October 10, 2013 Newsletter

Dear Friends,

Tangents:

Canadian short-story writer Alice Munro has been awarded the Nobel Prize in literature!  The Swedish Academy, which announced the prize in Stockholm today, called the 82-year-old author the “master of the contemporary short story.”

I get a kick out of  reading David Tang’s column in the weekend Financial Times.  David Tang, entrepreneur and founder of ICorrect, offers advice on questions about property, interiors – and modern manners for globetrotters.  This past weekend, one of his readers inquired, “I am always interested to read your musical suggestions for certain situations – from accompaniment in morgues to how to irritate nuisance neighbours.  What are your favorite pieces of music to listen to while burning calories on the gym bicycle?”

A shortened version of Sir Tang’s reply,   “My exercise regime is rather erratic and mostly consists of running for cover, jumping to conclusions, and stretching my imagination….But when I’m indoors on, say a cross-trainer, I would do my daily cryptic crossword by taping it on to a board in front.  In the background, I would put on a bit of avant-garde music – quietly playing – to jar the grey cells into action.  Which explains why I don’t go to ‘professional’ gyms that pump through loud and monotonous music.  If I were ever to have control over their music, I would choose compound time signatures, such as 5/4s (as in Tchaikovsky’s extraordinary waltz in his last sympathy) or 7/8s (as in the last movement of Prokofiev’s 7^th sonata).  Or, for the less esoteric, Dave Brubeck’s rendition of ‘Take Five’, in 5/4s.  It will be interesting to see who, in their leotards, have rhythm and who have not!”

Photos of the day

The front facade of L’Eden cinema, the world’s first and oldest cinema, is illuminated during an inauguration of its reopening in La Ciotat, southeastern France, October 9. The theater, which screened in 1899 the first film in history made by the French Lumiere brothers, was closed in 1995 for security reasons and reopened today after its renovation. Jean-Paul Pelissier/Reuters

A model displays an outfit by Ukrainian designer Zalevskiy during a Fashion Week in Kiev, Ukraine. Sergei Chuzavkov/AP

Market Closes for October 10^th, 2013

International Markets

Bonds

Currencies

Commodities

Market Commentary:

Canada

By Eric Lam

Oct. 10 (Bloomberg) — Canadian stocks rose the most in three months as energy companies rallied amid signs that U.S. lawmakers may reach an agreement to increase the debt ceiling and avoid a default.

Canadian Natural Resources Ltd. jumped 4.5 percent as energy stocks surged. BlackBerry Ltd. rose 0.6 percent after company co-founders Michael Lazaridis and Douglas Fregin said they are considering all options including an acquisition of the company. Twin Butte Energy Ltd. jumped 9.1 percent after agreeing to buy Black Shire Energy Inc. for C$358 million ($345 million). Royal Bank of Canada, the nation’s largest lender, climbed 1.9 percent to close at a record.

The Standard & Poor’s/TSX Composite Index rose 164.08 points, or 1.3 percent, to 12,894.41 at 4 p.m. in Toronto, the best rally since July 11. The index is up 3.7 percent this year.

“It’s definitely a risk-on trade, less of a flight to safety, energy is popping higher on that,” said Kevin Headland, a fund manager with Manulife Asset Management Ltd. in Toronto.

He helps manage about C$250 billion ($241 billion) with the firm. “It’s a sentiment-driven market. Everybody’s believing there could be some resolution. Better prior to the 17th than on the eve of the 17th.”

House Republican leaders proposed a short-term increase in the debt ceiling, and Jay Carney, the White House press secretary, said that President Barack Obama would likely sign the plan. Both sides are weighing a potential solution to an impasse over raising the debt limit, set to be reached around Oct. 17.

Energy companies rallied 1.6 percent as a group, as nine of 10 industries in the S&P/TSX advanced. Trading volume was 16 percent higher than the 30-day average.

Canadian Natural Resources gained 4.5 percent to C$33.46 and Suncor Energy Inc. rose 2 percent to C$36.88 as the price of crude rebounded from a three-month low.

BlackBerry, the struggling smartphone maker looking to sell itself, advanced 0.6 percent to C$8.49. Lazaridis, a former co- chief executive, said in a regulatory filing that he and Fregin have hired Goldman Sachs Group Inc. and Centerview Partners LLC to help them study their options, including a possible takeover.

Lazaridis also disclosed an 8 percent stake in BlackBerry.

A bid for BlackBerry would compete with a $4.7 billion offer from Fairfax Financial Holdings Ltd., the company’s biggest shareholder, which is seeking partners to help finance a buyout.

Twin Butte Energy climbed 9.1 percent, the most in almost two years, to C$2.23. The company will pay C$3.45 in cash and stock for each share of Black Shire, and expects the deal to close by Nov. 5.

