May 15, 2014 Newsletter

Dear Friends,

Tangents:

On this day in 1905, A.C. Benson wrote in his Diary:

I had one of the most curiously beautiful [bicycle] rides of my life.  I got to Milton: saw the church, in its green shade, with its elaborately written monuments, its glorious little window of Jacob, with hands like parsnips: then crossed the line, among the green pastures, so full of great thorn thickets: and then along the towpath, riding slowly down the Cam.  Such a sweet clear, fresh day.  I wound slowly along past Baitsbite and the Waterbeach bridge, into the heart of the fen.  The space below the towpath full of masses of cow-parsley: the river sapphire blue between the green banks – the huge fields running for miles to the right, with the long lines of dyke and lode; far away the blue tower of Ely, the brown roofs of Reach, and the low wolds of Newmarket.  It was simply enchanting!….So flat country, golden with buttercups, and the blue tree-clumps far away backed by hills, and over all the vast sky-perspective, is the most beautiful thing of all. –from The Book of Days.

Photos of the day

Overall leader Michael Matthews salutes fans prior to the start of the sixth stage of the Giro d’Italia, Tour of Italy cycling race, from Sassano to Montecassino, Italy. Gian Mattia D’Alberto/AP

Assistant trainer Alan Sherman (l.) stands alongside Kentucky Derby winner California Chrome, with exercise rider Willie Delgado aboard, before a workout as a layer of thick fog sits over Pimlico Race Course in Baltimore. The Preakness Stakes horse race is scheduled to take place May 17.Patrick Semansky/AP

Market Closes for May 15^th, 2014

International Markets

Bonds

Currencies

Commodities

Market Commentary:

Canada
By Eric Lam

May 15 (Bloomberg) — Canadian stocks fell the most in a week as commodity prices declined and CI Financial Corp. plunged after Bank of Nova Scotia said it will scale back its stake in the money manager.

CI Financial sank 3.2 percent, the most in two years, on concern Scotiabank may sell its $3.5 billion investment. Sherritt International Corp. tumbled 3.5 percent as nickel prices fell the most since 2011. Just Energy Group Inc. lost 9.8 percent after reporting lower earnings for the fourth quarter. Peyto Exploration & Development Corp. and Crew Energy Inc. paced losses in energy shares as natural gas prices slumped.

The Standard & Poor’s/TSX Composite Index fell 84.84 points, or 0.6 percent, to 14,588.89 at 4 p.m. in Toronto. The gauge has risen 7.1 percent this year.

“Of the big three sectors in Canada, it’s energy leading the downside with significant weakness,” said Tim Caulfield, a fund manager at Franklin Bissett Investment Management, on the phone from Calgary. He helps manage C$20 billion ($18.4 billion) with the firm. “One of the issues there is certainly the weaker natural gas quotes in May.”

Peyto Exploration retreated 3.8 percent to C$37.93 and Crew Energy lost 2 percent to C$10, the lowest level in a month, as energy shares tumbled 0.6 percent as a group. Nine of 10 industries in the S&P/TSX fell on trading volume 34 percent higher compared with the 30-day average.

Natural gas prices have plunged 28 percent since February, as Canada and the U.S. emerged from a severe winter. Crude in New York sank 0.9 percent today, retreating from a three-week high, after U.S. supplies rose to near record levels last week while output rose, the Energy Information Administration reported yesterday. Bellatrix Exploration Ltd. slumped 2.4 percent to C$10.15 and BlackPearl Resources Inc. sank 5.2 percent to C$2.37.

Just Energy, which sells natural gas and electricity to residential and commercial customers in Canada and the U.S., slumped 9.8 percent, the most since February 2013, to C$7.85. The company reported fourth-quarter profit from continuing operations of C$152.3 million, compared with C$199.8 million a year ago.

CI Financial tumbled 3.2 percent to C$34.98, the biggest decline since May 2012, after Scotiabank said yesterday it will reduce its holdings of the Toronto-based money manager. It first acquired a stake in CI Financial in 2008 and currently holds 37 percent of the company’s shares, according to the statement.

“This is very negative for CI,” Stephen Boland, analyst at GMP Securities LP, said in a note today. “This announcement will also create an overhang on the stock since no timing was given on the potential transaction.”

Sherritt International declined 3.5 percent to C$4.47 for a third day of losses and Teck Resources Ltd., Canada’s largest diversified miner, lost 1.5 percent to C$24.91. Nickel slumped as much as 9.7 percent in London, the most since 2011, extending a 4.6 percent decline yesterday amid speculation that a rally that lifted prices as much as 56 percent this year was exaggerated. Copper slipped 0.5 percent in New York.

The S&P/TSX Materials Index sank 1.6 percent, the biggest decline since March, as 48 of 52 members of the industry retreated.

Bombardier Inc. dropped 7.1 percent to C$3.90, the biggest loss since February, after Air Canada said it decided to keep its older jets instead of replacing them with the manufacturer’s CSeries models.

Air Canada dropped 3.8 percent to C$7.91, the lowest close in a week.

US
By Joseph Ciolli

May 15 (Bloomberg) — U.S. stocks fell a second day, with the Dow Jones Industrial Average sinking the most in a month, as investors continued to sell small-cap shares and Wal-Mart Stores Inc. forecast profit that missed estimates.

Wal-Mart fell 2.4 percent after the disappointing results. Lincoln National Corp. sank 5.2 percent, leading insurers lower as 10-year Treasury yields tumbled. General Motors Co. dropped 1.7 percent after recalling another 2.7 million vehicles. Cisco Systems Inc. advanced 6 percent after a revenue forecast that beat analysts’ projections.

