May 7, 2014 Newsletter

Dear Friends,

Tangents:

The Sohn Investment conference was excellent this year; lots of great investing ideas put forth and trends in the world of finance.  It is really valuable to get different insights.  As I mentioned all of the funds raised – this year over 3 million – go to fund pediatric cancer research.  One of the speakers this year was a young girl who was diagnosed with a rare form of cancer when she was 13.  Her name is Elana Simon and she set out to discover the cause of this cancer.  She discovered the genetic mutation responsible  for this cancer.  She is 18 years old now and beginning her first year at Harvard University next fall.  Pretty amazing story!

In this unusual collaboration with physicians, geneticists, and computational biologists, the 18-year-old co-authored a study published in the prestigious journal Science in February.  Read the link to see just how amazing she is.

Photos of the day

A woman walks through Brookfield Place off Bay Street, on the day of their annual general meeting for shareholders in Toronto. Mark Blinch/Reuters

A cardboard cutout of a bicycle is strapped to a fence beside the ruins of Red Bay Castle near the village of Cushendall in Northern Ireland. The bicycle has been placed to welcome the arrival of the Giro d’Italia cycle race to Northern Ireland. Cathal McNaughton/Reuters

Market Closes for May 7^th, 2014

International Markets

Bonds

Currencies

Commodities

Market Commentary:

Canada
By Gerrit De Vynck

May 7 (Bloomberg) — Canadian stocks gained after two days of declines as energy companies increased with the price of oil while raw-material and technology companies fell.

Encana Corp. climbed 4.6 percent after saying it was doubling its oil production by buying fields from Freeport- McMoRan Copper & Gold Inc. Agrium Inc. dropped 1.2 percent after lowering its projection for second-quarter earnings. Talisman Energy Inc. added 8 percent after a report said the company was considering selling some of its assets.

The Standard & Poor’s/TSX Composite Index rose 44.11 points, or 0.3 percent, to 14,656.40 at 4 p.m. in Toronto, after falling as much as 0.3 percent earlier in the day. The gauge dropped the most in three weeks yesterday.

The market fluctuated on comments by U.S. Federal Reserve Chair Janet Yellen, said Ian Nakamoto, director of research with MacDougall, MacDougall & MacTier Inc. in Toronto. Yellen said today the economy is growing but still isn’t near the central bank’s targets.

Some recent economic data points have been positive while others fell short of expectations, Nakamoto said. “You need a series of economic boosters to get people excited.” His firm manages C$4.7 billion ($4.3 billion).

West Texas Intermediate oil rose for a second day after the American Petroleum Institute said stockpiles declined in the U.S. Brent crude gained in London as western countries considered new sanctions against Russia.

Canadian energy companies increased 0.6 percent as a group, along with seven of the other nine industries in the benchmark index. Telecommunications companies rose the most, at 1 percent. Materials companies fell 1.1 percent as the price of gold slumped 1.5 percent to $1,288.90 an ounce.

Avigilon Corp. declined 8.7 percent to C$23.85, the biggest drop since August 2012, after saying its chief financial officer Bradley Bardua retired for health reasons. Bank of Montreal and Raymond James analysts said they were reviewing their buy ratings on the stock.

“Maybe there is no fire, but certainly some smoke,” said Raymond James analyst Steven Li in a note to clients. “This is now the third senior departure in the last six months.”

Encana rose 4.6 percent to C$25.69. The Calgary-based energy producer is trying to boost investor returns by shifting toward crude oil from natural gas. The $3.1 billion deal with Freeport-McMoRan gives Encana 45,500 net acres (18,413 hectares) in Texas’s oil-rich Eagle Ford basin.

Agrium dropped 1.2 percent to C$103.04. The fertilizer miner said on a conference call today it has a plan to cut nitrogen operations downtime that it earlier said would lower production in the second quarter.

Talisman Energy rose 8 percent to C$12.02. The company and Statoil ASA are looking at selling their joint oil venture in Texas, potentially for more than $4 billion, according to people with knowledge of the matter.

