May 6, 2016 Newsletter

Dear Friends,

Tangents: HAPPY MOTHER’S DAY WEEKEND!

Just returned from the Sohn Investment Conference in NYC and, as always, it was terrific – great investment ideas proposed by every speaker – and, as to be expected, many contradictory ones.   Most of the attendees presented after suffering terrible returns in 2015.  Pershing Square’s Bill Ackman, who presented the bullish case for Valeant last year (and now is working to salvage a multi billion dollar investment in the drugmaker and recover from his worst year as a fund manager) did not present this year, but was in attendance – in fact he sat in the row directly in front of me.  The group was pretty equally weighted with bulls and bears, in fact several money managers gave one short and one long recommendation.  This year’s lineup was as impressive as it usually is every year.  Whenever a political opinion was given, the belief is that Trump is going to win the Presidency.  Billionaire Stanley Druckenmiller gave a scathing rant on the Federal Reserve, which he claims is using low interest rates to ease borrowing costs and smooth over growing problems in the global economy, namely unproductive investment, particularly in China, an engine of global demand.  Hedge fund guru Zachary Schreiber thinks Saudi Arabia is in trouble and thinks shorting the Saudi Rial is a good bet.  The US dollar will get stronger he believes.  Chamath Palihapitiya, a  refugee to Canada from then war torn Sri Lanka, made his way to Silicon Valley after college and made his fortune at the investment fund he founded; he thinks that Amazon is undervalued and that it could be worth  a $3  trillion valuation.

Squeezed some of the arts in after meetings.  I was lucky enough to get to the theatre one night to see the highly acclaimed drama, Hamilton.  It  is the story of Alexander Hamilton, a penniless Caribbean immigrant who rose to be the U.S.’s first Treasury secretary.  The show has already won a Grammy for best musical theatre album, and multiple Drama Desk awards in 2015, a Pulitzer and appears destined to sweep the Tony’s this year.

It was simply stunning, possibly the best theatre I’ve ever seen.  A pleasant surprise was to see Marissa Mayer seated in the seat behind me.

PHOTOS OF THE DAY

Four dancers from The Australian Ballet dressed in white swan tutus pose for photos on a floating barge in Penrith Lake in Sydney on Friday. The ballet announced today it will perform on an open air stage on the lake in November. Rob Griffith/AP

Members of the Prizma Ensemble, wearing solid-colored bodysuits, take part in the 6th Jane’s Walk, a movement of free, citizen-led walking tours inspired by American urban planner Jane Jacobs, in Jerusalem on Friday. Baz Ratner/Reuters

A horse gets a bath after a morning workout at Churchill Downs Friday in Louisville, Ky. The 142nd running of the Kentucky Derby is scheduled for Saturday. Charlie Riedel/AP

Market Closes for May 6^th, 2016

International Markets

Bonds

Currencies

Commodities

Market Commentary:

Canada

By Eric Lam

     (Bloomberg) — Canadian stocks rose, paring the first weekly loss in a month, as gold producers jumped after the U.S. added the fewest jobs in seven months and Canada unexpectedly lost jobs due to cutbacks linked to the struggling energy industry.

     The benchmark S&P/TSX Composite Index climbed 0.5 percent to 13,701.47 at 4 p.m. in Toronto, paring its weekly loss to 1.8 percent. The gauge now trades at 20.8 times earnings, about 8.6 percent higher than the 19.1 times earnings valuation of the S&P 500, data compiled by Bloomberg show.

     Canada’s employment declined by 2,100 positions in April, keeping the unemployment rate at 7.1 percent, a reversal from expectations of a 1,000 job increase and a jobless rate of 7.2 percent, according to a survey of economists. The surprise loss in jobs follows a 40,600 gain in March. U.S. employers added 160,000 workers in the month, the fewest in seven months as the jobless rate held steady.

     “While not good news, the moderation in employment in April is far from surprising after the big gain in the prior month,” Doug Porter, chief economist at BMO Financial Group, said in a report, referring to the Canadian labor market data.

     Porter also cut his estimate for Canada’s second-quarter economic growth to zero from 1.5 percent “amid the severe disruptions to oil production due to the Fort McMurray wildfires”. The figure is a placeholder until further information on the impact of the disaster is known, he also said.

     Barrick Gold Corp. and Kinross Gold Corp. rallied more than 3.6 percent to lead raw-materials producers higher.

     Gold prices jumped after the jobs data release, with the disappointing numbers increasing speculation the Federal Reserve will delay raising interest rates. Traders are now pricing in a 8 percent probability of an interest rate hike at the Fed’s June meeting, down from 10 percent before the payrolls data.

     Crude rose 34 cents to settle at $44.66 a barrel in New York, paring its first weekly decline in more than a month. The wildfires ravaging Fort McMurray, Canada’s oil hub in northern Alberta, has rapidly spread to an area almost the size of Hong Kong, forcing more than 80,000 residents to flee and disrupting oil-sands operations in the region.