The Standard & Poor’s 500 Index lost 0.9 percent, the most in a month, to 1,870.85 at 4 p.m. in New York. The Dow average declined 167.16 points, or 1 percent, to 16,446.81, its biggest drop since April 10. The Russell 2000 Index of small companies sank 0.7 percent, trimming an earlier slide of 1.9 percent. About 6.8 billion shares changed hands on U.S. exchanges, 2.3 percent above the three-month average.

“The primary sentiment right now is cautious and nervous,” Michael James, a Los Angeles-based managing director of equity trading at Wedbush Securities Inc., said in a phone interview. “It’s more a matter of capital preservation than it is trying to generate returns. This is a time of caution. More people are looking to make sales and raise cash than they are to put cash to work on the weakness.”

The S&P 500 has dropped 1.4 percent since closing at an all-time high of 1,897.45 on May 13. The gauge advanced as much as 4.5 percent from a low on April 11 amid optimism about the economy and Federal Reserve stimulus.

The Russell 2000 has lost 3.3 percent in the past three days following a 2.4 percent rally on May 12. The gauge briefly fell 10 percent below a March high today. A close with the index down that much would meet the common definition of a correction.

The Dow Jones Internet Index lost 0.6 percent for a third day of declines. The gauge has plunged 18 percent from a 13-year high in March.

Economic data today showed industrial production in the U.S. unexpectedly declined in April, held back by a plunge in utilities as temperatures warmed and a broad-based decrease in manufacturing. Manufacturing, which makes up 75 percent of total production, decreased 0.4 percent.

That contrasted with a higher-than-forecast reading on the Fed Bank of New York’s gauge of regional manufacturing, which climbed to 19.01 this month, from 1.29 in April.

Labor Department data showed the fewest Americans in seven years filed applications for unemployment benefits last week, while a separate report indicated the cost of living in the U.S. rose in April by the most in almost a year.

“There’s not really any great news here,” Randy Bateman, who oversees $3.5 billion as chief investment officer of Huntington Asset Advisors in Columbus, Ohio, said by phone. “It’s just a slower growing period. Unless we see something that will really drive investor enthusiasm, it’ll be a trading- range market.”

Fed Chair Janet Yellen said last week that the world’s biggest economy still requires a strong dose of stimulus. While data show “solid growth” in the second quarter, “many Americans who want a job are still unemployed” and inflation remains low, she said. Yellen will address the U.S. Chamber of Commerce after the market closes today.

Three rounds of monetary stimulus have helped fuel economic growth, sending the S&P 500 surging as much as 180 percent from its 2009 low.

David Tepper, founder of $20 billion hedge-fund firm Appaloosa Management LP, said he’s nervous about markets as the U.S. economy isn’t growing fast enough amid complacency by the Federal Reserve.

“The market is kind of dangerous in a way,” Tepper said yesterday at the SkyBridge Alternatives Conference in Las Vegas. “I think it’s nervous time,” he said, adding that markets may “grind higher” in the near term.

Tepper, 56, who started his Short Hills, New Jersey-based firm in 1993, said he’s more worried about deflation than inflation and that this is the time to preserve money.

The Chicago Board Options Exchange Volatility Index, a gauge for U.S. stock volatility known as the VIX, jumped 8.2 percent to 13.17, its biggest rally in a month. The gauge had fallen 43 percent through yesterday since reaching a two-year high on Feb. 3.

Nine of the 10 main S&P 500 groups retreated today, with commodity shares dropping 1.3 percent to pace declines. Phone stocks, which have the highest dividend yield in the index, added 0.2 percent.

Wal-Mart sank 2.4 percent to $76.83. The world’s largest retailer forecast second-quarter profit that missed analysts’ estimates as the company copes with slow sales in the U.S., especially at its Sam’s Club warehouse stores. First-quarter profit fell to $1.10 a share, with poor weather shaving off 3 cents a share. That trailed the $1.15-a-share estimate of analysts surveyed by Bloomberg.

Retailers in the S&P 500 fell 1.1 percent, with Kohl’s Corp. decreasing 3.4 percent to $52.21. The department-store operator reported sales and profit estimates that fell short of analysts’s forecasts. The stock fell the most since January.

Bristol-Myers Squibb Co. plummeted 6.1 percent to $48.93 for the biggest decline in the S&P 500. The drugmaker was downgraded to market perform from outperform by BMO Capital Markets after the company disclosed late yesterday preliminary results of clinical testing on one of its cancer treatments.

Lincoln National dropped 5.2 percent to $47.41 for its biggest slide since 2012, pacing losses among insurers, which sank 1.4 percent as a group.

The yield on 10-year Treasury notes slid five basis points to 2.50 percent. Life insurers invest in bonds to back future obligations and generate profits. MetLife Inc., the largest U.S. life insurer, sank 2.7 percent to $49.56.

General Motors dropped 1.7 percent to $34.36. The automaker announced that it is recalling an additional 2.7 million vehicles, including models with faulty brake lights that have led to hundreds of complaints, pushing the total number to 11.1 million.

Cisco rallied 6 percent to $24.18. The world’s largest network-equipment maker said revenue in the quarter ending July will be $12 billion to $12.3 billion. Analysts on average had predicted $11.8 billion. Cisco forecast profit excluding stock- based compensation, amortization and other items of as much as 53 cents a share. That exceeded the 51-cent average of analyst estimates compiled by Bloomberg.

Have a wonderful evening everyone.

Be magnificent!

Differentiation, infinitely contradictory, must remain,

But it is not necessary that we should hate each other;

it is not necessary therefore that we should fight each other.

Swami Vivekananda, 1863-1902

As ever,

Carolann

I had all the disadvantages required for success.

-Larry Ellison, 1944-

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