November 16th, 2011 Newsletter
Dear Friends,
Tangents:
November 16th, 1885: Louis Riel hanged, led North West Rebellion, Manitoba, Canada.
-from The Book of Days:
Emily Eden to her sister Lady Buckinghamshire, November 16th, 1817:
Indeed, nobody but an excellent sister could be induced to write on such a gloomy, dispiriting afternoon, but I have put the table close by the fire, with one leg (belonging to the table, not to me) in the fender, to prevent it from slipping away, the armchair close behind the table, and me supported by them both, holding a pen in one hand and the poker in the other, and now, have at you.
Photos of the day
November 16, 2011
A general view is seen of the Nyamulagira Volcano eruption in eastern Democratic Republic of Congo. The eruption appears to be on a lower section of the volcano, or in a separate caldera with lava flowing north into a non-populated section of the park. Kenny Katombe/Reuters.
Market Commentary:
Canada
By Matt Walcoff
Nov. 16 (Bloomberg) — Canadian stocks fell, led by raw- materials producers, after Fitch Ratings said the spread of the European debt crisis “poses a serious risk” to U.S. banks.
Teck Resources Ltd., Canada’s largest base-metals producer, fell 3.7 percent as copper futures dropped a first time in four days. Barrick Gold Corp., the world’s biggest gold-mining company, declined 1.4 percent as the U.S. dollar advanced a third day against the euro. Jaguar Mining Inc., which produces gold in Brazil, soared 46 percent after two people familiar with the matter said Shandong Gold Group Co. bid for the company.
“It’s no secret that Europe is pretty fragile,” Irwin Michael, a money manager at ABC Funds in Toronto, said in a telephone interview. The firm oversees about C$1 billion ($980 million). “The Fitch thing is adding more fuel to the fire.”
The Standard & Poor’s/TSX Composite Index slipped 54.91 points, or 0.5 percent, to 12,174.36 after advancing as much as 0.5 percent before the Fitch statement.
The S&P/TSX has dropped 9.4 percent this year as industries most-tied to economic growth, such as base-metals mining, energy and finance, have declined. World equities have retreated in part on concern the European debt crisis will weaken the broader economy. The International Monetary Fund said in September the world economy will expand 4 percent this year and next, compared with June forecasts of 4.3 percent in 2011 and of 4.5 percent in 2012.
Stocks fell after Fitch said “the broad credit outlook for the U.S. banking industry could worsen” if the debt issue in Europe isn’t resolved soon. Earlier today, the Bank of England said failure to resolve the turmoil could lead to “significant adverse effects” on the global economy.
Base-metals and coal producers in the S&P/TSX declined to a three-week low. Teck lost 3.7 percent to C$37.45. Ivanhoe Mines Ltd., Rio Tinto Group’s partner in the Oyu Tolgoi copper and gold project in Mongolia, decreased 5.9 percent to C$21.20. Lundin Mining Corp., which operates in Europe, slumped 4.7 percent to C$3.65.
Uranium One Inc., a mining company controlled by Moscow- based ARMZ Uranium Holding, sank 5.7 percent to C$2.49 after S&P assigned the company a “BB-” credit rating, three levels below investment grade. In a statement, the ratings company cited Uranium One’s “limited operating and geographic diversification, relatively short collective mine life, limited track record, and reliance on residual cash flows from its joint venture mine operations.”
Precious-metals producers retreated as the U.S. dollar rose against all 16 other major currencies today as investors sought safer assets. Barrick Gold Corp., the world’s largest gold producer, slipped 1.4 percent to C$52.65. Kinross Gold Corp., Canada’s third-biggest company in the industry by market value, fell 1.5 percent to C$14.04. Minefinders Corp., a precious-metals company with operations in Mexico, plunged 11 percent, the most since December 2008, to C$12.46 after the Gold Stock Report newsletter recommended that investors sell the shares.
Jaguar jumped 46 percent, the most since October 2003, to C$7.98 after two people familiar with the offer said Shandong, the parent of China’s second-largest gold producer by market value, bid $9.30 a share for the company. The people asked not to be identified because the information is confidential. Jaguar received “proposals over the past few weeks” and has decided to explore alternatives, the Concord, New Hampshire-based company said today in a statement.
