mill operations at its Kumtor mine by June 13 if the company doesn’t get the government permits and approvals it seeks, the Toronto- based company said in a statement.

USA
By Joseph Ciolli

June 2 (Bloomberg) — The Standard & Poor’s 500 Index rose to a record, after erasing an early loss, as the Institute for Supply Management twice corrected the reading in its May manufacturing index.

Broadcom Corp. rose 9.3 percent after saying it will explore options for its cellular baseband business. American Realty Capital Healthcare Trust Inc. jumped 9.7 percent after Ventas Inc. agreed to buy it. The Dow Jones Internet Composite Index slid 0.6 percent, with Groupon Inc. and LinkedIn Corp. dropping more than 2.9 percent to pace declines.

The S&P 500 rose 0.1 percent to 1,924.97 at 4 p.m. in New York, reversing an earlier loss of as much as 0.4 percent. The Dow Jones Industrial Average added 26.46 points, or 0.2 percent, to 16,743.63, also reaching an all-time high. The Russell 2000 Index of smaller companies fell 0.5 percent.

“The correction improved market direction modestly,” Stephen Carl, principal and head equity trader at New York-based Williams Capital Group LP, said in a phone interview. “Going forward, you’re looking for expected improvement in the ISM number, so maybe this just adds to it. Overall, it wasn’t a big, meaningful change, but there was certainly a reaction in the market.”

The ISM originally said its May manufacturing index fell to 53.2 from 54.9 a month earlier, before correcting it twice, once to 56 and a second time to 55.4. Fifty is the dividing line between growth and contraction. The median forecast of economists surveyed by Bloomberg called for a gain to 55.5.

The ISM corrected the index more than two hours after its initial 10 a.m. release, saying that it had applied the wrong seasonal adjustment to the data.

Other factory reports from around the world were mixed. Manufacturing in the euro area grew at a slower pace amid weakness in France. Manufacturing in China expanded in May at the fastest pace in five months.

Forecasts for a rebound in U.S. growth in the second quarter and stimulus from central banks in Japan and Europe, along with higher-than-estimated corporate earnings, helped send the value of global shares to a record $64 trillion in May.

The S&P 500 ended the month at a record after shrugging off a report showing the U.S. economy contracted for the first time in three years during the first quarter. Federal Reserve policy makers said at their April meeting that the economy has strengthened after adverse weather took its toll. Central-bank stimulus has helped propel the S&P 500 higher by as much as 184 percent from its bear-market low in March 2009.

Economic data later this week include reports on U.S. factory orders and car sales, as well as the Bureau of Labor Statistics’ monthly payrolls report on June 6.

The Chicago Board Options Exchange Volatility Index rose 1.6 percent today to 11.58. The gauge of U.S. equity volatility known as the VIX dropped to 11.36 on May 23, its lowest level since March 2013.

Investors also will be looking to Europe this week as Mario Draghi confronts the threat of deflation, preparing to unleash an array of measures to jolt the economy and ignite prices. From negative interest rates to conditional liquidity for banks, the European Central Bank president and his colleagues have signaled all options are up for discussion when they meet on June 5.

Of 50 economists surveyed by Bloomberg News, 44 expect the ECB to become the first major central bank to take interest rates into negative territory by cutting its deposit rate. All but 2 of 58 respondents said the benchmark rate would also be reduced.

ISM’s corrected number was “probably good enough to keep intact the slow grinding higher, but data later this week from the ECB and BLS will trump all other releases,” Ryan Larson, the Chicago-based head of U.S. equity trading at RBC Global Asset Management (U.S.) Inc., said in an interview.

The S&P 500 has rebounded 6 percent since a selloff in small-cap and Internet shares spread to the broader market and dragged the gauge to a two-month low in April. It advanced 2.1 percent in May for a fourth straight monthly increase. The measure trades at 16.3 times the projected earnings of its members, up from 14.8 times four months ago.