Arsenal Energy Inc. added 6.2 percent to reach C$7.36 as it boosted its forecast for oil and gas production this year and raised its dividend.

Novadaq Technologies Inc. fell 14 percent to C$15.37, the most since 2010, after reporting a first-quarter loss of 8 cents a share, wider than the loss of 5 cents estimated by analysts.

Tim Hortons Inc. fell 1.3 percent to C$58.89 after reporting first-quarter profit that missed analyst estimates. Analysts said U.S. sales were weak and the cost of introducing a new credit card weighed on the company.

US
By Lu Wang and Eric Lam

May 7 (Bloomberg) — The Standard & Poor’s 500 Index rose as optimism that the Federal Reserve will continue to support the U.S. economy overshadowed a drop in Internet stocks led by Yahoo! Inc. and Groupon Inc.

Electronic Arts Inc. jumped 21 percent after reporting better-than-forecast results. The Dow Jones Internet Composite Index dropped 1.9 percent to the lowest level since October. Groupon fell 21 percent as sales and profit projections trailed some estimates. Yahoo slumped 6.6 percent as Alibaba Group Holding Ltd. filed for a U.S. initial public offering. Tesla Motors Inc. dropped 5.8 percent in after-market trading.

The S&P 500 gained 0.6 percent to 1,878.21 at 4 p.m. in New York, rebounding after briefly dropping below its average trading level for the past 50 days. The Nasdaq Composite Index slipped 0.3 percent, paring a earlier drop of 1.5 percent. The Dow Jones Industrial Average climbed 117.52 points, or 0.7 percent, to 16,518.54. About 7.1 billion shares changed hands on U.S. exchanges, 6.1 percent above the three-month average.

“The U.S. market is showing remarkable resilience,” said Irwin Michael, fund manager at ABC Funds in Toronto. His firm manages about C$900 million ($826 million). “Clearly the economy is slowly but surely improving, and whatever the Fed is doing or not doing it’s helpful that nobody is rocking the boat.  The high-tech stocks are still troublesome for a lot of people.  It’s not a straight line and there’s still some confusion out there.”

The Fed must continue to spur economic growth as indicators for inflation and employment remain far from the central bank’s goals, Chair Janet Yellen said today. “A high degree of monetary accommodation remains warranted,” she said in testimony prepared for delivery to the Joint Economic Committee of Congress.

The Federal Open Market Committee last week pared monthly asset buying to $45 billion, its fourth straight $10 billion cut, and said further reductions in “measured steps” are likely as the economy improves.

While some areas of the equity market show signs of over- valuations, the broad market hasn’t developed a bubble, Yellen said today.

“There are pockets where we could potentially see misvaluations in smaller-cap stocks,” she said. “Overall those broad metrics don’t suggest that we are in obviously bubble territory. We don’t have targets for equity prices and can’t detect if we’re in a bubble with certainty.”

Technology stocks led this year’s selloff among companies whose growth are more tied to economic swings after a rally drove valuations to about double that of the S&P 500. The Nasdaq Composite is trading at 35 times reported earnings, compared with a multiple of 17.2 for the broad equity measure.

The Dow Jones Internet Composite Index extended yesterday’s 3 percent decline that was led by an 18 percent plunge in Twitter Inc. Groupon, which operates a website offering daily deals, dropped 21 percent to $5.33 today, the lowest level in more than a year. For the second quarter, the Chicago-based company forecast $725 million to $775 million in revenue and adjusted earnings of zero to 2 cents a share. Analysts estimated sales of $754.4 million and an adjusted profit of 3 cents a share.  Twitter declined 3.7 percent to $30.66.

Yahoo tumbled 6.6 percent to $34.07. Alibaba, a Chinese online marketplace valued at $168 billion, filed yesterday for its U.S. initial public offering, without specifying the number or price of shares it will sell or what valuation it will seek.  Agreements between the two companies will force Yahoo to sell part of its 22.6 percent stake in Alibaba.

FireEye Inc. and Zulily Inc. are among the biggest losers in the Russell 1000 Index after reporting results that disappointed investors. FireEye slumped 23 percent to $28.65. The company, which specializes in detecting computer network threats, forecast a loss of at least 58 cents a share in the second quarter. That’s wider than the average 52-cent shortfall estimated by analysts.