NovaGold Resources Inc., which is developing gold and base- metals properties, surged 25 percent to C$11.25 after saying it will spin off the Ambler copper project in Alaska. The new company, NovaCopper Inc., will be led by current NovaGold Chief Executive Officer Rick Van Nieuwenhuyse, while Gregory A. Lang, president of Barrick’s North American unit, will become NovaGold’s CEO. The shares’ rally was the biggest since September 2009.
Potash Corp. of Saskatchewan Inc., the world’s largest fertilizer producer by market value, fell 1.7 percent to C$46.08. James T. Prokopanko, the chief executive officer of Plymouth, Minnesota-based peer Mosaic Co., said at an industry conference today that higher supplies of the nutrient will make prices unsustainable above $600 a ton through 2020.
West Texas Intermediate crude oil settled at a five-month high of $102.59 a barrel after Enbridge Inc. said it agreed to buy ConocoPhillips’s 50 percent interest in the Seaway pipeline system, which runs from Cushing, Oklahoma, to the Gulf Coast, for $1.15 billion. Enbridge will reverse the flow of the line, shipping oil southward. A bottleneck at the Cushing hub has helped keep WTI prices below those of Brent crude traded in London this year.
Canadian Natural Resources Ltd., the country’s second- largest energy producer by market value, rose 3.2 percent to C$38.69. Suncor Energy Inc., the country’s largest oil and gas producer, gained 1.5 percent to C$32.75. Cenovus Energy Inc., Canada’s fifth-biggest company in the industry, increased 1 percent to C$33.94.
US
By Michael P. Regan and Rita Nazareth
Nov. 16 (Bloomberg) — U.S. stocks fell, erasing yesterday’s gains in benchmark indexes, as Fitch Ratings said further contagion from Europe’s debt crisis would pose a risk to American banks. The euro weakened, while oil climbed to a five- month high above $102 a barrel.
The Standard & Poor’s 500 Index lost 1.7 percent to 1,236.91 at 4 p.m. in New York. Most stocks in the Stoxx Europe 600 Index retreated. The euro slipped 0.6 percent to $1.3460 after losing as much as 0.8 percent. Credit-default swaps insuring Italian and Spanish debt retreated from records and Italy’s 10-year yield fell as the European Central Bank bought the nations’ debt. Oil rallied as Enbridge Inc. planned to reverse the direction of a pipeline, potentially alleviating a bottleneck that had reduced prices.
Stocks slid to their lows of the session in the final minutes of trading after Fitch said that while U.S. lenders have “manageable direct exposures” to Greece, Ireland, Italy, Portugal and Spain, further turmoil in those markets poses a “serious risk.” Benchmark U.S. indexes briefly erased losses earlier as Federal Reserve Bank of Boston President Eric Rosengren said the Fed may need to coordinate with the ECB on fighting turmoil in credit markets.
“It’s fear of the unknown spooking the market,” Madelynn Matlock, who helps oversee about $14.5 billion at Huntington Asset Advisors in Cincinnati, said in a telephone interview.
“There may be more exposure to Europe out there than people really think, even if banks think they are covered,” she said. “Increasing oil prices is a concern because it’s like a tax on the consumer.”
Early losses in stocks came after Bank of England policy makers said that failure to resolve the European debt turmoil could lead to “significant adverse effects” on the global economy. UniCredit SpA, Italy’s largest bank, prepared to ask central-bank officials to broaden the types of assets accepted as collateral.
Gauges of financial and commodity stocks dropped more than 2 percent to lead losses in all 10 of the main industry groups in the S&P 500. JPMorgan Chase & Co., Citigroup Inc. and Goldman Sachs Group Inc. slid at least 3.8 percent.
Fitch said its current outlook on the U.S. banking industry is stable because of improving fundamentals and ratings that are lower than before the debt crisis.
“However, risks of a negative shock are rising and could alter this outlook,” the ratings company said today in a statement. “Fitch believes that unless the Eurozone debt crisis is resolved in a timely and orderly manner, the broad credit outlook for the U.S. banking industry could worsen,”
JPMorgan and Goldman Sachs are among the world’s biggest traders of credit derivatives and have disclosed to shareholders that they have sold protection on more than $5 trillion of debt globally. Yet they are among firms that don’t provide a full picture of potential losses and gains from a default, giving only net numbers or excluding some derivatives altogether.
