November 15, 2012 Newsletter

Dear Friends,

Tangents:

On this day in 2011, the Occupy Wall Street movement in Zuccotti Park was raided by NYPD officers, prompting hundreds of protesters to flee their longtime encampment in lower Manhattan. –Steven Russolillo, WSJ, 11/15/12.

And also on this day in…

1867 – The first stock ticker debuts.

1882 – Felix Frankfurter, jurist, was born.

1887 – Georgia O’Keefe was born

1942 – An American fleet defeats a Japanese naval force in a clash off Guadalcanal.

1943 – Himmler orders Gypsies to concentration camps – up to 500,000 killed.

1963 – Argentina voids all foreign oil contracts.

1969 – A quarter of a million anti-Vietnam War demonstrators march in Washington, D.C.

 
To some lawyers all facts are created equal.  – Felix Frankfurter.

photos of the day

November 15, 2012

US artist Nathan Sawaya poses beside his creation “Blue Guy Sitting” before the media preview of his ‘The Art of the Brick’ exhibition at the ArtScience Museum in Singapore.

Edgar Su/Reuters

A man walks along a tree-lined street on a cold and hazy morning in Berlin.

Thomas Peter/Reuters

Market Closes for November 15th, 2012:

International Markets

Bonds

Currencies

Commodities

Market Commentary:

Canada

By Eric Lam

Nov. 15 (Bloomberg) — Canadian stocks fell for a fourth day after a report showed world gold demand dropped the most since 2009 and U.S. jobless data disappointed investors.

Bombardier Inc., which had its credit rating cut by Standard & Poor’s yesterday, fell 6.3 percent after postponing its $1 billion debt offering. Poseidon Concepts Corp., a seller of tanks to the oil and gas industry, plunged 62 percent after it posted worse-than-estimated earnings. Alacer Gold Corp. and Nevsun Resources Ltd. fell at least 5.4 percent as gold slipped to a one-week low. Birchcliff Energy Ltd. rose 7.7 percent after reporting record production in the third quarter.

The Standard & Poor’s/TSX Composite Index fell 118.41 points, or 1 percent, to 11,811.38 in Toronto. The benchmark Canadian equity gauge is down 1.2 percent this year. Trading volume was 50 percent higher than the 30-day average.

“Gold and precious metals shares are down due to demand slowing and also a drop in risk appetite,” said Bob Decker, a money manager at Aurion Capital in Toronto. His firm oversees about C$5.5 billion ($5.5 billion). “The unlikely scenario of a quick fix for the fiscal cliff is dawning on investors. The complacency that prevailed before the election has now evaporated, so it’s an abrupt change in sentiment we have here.”

Gold demand dropped 11 percent in the third quarter, the most since 2009, from a record a year earlier as slowing growth in China cut investment and jewelry purchases, the World Gold Council said in a report. Global demand slipped to 1,084.6 metric tons in the quarter compared with 1,223.5 tons a year earlier.

Gold mining companies contributed most to losses in the S&P/TSX as eight of 10 industries retreated. The metal for December delivery fell 0.9 percent to settle at $1,713.80 an ounce in New York, the biggest percentage loss since Nov. 2.

U.S. initial jobless claims surged by 78,000 to 439,000 last week, the most since April 2011, as superstorm Sandy wreaked havoc on the job market.

The U.S., Canada’s largest trading partner, faces a so- called fiscal cliff of $607 billion in automatic tax increases and spending cuts in 2013 if policy makers do not come to a compromise before then. The Congressional Budget Office estimates the U.S. economy will go into recession in the first half of the year if a solution is not found.

Poseidon Concepts tumbled 62 percent to C$5 after at least six firms lowered their recommendations on the stock. The company reported adjusted earnings of 10 Canadian cents a share, compared with the average analyst forecast of 48 cents, according to a Bloomberg survey.

Michael Mazar, analyst with BMO Capital Markets, cut the stock to underperform from outperform and said the company may cut its dividend. Poseidon has reduced its spending forecast and added only 40 tanks in the quarter, well behind the estimated 60 to 84, he wrote in a note to clients.

