May 13, 2013 Newsletter

Dear Friends,

Tangents:

Wow!  Barbara Walters, of ABC, announced this morning that she is retiring from journalism.  She is 83 years young!

On May 13^th, 1940, Winston Churchill gave his first speech to the House of Commons after becoming Prime Minister:  “I say to the House as I said to Ministers who have joined this government, I have nothing to offer but blood, toil, tears and  sweat.  We have before us an ordeal of the most grievous kind.  We have before us many, many months of struggle and suffering.

You ask, what is our policy?  I say it is to wage war by land, sea and air….You ask, what is our aim?  I can answer in one word.  It is victory.  Victory at all costs – victory in spite of all terrors – victory, however long and hard the road may be, for without victory there is no survival.”

I believe that there is a subtle magnetism in Nature, which if we unconsciously yield to it, will direct us aright.  –Henry David Thoreau.

Photos of the day – May 13^th, 2013

This blend of two images taken by NASA’s Solar Dynamics Observatory shows a solar eruption that occurred on Sunday. One image shows light in the 171-angstrom wavelength, the other in 131 angstroms. Scientists say the Mother’s Day solar flare was the strongest of the year and occurred on the side of the sun that faced away from Earth. NASA’s Solar Dynamics Observatory/AP

Artists install an installation art piece seen under Ultra-violet lighting titled ‘Stellar Cave II’ by French artist Julien Salaud in Singapore which will host the Art Garden 2013 art festival for about 3-months at the Singapore Art Museum. Wong Maye-E/AP

Market Closes for May 13th, 2013

International Markets

Bonds

Currencies

Commodities

Market Commentary:

Canada

By Eric Lam

May 13 (Bloomberg) — Canadian stocks fell, following a 1.2 percent gain last week, as oil prices retreated after Chinese demand weakened and gold had its longest slump in five weeks.

Silver Wheaton Corp. dropped 3.5 percent after first- quarter profit missed estimates. Encana Corp. and Husky Energy Inc. lost at least 1 percent as crude fell. Torex Gold Resources Inc. and Alacer Gold Corp. slid more than 2.1 percent after gold slumped for a third day. Barrick Gold Corp., the largest gold miner, declined 2.9 percent after New Zealand’s biggest fund manager sold its investments in the company.

The Standard & Poor’s/TSX Composite Index fell 59.54 points, or 0.5 percent, to 12,529.55 at 4 p.m. in Toronto. The benchmark equity gauge has added 0.8 percent this year. Trading volume was 39 percent lower than the 30-day average.

“As China continues to slow here, people have to put in their minds that growth is more likely to come at 7 to 7.5 percent instead of 7.5 percent to 8 percent,” said Ian Nakamoto, director of research with MacDougall MacDougall & MacTier Inc. in Toronto. His firm manages about $4 billion.

“People expect China to have robust growth and it hasn’t had robust growth next to expectations for quite some time.”

Reports today showed China’s fixed-asset investment unexpectedly decelerated last month while industrial output trailed estimates, adding to concerns that the economy will fail to show much of a recovery this quarter.

China’s growth unexpectedly lost momentum in the first quarter as gains in factory output and consumption weakened.

Gross domestic product rose 7.7 percent from a year earlier, data last month showed, down from 7.9 percent in the fourth quarter. China is Canada’s second-largest trading partner.

Raw-materials stocks contributed most to losses in the S&P/TSX, falling 2.1 percent as a group as five of 10 industries retreated.

Silver Wheaton lost 3.5 percent to C$23.72. The world’s largest precious metals finance firm posted adjusted first- quarter earnings of 37 cents a share. Analysts expected 39 cents on average, according to data compiled by Bloomberg.

Alacer Gold dropped 5.4 percent to C$2.82 and Torex Gold declined 2.1 percent to C$1.43. Gold for June delivery lost 0.2 percent to settle at $1,434.30 an ounce in New York. Prices have fallen for three days, the longest slump since April 4.

Barrick Gold fell 2.9 percent to C$20.50. The New Zealand Superannuation Fund, which invests money on behalf of the country’s government, said it has sold its stakes in Barrick Gold and the company’s African Barrick Gold unit due to concerns related to security, environment and community problems at mines in Papua New Guinea and Tanzania.

Energy shares declined 0.7 percent as a group. Encana slid 3 percent to C$18.74 and Husky Energy, a crude oil and natural gas producer based in Calgary, fell 1 percent to C$29.94.

Oil for June delivery lost 0.9 percent to settle at $95.17 a barrel in New York, the third straight decline. China’s crude processing reached the lowest level in eight months in April, according to data published today, and the Organization of Petroleum Exporting Countries boosted output last month to the highest level in five months.

US

By Nikolaj Gammeltoft and Sarah Jones

May 13 (Bloomberg) — Most U.S. stocks fell, after benchmark indexes climbed to record levels last week, even as government data showed retail sales unexpectedly rose in April.

Yum! Brands Inc. fell 2.1 percent after the owner of the KFC and Pizza Hut dining chains reported a slump in April sales in China. Corning Inc. climbed 0.9 percent as analysts raised their recommendation for the shares. Theravance Inc. rose 18 percent after Elan Corp. agreed to pay $1 billion for a share in royalties on new drugs.

The Standard & Poor’s 500 Index rose less than 1 point to 1,633.77 at 4 p.m. in New York. The Dow Jones Industrial Average slid 26.81 points, or 0.2 percent, to 15,091.68. Almost 5.3 billion shares traded hands on U.S. exchanges today, or 16 percent below the three-month average, as about seven stocks declined for every five that advanced.

