May 14, 2012 Newsletter

Dear Friends,

Tangents:

I went to the Canada Economic Summit in Toronto last week, which featured a full marathon of interesting leaders from business and government.  One of the business leaders who spoke was William A. Ackman, who has been in the media a lot lately as he gears up for a showdown with the board and management of Canadian Pacific Railway.  The vote is set for May 17^th, so it will be interesting to see if his persistence wins over shareholders.  He said there still exists a clubbiness  on Bay Street that is long since passé on Wall Street – enhancing shareholder value is the name of the game south of the boarder.  One of the most impressive speakers, who gave a cogent view of the current geopolitical situation and opined intelligently on the future was former Prime Minister Paul Martin.  Melanie L. Aitkin, Commissioner of Competition, Competition Bureau of Canada, gave a  presentation that was also very interesting.

I made it to New York for the weekend – it’s only an hour away and one of my friends who lives in Toronto accompanied me.  We got our quota of art and theater for awhile, During the day, we went to the High Line, the Frick and the Met.  There is a fantastic exhibit at the Metropolitan Museum of Art, The Steins Collect.   It is on until June 30^th, so if you are going there, it is really worthwhile to visit.

About the exhibition, from the Met website:

“Gertrude Stein, her brothers Leo and Michael, and Michael’s wife Sarah were important patrons of modern art in Paris during the first decades of the twentieth century. This exhibition unites some two hundred works of art to demonstrate the significant impact the Steins’ patronage had on the artists of their day and the way in which the family disseminated a new standard of taste for modern art. The Steins’ Saturday evening salons introduced a generation of visitors to recent developments in art, particularly the work of their close friends Henri Matisse and Pablo Picasso, long before it was on view in museums.

Beginning with the art that Leo Stein collected when he arrived in Paris in 1903—including paintings and prints by Paul Cézanne, Edgar Degas, Paul Gauguin, Henri de Toulouse-Lautrec, Édouard Manet, and Auguste Renoir—the exhibition traces the evolution of the Steins’ taste and examines the close relationships formed between individual members of the family and their artist friends. While focusing on works by Matisse and Picasso, the exhibition also includes paintings, sculpture, and works on paper by Pierre Bonnard, Maurice Denis, Juan Gris, Marie Laurencin, Jacques Lipchitz, Henri Manguin, André Masson, Elie Nadelman, Francis Picabia, and others.”

At night, we were able to take in a couple of shows.  One was the new musical, Once, which is probably the best I’ve ever seen.  It is worth the trip just to see it.  On our last night, we saw Death of a Salesman, and it is something I don’t think anyone in the audience will ever forget.  Philip Seymour Hoffman is the best Willy Loman ever and Andrew Garfield plays Biff Loman’s character so convincingly, you are transported to the reality Arthur Miller envisioned.

And on this day in,

1897 – Guglielmo Marconi sends first communication by wireless telegraph.
1973 – The U.S. Space Station Skylab is launched
1940 – Holland Surrenders to Germany
1948 – Prime Minister David Ben-Gurion establishes the State of Israel
1961 – A bus carrying black and white civil rights activists is bombed and burned in Alabama

photos of the day

May 14, 2012

A worker sets up a giant 65th Cannes Film Festival official poster showing Marilyn Monroe on the Cannes Festival Palace in France. The Festival will start on Wednesday.

Lionel Cironneau/AP

Madame Tussauds employee Lisa Burton poses with a paintbrush on a new figure of Britain’s Queen Elizabeth, produced in honor of her Diamond Jubilee in London.

Suzanne Plunkett/Reuters

Market Closes for May 14, 2012:

North American Markets

International Markets

Bonds

Currencies

Commodities

Market  Commentary:

Canada

By Joseph Ciolli

May 14 (Bloomberg) — Canadian stocks fell for the eighth time in nine days after oil producers and banks declined as Greece struggled to form a government amid growing speculation the nation may leave the euro region.

Suncor Energy Inc., Canada’s largest oil and gas producer, decreased 2.6 percent. Bankers Petroleum Ltd. plunged 34 percent after earnings missed analysts’ projections. Royal Bank of Canada, the nation’s biggest lender, slipped 1.4 percent.

Goldcorp Inc., the second-largest producer of the metal, slipped 3.7 percent.

The Standard & Poor’s/TSX Composite Index fell 206.14 points, or 1.8 percent, to 11,488.53, extending its retreat since May 1 to 6.9 percent.

