November 7, 2013 Newsletter

Dear Friends,

Tangents:

November 7^th, 1917: Russian Revolution; Bolsheviks depose Czar Nicholas II.

AUTUMN

So Autumn’s not the end, not the last rung

Of any ladder in the yearly climb,

When that is deathly old which once was young,

Since time’s no ladder but a constant wheel

Like an old paddled mill that dips and churns

The mill-race, and upon the summit turns

Unceasingly to heel

Over, and scoop fresh water out of time.

-Vita Sackville-West

Photos of the day

A church overlooks a fog covered Inntal valley in front of snow covered mountain summits on a sunny autumn day in the western Austrian village of Tulfes. Dominic Ebenbichler/Reuters

Chelsea pensioners stand before crosses in the Field of Remembrance at Westminster Abbey ahead of a visit by Princes Philip and Harry in London. The field commemorates Britain’s war dead with crosses and poppies ahead of Remembrance Sunday. Luke MacGregor/Reuters

Market Closes for November 7^th, 2013

International Markets

Bonds

Currencies

Commodities

Market Commentary:

Canada

By Eric Lam

Nov. 7 (Bloomberg) — Canadian stocks fell, leaving the benchmark index at a two-week low, as commodity stocks slumped on falling oil and gold prices after the European Central Bank unexpectedly cut its benchmark interest rate.

Dundee Precious Metals Inc. lost 5.8 percent as gold slid to a three-week low. Penn West Petroleum Ltd. tumbled 8.5 percent for a second day of losses after saying yesterday its turnaround will extend into 2014. Manulife Financial Corp. rose 2.7 percent as profit advanced on rising wealth and insurance product sales. Sun Life Financial Inc. gained 2.4 percent as the insurer’s profit topped estimates.

The Standard & Poor’s/TSX Composite Index lost 86.21 points, or 0.6 percent, to 13,294.20 at 4 p.m. in Toronto, the lowest since Oct. 23. The benchmark Canadian equity gauge has advanced 6.9 percent this year, the third-worst performer in the world among developed markets, ahead of Hong Kong and Singapore.

“Oil has continued to sell off and Draghi cutting interest rates to stimulate the economy has caught the markets by surprise,” said Philip Petursson, director of institutional equities with Manulife Asset Management Ltd., in a phone interview from Toronto. His firm manages about C$248 billion ($237 billion). “The decline in gold has to do with the ECB, we’ll see a downward trend for gold as the U.S. dollar rises against the euro.”

Commodity prices dropped as the dollar spiked against the euro after European Central Bank President Mario Draghi cut the region’s benchmark interest rate to a record low. The greenback’s gain put pressure on dollar-denominated products such as oil.

Better-than-expected U.S. growth in the third-quarter fueled speculation the Federal Reserve would cut monetary stimulus sooner than anticipated, damping demand for gold.

Nine of 10 industries in the S&P/TSX retreated. Trading volume was 7.7 percent higher than the 30-day average at this time of day.

Materials producers dropped 1.9 percent. Dundee Precious Metals slumped 5.8 percent to C$4.10 and Torex Gold Resources Inc. sank 11 percent to 92 Canadian cents, the lowest in four years, as the price of gold dropped to a three-week low.

Energy stocks lost 1.1 percent as a group. Bellatrix Exploration Ltd. dropped 7.1 percent to C$7.32 and Suncor Energy Inc. retreated 1.6 percent to C$36.09 as crude declined.

Penn West Petroleum tumbled 8.5 percent to C$8.91, extending a two-day loss to 23 percent. The Calgary-based company yesterday slumped the most since 2008 after saying it will target as much as C$2 billion in asset sales. Penn West has cut more than 25 percent of its workforce this year.

Manulife Financial, Canada’s largest life insurer by market value, rose 2.7 percent to C$19.22, for the highest close in three years. The company posted third-quarter adjusted profit of 36 cents a share, topping the 35-cent average estimate of 12 analysts surveyed by Bloomberg.

Sun Life Financial gained 2.4 percent to C$36.27, the highest level for the stock since August 2009. The insurer yesterday reported said profit beat estimates as revenue from wealth-management and insurance sales increased. Company executives said on a conference call today that expenses will be lower next year.