     Health-care stocks slid with Valeant Pharmaceuticals International Inc. Valeant announced Thursday a committee to oversee the pricing of its drugs after coming under scrutiny for its business practices.

     National Bank of Canada slumped 1.2 percent for a seventh straight loss, its longest slump since December. The lender said Thursday it will set aside C$195 million ($152 million) to cover soured oil-and-gas loans in the second quarter, the second bank to provide an early warning ahead of earnings results later this month.

US

By Anna-Louise Jackson

     (Bloomberg) — U.S. stocks advanced to halt a three-day drop, after the smallest jobs gain in seven months fueled speculation the Federal Reserve will look to raise interest rates gradually.

     The S&P 500 added 0.3 percent to 2,057.14 at 4 p.m. in New York, after falling as much as 0.6 percent. The Dow Jones Industrial Average added 79.92 points to 17,740.63. The S&P 500, which posted its first back-to-back weekly drop since February, climbed higher in afternoon trading after dipping briefly below its 50-day moving average of 2,045.06.

     The Labor Department report today showed American employers added 160,000 workers in April, trailing the 200,000 jobs economists estimated and lower than the revised 208,000 gain in March. The jobless rate, projected to ease, stayed at 5 percent, while wage growth accelerated. 

     The data adds to speculation the Fed will stick with a slower pace in tightening monetary policy. While traders were pricing in a 10 percent chance of higher borrowing costs next month before the jobs report, the odds fell to just 2 percent after. February 2017 is now the first month with an even probability of an increase.

     “The first reaction by the market is people are taking June off the table,” said John Canally, chief economic strategist at LPL Financial in Boston, which oversees about $460 billion. “This report wasn’t a disaster. It wasn’t booming, but it wasn’t awful either. The focus now turns to China with the data coming out over the weekend and next week. The global growth story will either be confirmed or denied.”

     The S&P 500 has retreated 2.2 percent since its high on April 20, halting a rebound that lifted it as much as 15 percent from a February low. Concerns over lackluster corporate earnings and signs of tepid economic growth have provided little incentive for further gains in risky assets.

     “The number this morning was not a good number, coming in well below expectations — but on the other side of it, there’s the question of what it means for policy,” said Kevin Caron, a Florham Park, New Jersey-based market strategist and portfolio manager who helps oversee $180 billion at Stifel Nicolaus & Co. “There’s a push and pull between the real economy and the stimulus response to these changes, and those two things tend to negate one another.”

     Investors are also watching the tail end of the earnings season, with more than 85 percent of S&P 500 companies having already announced. While about 76 percent of the firms that have reported so far beat profit forecasts and 54 percent exceeded sales expectations, analysts are still projecting a 7.4 percent decline in first-quarter earnings.

     Activision Blizzard Inc. jumped 8.5 percent after posting first quarter earnings and sales that topped estimates and boosting its outlook for 2016. Herbalife Ltd. surged 9.1 percent after saying it’s in late-stage talks to resolve a Federal Trade Commission probe into whether the nutrition company is a pyramid scheme.

     Carmakers and raw-material producers advanced, after Morgan Stanley boosted its recommendation on General Motors Co. and a weaker dollar fueled gains in metals prices, sending shares of Freeport-McMoran Inc. higher.

     Last year’s momentum stocks added the most to today’s gains, with Amazon.com Inc., Facebook Inc. and Google’s Alphabet Inc. all advancing. Meanwhile, Apple Inc. fell to its lowest level since June 2014.

     Health-care shares slumped, with Endo International Plc slumping as much as 42 percent after the drugmaker cut its full- year earnings forecast to well below analysts’ predictions in the face of increasing competition.

     Square Inc. plunged 22 percent on concerns about financing for its small-business customer-loan program. GoPro Inc. slid 2.3 percent after saying it sees “modest” growth in the second quarter. Valeant Pharmaceuticals International Inc. dropped 13 percent after saying it’s creating a committee to oversee drug pricing as the company seeks to rest its strategy.

Have a wonderful weekend everyone.

Be magnificent!

Nonviolence is the law of our species,

just as violence is the law of the beasts.

In the savage man, the spirit is not awake;

he does not know the other law as he knows that of physical force.

Human dignity demands that one refer to a superior law,

which implements the force of the spirit.

Mahatma Gandhi

As ever,

Carolann

People don’t like to follow pessimists.

                    -Bob Iger, b. 1951

Carolann Steinhoff, B.Sc., CFP®, CIM, CIWM

Portfolio Manager &

Senior Vice-President

Queensbury Securities Inc.,

St. Andrew’s Square,

Suite 340A, 730 View St.,

Victoria, B.C. V8W 3Y7