Rambus Inc. plunged 61 percent after it lost a $3.95 billion jury trial over allegations that Micron Technology Inc. and Hynix Semiconductor Inc. prevented its memory chips from becoming an industry standard. Abercrombie & Fitch Co. tumbled 14 percent as the retailer’s profit trailed estimates amid higher costs. Dell Inc. slipped 3.2 percent as the computer maker told investors to expect more slow sales growth for the rest of the year.
Stocks slid even after the Fed said industrial production in the U.S. advanced 0.7 percent in October, more than the median economist forecast and adding to evidence the world’s largest economy is weathering Europe’s crisis. Other data showed the cost of living unexpectedly fell and homebuilder sentiment improved.
The rally in oil came as Enbridge Inc. agreed to acquire ConocoPhillips’s share of the pipeline that runs between Cushing, Oklahoma, and the Gulf Coast and announced the reversal. The change may alleviate a bottleneck at the Cushing storage hub that had lowered the price of West Texas Intermediate, the grade traded in New York, versus other oils.
Oil helped lead the S&P GSCI Index up 0.9 percent even amid declines in 15 of the 24 commodities tracked by the gauge. Nickel and zinc also climbed at least 2.8 percent, while Kansas wheat, silver and natural gas lost at least 1.8 percent.
Among European stocks, Electricite de France SA slid 4.4 percent as the nation’s opposition Socialist and Green parties united to campaign for the closure of 24 nuclear reactors by 2025. Vivendi SA, the owner of the world’s largest video-game and music companies, advanced 5.6 percent after reporting profit that exceeded analysts’ estimates.
Credit-default swaps on Italy dropped 18 basis points to 576, while contracts on Spain were down 11 basis points at 470.
The yield on the 10-year Italian security declined six basis points to 7.00 percent, while the equivalent-maturity Spanish yield added eight basis points to 6.41 percent. French 10-year yields rose three basis point to 3.71 percent and the nation’s borrowing costs relative to benchmark German bunds retreated from a euro-era record.
The ECB bought larger-than-usual sizes and quantities of Italian debt, said two people with knowledge of the trades, who declined to be identified because the deals are private.
Mario Monti was sworn in as Italian prime minister and finance minister, taking over an unelected government charged with imposing austerity to prevent the euro area’s third-biggest economy from succumbing to the debt crisis. Greek Prime Minister Lucas Papademos won a confidence vote in parliament, receiving a mandate to push through budget measures necessary to secure financing designed to avert a collapse of the economy and keep Greece in the euro.
Benchmark German bunds fell, sending 10-year yields up three basis points to 1.82 percent. German Chancellor Angela Merkel said the nation is prepared to cede some national sovereignty to the European Union to achieve closer economic and political ties.
The pound slid for a third day against the dollar after a report showed U.K. unemployment rose in the three months through September as joblessness among young people climbed above 1 million for the first time since at least 1992. The jobless rate climbed to a 15-year high of 8.3 percent. The FTSE 100 Index of stocks lost 0.2 percent.
The MSCI Emerging Markets Index fell 1 percent. The Hang Seng China Enterprises Index in Hong Kong tumbled 2.9 percent, while Taiwan’s Taiex Index fell 1.4 percent. South Korea’s Kospi Index dropped 1.6 percent.
Have a wonderful weekend everyone.
Be magnificent!
I do not mean a universal philosophy, or a universal mythology, or a universal ritual,
but I mean that this world must go on, wheel within wheel.
What can we do?
We can make it run smoothly, we can lessen friction, we can grease the wheels, as it were.
But what?
By recognizing variation.
Just as we have recognized unity, by our very nature so we must also recognize variation.
We must learn that truth may be expressed in a thousand ways, and each one yet be true.
We must learn that the same thing can be viewed from a hundred different standpoints,
and yet be the same thing.
-Swami Vivekananda, 1863-1902
As ever,
Carolann
The days that are still to come
are the wisest witnesses.
-Pindar, 522-443 BC