TMX Group Ltd., the operator of the Toronto Stock Exchange, rallied 2.3 percent to C$48.12, the biggest gain since August.

The Toronto-based company reported adjusted third-quarter earnings of 75 Canadian cents a share, ahead of the 74-cent average estimate of analysts surveyed by Bloomberg.

TMX’s operating expenses fell 7 percent compared with the second quarter, and the company is now on track to achieve C$28 million in annualized savings, ahead of previous projections for C$20 million, the company said.

USA

By Lu Wang and Nick Taborek

Nov. 7 (Bloomberg) — U.S. stocks fell, dragging the Standard & Poor’s 500 Index to its biggest loss in two months, as speculation the Federal Reserve may scale back stimulus amid faster-than-estimated economic growth overshadowed a move by the European Central Bank to cut a key interest rate.

Twitter Inc., which raised $1.82 billion in its initial public offering, rallied 73 percent in its debut. Qualcomm Inc. dropped 3.8 percent after the largest maker of smartphone chips predicted quarterly sales that missed analysts’ estimates. Whole Foods Market Inc. slumped 11 percent after cutting its profit forecast. J.C. Penney Co. jumped 5.6 percent after posting its first rise in monthly same-store sales in two years.

The S&P 500 fell 1.3 percent, the most since Aug. 27, to 1,747.15 at 4 p.m. in New York. The Dow Jones Industrial Average slid 152.90 points, or 1 percent, to 15,593.98. The Nasdaq Composite Index dropped 1.9 percent for the biggest decline in a month. About 7.6 billion shares changed hands on U.S. exchanges, the busiest trading since Sept. 20.

“The market will be volatile,” Ernie Cecilia, chief investment officer at Bryn Mawr Trust Co. in Bryn Mawr, Pennsylvania, said in a phone interview. His firm oversees about $7 billion. “You had some good economic news today and we’ll see what the payrolls numbers are tomorrow. The fear is that with better-than-expected economic numbers, tapering will commence sooner rather than later.”

The Dow climbed to a record yesterday and the S&P 500 closed at a one-week high as Fed officials said economic weakness warrants continued stimulus from the central bank. The broad gauge of American equities has rallied 23 percent this year, challenging 2009 for the best annual gain in a decade, as corporate earnings beat estimates and the central bank kept interest rates low to spur economic growth.

Gross domestic product rose at a 2.8 percent annualized rate in the third quarter, led by the biggest increase in inventories in more than a year as household purchases and business investment slowed, a Commerce Department report showed today in Washington. The median forecast of economists surveyed by Bloomberg called for a 2 percent advance. Consumer spending climbed 1.5 percent, the smallest increase since 2011.

“This will certainly fuel expectations that the underlying economy is stronger than the mixed data have suggested,” Quincy Krosby, a market strategist for Newark, New Jersey-based Prudential Financial Inc., which oversees more than $1 trillion of assets, said by telephone. “The question is whether or not the markets can accept good news as good news or whether we’re still on the trajectory where good news is bad news. We’re going to reach an inflection point in the market where good news is in fact good news.”

Investors are watching U.S. data to gauge the health of the world’s largest economy after the Fed said last week it needs to see more evidence of sustained improvement before slowing its $85 billion monthly asset purchases.

Jobless claims decreased by 9,000 to 336,000 in the week ended Nov. 2 from 345,000 the prior period, the Labor Department reported today. Tomorrow’s monthly employment report may show payrolls rose by 120,000 workers in October after a 148,000 gain in September, while the jobless rate rose to 7.3 percent.

The ECB cut its benchmark interest rate to a record low of 0.25 percent from 0.5 percent, after a drop in inflation to the slowest pace in four years threatened its mission to keep prices stable. Euro-area inflation is less than half the ECB’s target and unemployment is at the highest level since the currency bloc was formed in 1999.

“If we learned anything from the last three or four years, a friendly central bank is a good thing for equity prices,” Michael Vogelzang, president and chief investment officer at Boston Advisors LLC, which manages $2.4 billion, said by phone.

“Sentiment in the market is incredibly high and it’s best exemplified by the rush of IPOs coming to the market, including Twitter.”