“The Canadian market is so resource-driven that any time you have global growth uncertainty it seems to knock down commodity prices,” Jennifer Radman, a money manager at Caldwell Investment Management Ltd. in Toronto, said in a telephone interview. The firm oversees about C$1 billion ($1 billion).

“Any news that shakes up peoples’ beliefs at the current moment can have a pretty big impact on our market.”

The benchmark gauge on May 11 completed a second straight weekly decline as concerns mounted that the Greek debt crisis and a weakening Chinese economy may curb demand for commodities.

Energy and mining shares account for 43 percent of Canadian stocks by market value.

Energy companies declined as oil fell to its lowest price in almost five months after Greece failed to agree on a unity government and European officials considered its possible exit from the euro. Saudi Arabia Oil Minister Ali al-Naimi said that crude prices should decline further.

Suncor Energy decreased 2.6 percent to C$27.99. Canadian Natural Resources Ltd. dropped 2.4 percent to C$30.25. Oil-sands producer Cenovus Energy Inc. sank 2.6 percent to C$32.10.

Bankers Petroleum slumped 34 percent to C$2.29.

Banks in the S&P/TSX fell to the lowest on a closing basis since January on concern over Greece.

Sumit Malhotra, an analyst at Macquarie Group Ltd., cut his 2012 and 2013 earnings per share estimates for Canadian banks by 1 percent today before second-quarter earnings reports are scheduled to start on May 23. He cited “macro headwinds” and slowing consumer loan growth.

Royal Bank of Canada slipped 1.4 percent to C$53.22.

Toronto-Dominion Bank, Canada’s second-largest lender, decreased 0.7 percent to C$79.93. Bank of Nova Scotia, the country’s third-largest lender, fell 1 percent to C$52.50.

Materials shares dropped as gold erased its gains for the year as concern that Europe’s debt crisis is deepening strengthened the dollar and cut the metal’s appeal as an alternative asset.

Goldcorp slipped 3.7 percent to C$33.62. Eldorado Gold Corp., a Vancouver-based mining company, sank 4.9 percent to C$10.93.

Potash producers declined as soybeans fell to the lowest in more than six weeks on speculation that Europe’s worsening debt crisis and slowing Chinese economy will curb demand for food, feed and fuel made from the oilseed.

Potash Corp. of Saskatchewan Inc., the biggest fertilizer company, dropped 1.8 percent to C$40.28. Agrium Inc., a fertilizer producer and farm retailer, decreased 3 percent to C$81.05.

US

By Rita Nazareth

May 14 (Bloomberg) — U.S. stocks declined, sending the Dow Jones Industrial Average to the lowest level since January, as Greece struggled to form a new government amid growing speculation the nation may leave the European currency.

Financial and energy shares fell the most among 10 groups in the Standard & Poor’s 500 Index. JPMorgan Chase & Co. and Bank of America Corp. sank at least 2.6 percent as European lenders slumped. Alcoa Inc. and Schlumberger Ltd. slid more than

1.5 percent to pace declines in commodity producers. Symantec Corp., the biggest seller of security software, retreated 1.4 percent after Goldman Sachs Group Inc. cut its recommendation.

The S&P 500 slid 1.1 percent to 1,338.35 at 4 p.m. New York time, the lowest since Feb. 2. The Dow fell 125.25 points, or 1 percent, to 12,695.35. The Chicago Board Options Exchange Volatility Index, which measures the cost of using options as insurance against S&P 500 losses, rose 10 percent to an almost four-month high of 21.87. About 6.6 billion shares changed hands on U.S. exchanges, in line with the three-month average.

“The fear factor is definitely higher,” said Madelynn Matlock, who helps oversee about $14.7 billion at Huntington Asset Advisors in Cincinnati. “The whole European political situation is really the focus at this point. Nobody really knows what’s going to happen next and the market hates uncertainty.”

Global stocks fell as Greece’s political deadlock went into a second week after President Karolos Papoulias failed to secure agreement on a unity government. Alexis Tsipras, leader of Greece’s Syriza party, said Europe must reexamine its policy of austerity and that his party wants Greece to stay in the euro.

Concern about Europe’s crisis grew as the cost of insuring against a Spanish default jumped to an all-time high. Chancellor Angela Merkel’s party was defeated in Germany’s most populous state in an election that helped the Social Democrats tighten their grip on the country’s regional governments. The result may embolden the Social Democrats as they align with French President-elect Francois Hollande in an anti-austerity front.