“It’s obvious that this market has got legs, the question is whether the economy is going to grow some legs to support stocks going forward,” Frank Braddock, senior portfolio manager with the Braddock Group of JHS Capital Advisors, said by phone from Columbia, South Carolina. JHS oversees about $3.4 billion.

The 0.1 percent increase in U.S. retail sales followed a 0.5 percent decline in March, Commerce Department figures showed today in Washington. The median forecast of economists surveyed by Bloomberg called for a 0.3 percent drop. A separate report showed companies in the U.S. unexpectedly held inventories in check in March as sales fell by the most in nine months, an indication orders will rise as demand picks up.

Overseas, Israel’s central bank cut its benchmark rate 25 basis points to 1.5 percent, joining a wave of monetary easing spanning from the U.S. to Europe. In China, the world’s second- largest economy, fixed-asset investment unexpectedly decelerated last month while industrial output trailed estimates.

“It seems consumers have been able to absorb the tax increases better than most had thought, but we still need to see if we can come out of this second-quarter purgatory,” Ron Florance, the Scottsdale, Arizona-based managing director of investment strategy at Wells Fargo Private Bank, which has $170 billion assets under management, said in a phone interview.

“Israel surprised with their rate drop and everyone around the world is now doing easy money, so the pedal is to the metal at the global level.”

The S&P 500 rallied to a record on May 10, capping a third week of gains and extending its advance so far this year to 15 percent. U.S. stocks climbed last week as companies from Walt Disney Co. to DirecTV beat earnings estimates and central banks worldwide stepped up monetary stimulus to boost growth.

The Chicago Board Options Exchange Volatility Index, or VIX, fell 0.3 percent to 12.55. The equity volatility gauge is down 30 percent for the year.

Seven out of 10 industries in the S&P 500 retreated as phone stocks and raw-material producers declined the most, while health-care companies had the largest gains as a group. Peabody Energy Corp. slumped 4.1 percent to $20.14 for the biggest retreat in the S&P 500, followed by losses of more than 3.4 percent in Joy Global Inc. and U.S. Steel Corp.

Yum slid 2.1 percent to $68.92 after the company reported a 29 percent drop in sales at stores open at least 12 months in China as the spread of bird flu hurt demand. Analysts projected a 27 percent drop, the average of five estimates compiled by researcher Consensus Metrix. Sales dropped 36 percent at KFC while gaining 5 percent at Pizza Hut.

AutoZone Inc. slipped 1.2 percent to $415.76. The retailer of automotive replacement parts and accessories was downgraded to hold from buy at Deutsche Bank AG with a 12-month price estimate of $410 a share.

Mosaic Co. lost 3.1 percent to $61.30. The world’s largest producer of phosphate crop nutrients said it favors share buybacks over dividends to redeploy surplus cash. With an estimated $2 billion of cash by the end of the month, Mosaic is assessing its ability to buy back shares while seizing growth opportunities and maintaining a “solid” investment-grade credit rating, Chief Financial Officer Larry Stranghoener said today on a conference call.

Corning rose 0.9 percent to $15.24 after Barclays Plc raised its recommendation for the shares to overweight, the equivalent of a buy rating. Morgan Stanley also upgraded the maker of glass for flat-panel televisions to equal weight, a level similar to hold, from underweight.

Theravance jumped 18 percent to $41.20 after Elan agreed to buy a share of drug royalties that Theravance will receive from GlaxoSmithKline Plc. The Irish drugmaker will receive 21 percent of royalties earned by Theravance on four respiratory drugs, and 20 percent of that income will be paid to Elan shareholders as a dividend.

J.C. Penney Co. rose 2.9 percent to $18.24. The department- store chain that replaced its chief executive officer last month set a lender meeting for tomorrow to discuss a $1.75 billion loan, according to a person with knowledge of the matter who asked not to be identified because the deal is private. CEO Myron Ullman is working to improve sales after revenue last year tumbled 25 percent to $13 billion amid Ron Johnson’s failed attempt to remake the retailer.

The S&P 500 has climbed to record highs on seven of the last eight trading days. Oppenheimer & Co.’s John Stoltzfus raised his year-end target for the index to 1,730 today from 1,585, ranking him as the second-most bullish strategist on Wall Street after Canaccord Genuity Securities LLC’s Tony Dwyer, who has a 1,760 estimate on the benchmark index.

Returns from the U.S. equity bull market that started four years ago are matching those from the last half of the 1990s even as valuations are 28 percent lower.

The S&P 500 has gained 26.2 percent annually including dividends since March 2009, the same as during the last 50 months of the technology bubble, according to data compiled by Bloomberg. Shares in the index now trade at 18.6 times annual profit, below the average 25.7 multiple in the 1990s rally led by Internet companies.

For bulls, the valuations show stocks will keep rising after the S&P 500 advanced 164 percent as individuals scarred by the worst financial meltdown since the Great Depression return to equities. Bears say the price-earnings ratios mean investors lack confidence in the economy and corporate profit growth. They also note that the last time returns were this high, the bubble popped and more than $5 trillion was erased from the value of U.S. stocks, according to data from the World Bank.

“The size of this rally’s not what keeps me up at night,” Paul Zemsky, the New York-based head of asset allocation for ING Investment Management, which oversees about $170 billion, said in a May 8 phone interview. “That was a tremendous rally then, too, but I’m not getting all nervous based on the size of the rally this time, because we’re not there yet in terms of valuation.”

Have a wonderful evening everyone.

Be magnificent!

Our consciousness is not actually yours or mine;  it is the consciousness of man,

evolved, grown, accumulated through many, many centuries….

When one realizes this our responsibility becomes extraordinarily important.

Krishnamurti, 1895-1986

As ever,

Carolann

Do not fear mistakes.  You will know failure.

Continue to reach out.

-Benjamin Franklin, 1706-1790

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