Twitter soared 73 percent to $44.90. The company, whose website and applications let people post 140-character messages to online followers, yesterday sold 70 million shares at $26 each.

The microblogging service picked a price that values it higher than rival Facebook Inc. and still drew more interest than anticipated. The San Francisco-based company, which is unprofitable and has one-fifth as many users as Facebook, is benefiting from investors’ thirst for companies that will grow quickly in expanding markets like mobile advertising.

Facebook dropped 3.2 percent to $47.56.

Three rounds of Fed stimulus and better-than-expected earnings have driven the S&P 500 up more than 160 percent from a bear-market low in 2009. At yesterday’s close, the index traded at 16.8 times reported earnings, up 19 percent this year and near the highest level in more than three years, data compiled by Bloomberg show. The 15-year average multiple is 19.3.

“The biggest worry out there right now is, ‘if the stock market is going up and it can go up because I’m not in it and therefore there must be a bubble,’” Sam Wardwell, an investment strategist at Pioneer Investments in Boston, said in a phone interview. His firm manages about $225 billion. “As we look at the stock market, it’s not in a bubble territory. Valuations still look reasonably good. Profits are coming in fine.”

Walt Disney Co. and Priceline.com Inc. were among S&P 500 members posting results today. Of the 442 companies in the gauge that have reported earnings so far, 74 percent have beaten analysts’ profit forecasts, according to data compiled by Bloomberg. Income for the broad index probably increased 4.1 percent in the third quarter, and 6.8 percent in the final three months of the year, estimates compiled by Bloomberg show.

The Chicago Board Options Exchange Volatility Index, the gauge of S&P 500 options known as the VIX, jumped 9.8 percent to 13.91, trimming its loss for the year to 23 percent.

All 10 S&P 500 industry groups retreated as consumer, phone and energy companies sank at least 1.4 percent to lead the drop.

Disney fell 2.7 percent to $67.15 for the biggest loss in the Dow. After the market’s close, the world’s largest entertainment company posted fiscal fourth-quarter profit that beat estimates as the company’s theme parks and consumer products boosted income.

Qualcomm dropped 3.8 percent to $67.09. Sales for the three months ending in December will be $6.3 billion to $6.9 billion, the company said. Analysts on average had predicted revenue of $7.01 billion for the period, data compiled by Bloomberg show.

Whole Foods, the largest natural-foods grocer in the U.S., lost 11 percent to $57.26 for its biggest decline since 2009.

Profit excluding certain items will be as much as $1.69 a share in the year ending in September 2014, compared with a previous projection of as much as $1.72 and the average analyst estimate of $1.73 a share.

Tesla Motors Inc., the electric-car maker led by Elon Musk, plunged 7.5 percent to $139.77 after a Model S sedan fire yesterday in Tennessee, the third in five weeks involving the car. The accident happened after the driver hit a metal object, local authorities said.

SolarCity Corp. tumbled 17 percent to $49.69. The second- largest U.S. solar company predicted a loss of as much as 65 cents a share for the final three months of 2013, compared with the average analyst estimate of 54 cents a share.

J.C. Penney jumped 5.6 percent to $8.13. The retailer’s comparable-store sales climbed 0.9 percent in October, the first increase since December 2011.

American Eagle Outfitters Inc. rallied 4.1 percent to $15.25 after saying third-quarter earnings probably fell to 19 cents a share, exceeding its August projection for as much as 16 cents a share. The teen-clothing chain cited better-than- estimated margins for the period.

Transocean Ltd. jumped 7 percent to $52.45. The dual-listed offshore drilling contractor, which replaced Dell Inc. in the S&P 500 last month, posted third-quarter adjusted earnings of $1.37 per share, beating the $1.07 average analyst estimate.

Prudential Financial Inc. climbed 2.4 percent to $83.76.

The No. 2 U.S. life insurer swung to a profit in the third quarter, fueled by pension-transfer deals and the acquisition of a unit from Hartford Financial Services Group Inc.

Have a wonderful evening everyone.

Be magnificent!

The universal power that manifests itself in the universal law

is at one with our true power.

Rabindranath Tagore, 1861-1901

As ever,

Carolann

Necessity has no law.

-Saint Augusitne, 354-430

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