“The lowered capex and slow ramp up in tank additions are particularly troubling,” he said. “A reduction in the dividend is likely over the next several quarters.”

Alacer Gold decreased 5.4 percent to C$4.75 and Nevsun Resources lost 6.7 percent to C$4.05. Fortuna Silver Mines Inc. fell 7.4 percent to C$4.54 as the S&P/TSX Materials index fell 2.2 percent.

Nexen Inc., the Calgary-based oil and gas producer that China’s Cnooc Ltd. has offered to acquire, rose 2.9 percent to C$25.26. Paulson & Co., the hedge fund run by billionaire John Paulson, bought a $153 million stake in Nexen during the third quarter, according to U.S. filings.

Birchcliff Energy jumped 7.7 percent to C$7.94 after reporting record current production of 27,500 barrels of oil equivalent a day, compared with a forecast of 26,000.

Bombardier fell 6.3 percent to C$2.99 after delaying a bond offering due to market conditions, according to Isabelle Rondeau, a spokeswoman with the company. In an interview with Bloomberg, Rondeau declined to say when the commercial aircraft maker planned to issue the debt.

US

By Nikolaj Gammeltoft and Susanne Walker

Nov. 15 (Bloomberg) — U.S. stocks slipped, keeping benchmark indexes at the lowest levels in more than three months, while Treasuries rose for a sixth day as lawmakers prepared for budget talks and conflict escalated in Israel.

The Standard & Poor’s 500 Index lost 0.2 percent to 1,353.32 at 4 p.m. in New York, led by consumer-staples retailers after Wal-Mart Stores Inc.’s results disappointed investors. Ten-year Treasury yields decreased less than one basis point to 1.58 percent and have fallen 16 basis points since Nov. 6. The yen weakened on speculation of more aggressive monetary stimulus. New York-traded crude oil slid after inventories rose to a three-month high.

The S&P 500 is down 5.3 percent since Nov. 6, the worst seven-day drop in a year, and Treasuries have rallied as the elections set up a budget showdown between President Barack Obama and the Republicans who control the House, pushing the nation closer to a so-called fiscal cliff of $607 billion in automatic spending cuts and tax increases. Reports today showed jobless claims rose more than forecast after superstorm Sandy hit the East Coast and Philadelphia-area manufacturing shrank.

“You are firmly tucked into the environment where all things revolve around the fiscal cliff,” said Tom Porcelli, chief U.S. economist at Royal Bank of Canada’s RBC Capital Markets unit. “We all knew that over the next few weeks claims would be greatly impacted by Sandy.”

The 14-day relative-strength index for the S&P 500, a gauge of market momentum, slid to 27.7 yesterday, ending the day below 30 for the first time since June. After June’s two-day dip in the RSI below 30, which some technical analysts say indicates a co-called oversold situation, the S&P 500 rallied 15 percent over the next three months before reaching its peak for the year on Sept. 14.

Wal-Mart Stores sank 3.6 percent as the retailer’s third- quarter revenue and fourth-quarter profit forecast trailed analysts’ estimates in anticipation of a competitive holiday season and after economic conditions slowed U.S. sales gains.

Verizon Communications Inc., AT&T Inc. and Alcoa Inc. also also dropped at least 1 percent to help lead declines in the Dow Jones Industrial Average.

Viacom Inc. increased 2.6 percent after the media company’s earnings topped analyst estimates. NetApp Inc. jumped 11 percent as profit for the second quarter beat forecasts.

Earnings have exceeded analyst estimates at 72 percent of the companies that reported so far, while 59 percent missed sales forecasts, according to data compiled by Bloomberg.

Labor Department data this morning showed unemployment claims surged by 78,000 to 439,000 last week, the most since April 2011. Reports from Federal Reserve banks showed manufacturing unexpectedly contracted in the Philadelphia area while shrinking less than forecast in the New York region. The cost of living rose in October by 0.1 percent, the slowest pace in three months and a sign U.S. inflation is in check.

About 90 percent of the drop in the S&P 500 since Election Day “can be attributed to concerns about the U.S. fiscal cliff,” Marko Kolanovic, global head of derivatives and quantitative strategy at JPMorgan Chase & Co. in New York, wrote in a report today. More swings may be caused today because derivatives tied to the equity market expire tomorrow.