“We certainly have a lot to worry about,” said John Manley, chief equity strategist for Wells Fargo Advantage Funds in New York. His firm oversees $207 billion. “The odds of Greece leaving the euro are higher. It’s an enormous game of chicken that they are playing with each other. To the degree it does represent the democratic process in Greece, it makes it more likely they default and the Europeans have to do something.”

American banks slumped as a measure of European lenders tumbled 2.8 percent. JPMorgan, which plunged 9.3 percent on May 11, lost 3.2 percent to $35.79. Bank of America fell 2.7 percent to $7.35. Citigroup Inc. retreated 4.1 percent to $28.14.

Fitch Ratings lowered JPMorgan’s credit grade by one level to A+ from AA- on May 11, saying the $2 billion loss “raises questions regarding JPM’s risk appetite, risk management framework, practices and oversight.”

Residential Capital LLC, the unprofitable mortgage company whose parent Ally Financial Inc. is trying to repay a U.S.

government bailout, filed for bankruptcy.     Energy and raw material producers sank as the S&P GSCI gauge of 24 commodities dropped 1.1 percent. Schlumberger lost 2.3 percent. Alcoa fell 1.6 percent to $8.92.

Symantec slid 1.4 percent to $15.24. Goldman Sachs cut its rating to sell from neutral, citing worsening margins and cash flows. The share-price estimate was lowered to $14 from $16.

Best Buy Co. rose 1.5 percent to $19.56. Founder Richard Schulze will step down as chairman after a probe found he failed to tell the board about allegations that then-Chief Executive Officer Brian Dunn was having an inappropriate relationship with a female employee.

Chesapeake Energy Corp. surged 4.8 percent to $15.52. The company reached a $3 billion loan agreement with a unit of Goldman Sachs Group Inc. and affiliates of Jefferies Group Inc.

to help ease a cash shortfall that threatens to curtail its development of oil and natural-gas wells.

Avon Products Inc. rallied 3.8 percent to $20.96 as the company said it will respond within a week to Coty Inc., the perfume-maker that last week boosted its takeover offer for Avon to $10.7 billion.

Yahoo! Inc. rose 2 percent to $15.50. Chief Executive Officer Scott Thompson is stepping down after failing to correct errors in his credentials and the company is revamping its board, handing a victory to activist investor Daniel Loeb, who had pushed for the overhaul.

Ross Levinsohn, Yahoo’s head of global media, was named interim CEO, and director Fred Amoroso will become chairman.

Facebook Inc. plans to stop taking orders for its initial public offering tomorrow, two days ahead of schedule, according to a person with knowledge of the transaction.

Facebook will likely finish taking orders for the IPO after U.S. markets close May 15, said the person, who declined to be identified as the plans are private. The offer of 337.4 million shares at $28 to $35 each has been oversubscribed, people with knowledge of the matter said. Jonathan Thaw, a spokesman for Facebook, declined to comment.

“They’re swamped with the orders that are in,” said Jon Merriman, chief executive officer at investment firm Merriman Holdings Inc. in San Francisco. “They just need time to determine the price. They can send the message — the books are closing, send in your orders now.”

As individuals bail out of U.S. stocks at the fastest rate in three decades, professional speculators have cut bearish bets by the most since 2008.

Money managers are net short 19,375 contracts on the S&P 500, down 82 percent from a four-year high in September even after the figure jumped from 3,584 last week, data compiled by Bloomberg and the Commodity Futures Trading Commission show.

U.S. equity mutual funds recorded $18 billion of outflows in April, the most since at least 1984, according to preliminary data from the Investment Company Institute.

Hedge funds and other institutions are speculating the index will extend its 23 percent rally since October after 69 percent of S&P 500 companies beat first-quarter earnings estimates and economists projected accelerating U.S. growth this year. Bears say last week’s addition to bets on declines show short sellers have completed almost all of the buying they are likely to do, depleting demand for equities.

“For the professional side, stocks look pretty compelling,” David Goerz, chief investment officer at Highmark Capital Management Inc., said in a telephone interview from San Francisco on May 9. His firm oversees about $17 billion.

“Underlying economic strength is much more resilient than anybody expected it to be this year.”

Have  a wonderful evening everyone.

Be magnificent!

Truth has no path, and that is the beauty of truth, it is living.

-Krishnamurti, 1895-1986

As ever,

Carolann

Friends may come and go, but enemies accumulate.

-Thomas Jones, 1892-1969

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