Zulily tumbled 30 percent to $32.28. The online retailer reported a loss of 2 cents a share in the first quarter.  Analysts had expected the company to break even.

AOL Inc. tumbled 21 percent to $34.85. The owner of the Huffington Post and TechCrunch reported earnings that missed analysts’ estimates as higher spending to attract an audience for advertisers squeezed its profit margin in the first quarter.

“You’re seeing a brutal shift from growth and momentum investing to more value-based investing,” Chad Morganlander, a fund manager at Stifel Nicolaus & Co., which oversees more than $150 billion, said in a phone interview from Florham Park, New Jersey. “The momentum stocks are ridiculously overvalued, but nonetheless, the overall broader market is fairly valued.”

Some 22 S&P 500-listed companies report earnings today. Of the 423 index members to have released results this season, 75 percent have beaten estimates for profit, while 52 percent have exceeded projections for revenue, data compiled by Bloomberg show.

Profit for members of the S&P 500 probably climbed 4.6 percent in the first three months of the year from the year- earlier period, while sales rose 2.8 percent, according to analyst estimates compiled by Bloomberg.

“Earnings season has been pretty good,” John Kvantas, a San Antonio, Texas-based director of equity research at USAA Investments, said in a phone interview. The firm oversees $62 billion. “If you get outside those momentum stocks, the market is not significantly overvalued. You still see very good companies with decent growth prospects.”

The Chicago Board Options Exchange Volatility Index, a gauge for U.S. stock volatility known as the VIX, slipped 2.9 percent today to 13.40.

Utility stocks rose 1.6 percent for the best gain among 10 S&P 500 main industries. Financial shares climbed 1.3 percent, rebounding from yesterday’s slump, as American Express Co. and Visa Inc. added at least 1.6 percent.

Electronic Arts jumped 21 percent, the largest advance since 1990, to $33.95. Fiscal fourth-quarter profit of 48 cents a share and sales of $914 million exceeded projections. The company’s FIFA 14, Titanfall and Battlefield 4 games were three of the top five best-selling titles across all game consoles in the U.S., Canada and Europe, Chief Financial Officer Blake Jorgensen said.

Mondelez International Inc., which makes Oreo cookies and Trident gum, rallied 8.2 percent to $38.10. The company will combine its coffee unit with D.E Master Blenders 1753 BV’s, according to a joint statement today. Mondelez will receive cash of $5 billion and a 49 percent stake in the new company, to be called Jacobs Douwe Egberts. Separately, Mondelez reported first quarter earnings of 39 cents a share, more than the 35 cents projected by analysts.

Humana Inc. led health insurers higher after reporting profit that beat analysts’ estimates. The stock climbed 8.4 percent to $119.05. UnitedHealth Group Inc., the biggest U.S. health insurer, advanced 3.5 percent to $77.91 for the biggest gain in the Dow.

Chesapeake Energy Corp. rose 4.4 percent to $29.61. The company raised its full-year estimate of cash flow as Chief Executive Officer Doug Lawler’s cost cuts take hold. The company is on track to make more cash than it spends for the first time since 2001.

Whole Foods Market Inc. slumped 19 percent, the most in the S&P 500, to $38.93 after profit growth stalled and the natural- goods grocer cut its forecast amid increasing competition from traditional supermarkets and other organic-food sellers.

Tesla Motors slipped 5.8 percent to $189.65 as of 4:54 p.m. in New York. After the market close, the carmaker reported that vehicle sales rose less than the highest analyst estimate. The company’s results beat forecasts.

Have  a wonderful evening everyone.

Be magnificent!

For you, now, meditation involves establishing within yourself

the reality of these two unavoidable rules – difference and change.

Try as hard as possible to convince yourself

that these two rules can neither be changed nor avoided.

Swami Prajnanpad

As ever,

Carolann

Perfection is achieved, not when there is nothing more to add,

but when there is nothing left to take away.

-Antoine de Saint Exupéry, 1900-1944

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