Concerns about Washington gridlock overlap with tomorrow’s expiration for options contracts tied to underlying stocks, which “could cause high intraday volatility” as investors and traders buy and sell both derivatives and shares to adjust their positions, Kolanovic said in his analysis. The S&P 500 rose as much as 0.4 percent and declined 0.6 percent during the session.

Rates on 30-year U.S. bonds decreased less than one basis point to 2.72 percent, while two-year yields were down less than one point at 0.24 percent. Ten-year yields traded in the narrowest range in six weeks.

The Stoxx Europe 600 Index fell 1 percent to the lowest level in two months as travel companies and retailers led losses. SBM Offshore NV, GAM Holding AG, and Man Group Plc dropped more than 5 percent as MSCI Inc. removed the shares from some of its indexes, meaning funds that track the measures will sell the stocks. SBM, the world’s biggest supplier of floating oil and gas platforms, also said it won’t meet its 2012 revenue forecasts.

An MSCI gauge of emerging-market stocks slid 0.7 percent, dropping for a sixth day and headed for the longest losing streak in four months. South Korea’s KOSPI slumped 1.2 percent, reaching its weakest level in more than three months. The BSE India Sensex 30 Index dropped 0.8 percent, extending declines to a fifth day, as the government failed to meet a fund-raising target in a sale of mobile-phone airwaves.

South Africa’s FTSE/JSE Africa All Share Index retreated for a third day as platinum shares weighed on the market after the metal led declines among precious metals traded in London.

Brent crude, the benchmark for European oil, for December delivery rose 1.3 percent to $110.98 reached a premium of $26 to New York futures, the widest since October 2011. Brent rallied as Israel and Palestinian militants exchanged rocket fire and air strikes and Prime Minister Benjamin Netanyahu said his military is ready for a “substantial expansion” to halt attacks from the Gaza Strip.

The worst violence in four years between Israel and Gaza militants began yesterday when Ahmed al-Jabari, the leader of Hamas’s military wing, was killed in a missile strike. Israeli air attacks have subsequently targeted more than 230 rocket storage or launching sites in Gaza, the army said.

West Texas Intermediate oil traded in New York lost 1 percent to $84.45 a barrel after surging 1.1 percent yesterday.

The U.S. government reported inventories increased less than forecast, gaining 1.09 million barrels last week to 375.9 million, the highest level since July. Stockpiles were forecast to gain 2.65 million barrels, according to the median of 10 analyst estimates in a Bloomberg survey.

Natural gas, West Texas oil, sugar, soybeans, nickel and natural gas led declines in 15 of 24 commodities in the S&P GSCI Index, sending the gauge down 0.6 percent.

The 17-nation euro strengthened 0.3 percent to $1.2770 even as a report showed gross domestic product in the currency region fell 0.1 percent in the third quarter. Australia’s dollar dropped versus 15 of 16 major peers after the Reserve Bank said it boosted sales of the currency.

The yen slumped to its weakest level in six months versus the dollar on speculation Japan’s opposition will win elections next month and advocate unlimited stimulus. The yen depreciated at least 0.7 percent against all 16 of its major peers. Japan’s Nikkei 225 Stock Average gained 1.9 percent even as most Asian equity indexes declined.

Shinzo Abe, who polls show will become Japan’s premier after the election, called on the central bank to intensify measures to counter deflation and the strength of the currency.

“A government led by the Liberal Democratic Party is expected to win,” said Mitsushige Akino, who oversees about $600 million at Ichiyoshi Investment Management Co. in Tokyo.

“Investors believe that will add pressure on the Bank of Japan to ease policy, and the government will adopt strong policies to get the economy out of deflation.”

Polls showed the Dec. 16 vote will favor Abe, who said today the central bank’s benchmark rate should be cut to zero or below and pledged to raise public spending.

Have a wonderful evening everyone.

Be magnificent!

Love can come into being only when there is total self-abandonment.

Krishnamurti, 1895-1986

As ever,

Carolann

Work saves us from three great evils:

boredom, vice, and need.

-Voltaire, 1694-1778

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