Today’s decline in the Dow Jones Internet gauge was paced by a 6.5 percent fall in Groupon and a 2.9 percent slide for LinkedIn as technology shares had the third-largest drop among 10 main industries in the S&P 500. Twitter Inc. lost 2.1 percent.

ARC Healthcare rallied 9.7 percent to $10.91 after Ventas said it will pay $2.6 billion in cash and stock to expand its elderly-housing business and add medical-office buildings. Ventas slid 2.8 percent to $64.93 for the second-biggest decline in the S&P 500.

Broadcom climbed 9.3 percent to $34.84. The maker of communications chips has hired JPMorgan Chase & Co. to assist in exploring options. Baseband chips are used to connect phones to cellular networks, a business dominated by Qualcomm Inc.

Ariad Pharmaceuticals Inc. jumped 7.4 percent to $6.94 after saying a trial showed its Iclusig drug was effective against gastrointestinal tumors in some patients. The Food and Drug Administration lifted a ban on the enrollment of new patients for the trial, Ariad said.

Protective Life Corp. surged 12 percent to $58.51. Dai-Ichi Life Insurance Co., Japan’s second-largest life insurer, is in talks to buy Protective Life for about 500 billion yen ($4.9 billion), said people with knowledge of the matter. Dai-Ichi Life said it’s considering buying a U.S. insurer and ways to fund the acquisition including a public offering of shares, adding that no decision has been made.

MeadWestvaco Corp. increased 5.9 percent to $42.96. Starboard Value LP, the activist fund led by Chief Executive Officer Jeff Smith, amassed a stake of about 5.6 percent in MeadWestvaco, urging the packaging company to cut costs and boost profits.

Express Scripts Holding Co. slid 2 percent to $70.04. The St. Louis-based pharmacy benefit manager, which handles more than 1 billion prescriptions a year, was downgraded to market perform from outperform at Cowen & Co.

Frontier Communications Corp. decreased 1.2 percent to $5.72. The broadband and telecommunications company entered into a new $350 million senior unsecured delayed draw term loan facility and a $750 million revolving credit facility.

Apple Inc. fell 0.7 percent to $628.65. The company introduced new health and messaging features for the software powering the iPhone and iPad, laying the groundwork for a busy second half of the year as the company works to emerge from a stretch of slowing growth. The shares have rallied 12 percent this year.

About 4.9 billion shares changed hands today on U.S. exchanges, 23 percent below the three-month average. About 1.8 billion shares traded each day in S&P 500 companies last month, the fewest since 2008, according to data compiled by Bloomberg. When the gauge hit an all-time high on May 23, only about 20 of its 500 companies reached 52-week highs, the data show. That’s the lowest number in a year.

When volume and breadth wane even as stocks surge, it’s a warning sign that has preceded losses in the past, according to Sundial Capital Research Inc. in Blaine, Minnesota. Hayes Miller, who helps oversee $57 billion at Baring Asset Management Inc., says the skepticism shows investors distrust a rally built on Fed stimulus.

“Breadth is suggesting that the market is topping,” Miller, the Boston-based head of multi-asset allocation for Baring, said in a May 28 telephone interview. “This is not a good starting point for buying equities at this price. We all know that investors are induced into risk assets by central bank policies, which keep your safer options very unattractive.”

Have a wonderful evening everyone.

Be magnificent!

At one pole of my existence,

I am one with the stones and the tree branches.

Thus, I must submit to the yoke of the universal law.

It is this, in the end, that is the very basis of my life.

And that force comes from that which is closely bound up in the unity of the world,

which is in full communication with all things.

But at the other pole, I am distinct from all of the rest.

Here, I have broken the barriers of equality

and I find myself alone, as an individual.

I am absolutely unique, I am me, I am incomparable.

The whole of the mass of the universe can not crush this individuality that is mine.

I maintain it, despite the formidable gravitation of all that exists.

It is small in appearance, but great in reality.

Rabindranath Tagore, 1861-1901

As ever,

Carolann

Your time is limited, so don’t waste it living someone else’s life.

-Steve Jobs, 1955-2011

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