Royal Bank jumped 1.9 percent to a record C$67.69 to pace gains among Canada’s banks. Bank of Montreal rallied 1.2 percent to C$69.50 and Toronto Dominion Bank rose 1.3 percent to C$92.30.

Brookfield Asset Management Inc. gained 3.1 percent to C$40.03 and Manulife Financial Corp. rose 2.9 percent to C$17.61 as the S&P/TSX Financial Index advanced 1.5 percent to the highest in almost six years.

Pretium Resources increased 4.5 percent to C$5.09. The company plunged 31 percent yesterday after Strathcona Mineral Services Ltd. resigned as an independent evaluator of Pretium’s 10,000 metric-ton ore sample. Strathcona resigned due to a disagreement with another company hired to vet the ore, Pretium Chief Executive Officer Robert Quartermain said in an interview.

Air Canada, the nation’s largest airline, surged 4.3 percent to C$4.89 to extend a five-year high as industrial stocks rallied 1.5 percent as a group.

Air Canada is the best-performing stock in the S&P/TSX this year, soaring 179 percent after cutting costs and reporting better-than-forecast earnings. The airline said on Oct. 3 that costs for the third quarter and 2013 will decline more than anticipated.

Bombardier Inc. rose 1.9 percent to C$4.94. Egypt Air will evaluate Bombardier, along with several other brands as it considers a need for 60 more jet aircraft to replace and expand its existing fleet.

US

By Lu Wang and Aubrey Pringle

Oct. 10 (Bloomberg) — U.S. stocks jumped, with benchmark indexes rallying the most since January, as lawmakers moved toward an agreement to increase the debt ceiling and avoid a default.

Nike Inc., Boeing Co. and American Express Co. rose more than 3.4 percent, leading advances among large companies. Wells Fargo & Co. and JPMorgan Chase & Co. gained at least 2.7 percent before reporting earnings tomorrow, propelling financial shares to the biggest gain in 16 months. Gilead Sciences Inc. jumped 6.5 percent as the largest biotechnology company by market value said the cancer drug idelalisib improved survival times.

The Standard & Poor’s 500 Index surged 2.2 percent to 1,692.56 at 4 p.m. in New York. The Dow Jones Industrial Average advanced 323.09 points, or 2.2 percent, to 15,126.07. Both gauges had their steepest climbs since Jan. 2. About 6.5 billion shares changed hands on U.S. exchanges, 12 percent higher than the three-month average.

“You’re taking the nuclear option off the table, the fact that we’ll blow through the debt ceiling, that’s not going to happen,” Dan Veru, the chief investment officer who helps oversee $4.5 billion at Palisade Capital Management LLC, said in a phone interview from Fort Lee, New Jersey. “This continues to put pressure on lawmakers to get a deal done because they’re seeing that just in fact talking is what markets want them to” do, he said.

All but 12 members of the S&P 500 index rose today, the broadest advance this year. The gauge’s rally was the biggest since a 2.5 percent surge on the first trading day of the year, when lawmakers passed a bill averting spending cuts and tax increases known as the fiscal cliff. The index has climbed 0.7 percent since the government shutdown began Oct. 1, and has trimmed its decline to 1.9 percent since closing at a record of 1,725.52 on Sept. 18.

Investors reacted to a House Republican proposal for a short-term increase in the debt ceiling that would reduce the prospects for a U.S. default. The plan would push the lapse of U.S. borrowing authority to Nov. 22 from Oct. 17. It wouldn’t end the 10-day-old partial shutdown of the federal government.

President Barack Obama would support a short increase in the U.S. debt limit with no “partisan strings attached,” though he prefers a longer extension, Jay Carney, the White House press secretary, said today. The proposal could come up for a vote on the House floor as soon as tomorrow.

U.S. Treasury Secretary Jacob J. Lew warned Congress today that “uncertainty” over the debt limit is starting to stress financial markets and trying to time an increase to the last minute “could be very dangerous.”

The Chicago Board Options Exchange Volatility Index, the gauge of S&P 500 options prices known as the VIX, slumped 16 percent today to 16.48 for its biggest retreat since April. The gauge is down 8.6 percent in 2013.

“The market has been very emotional,” Paul Mangus, head of equity strategy and research for Wells Fargo Private Bank in Charlotte, North Carolina, said in a phone interview. His firm manages $170 billion. “You had days of positive, relief rallies followed by days of angst and concerns over the debt ceiling and government shutdown. Until we reach a period where we have clarity on that, we’d expect volatility to be elevated.”

A Treasury Department report on Oct. 3 said consequences would be “catastrophic” should the U.S. default, including higher interest rates, lower investment and slow growth for decades to come.

A partial federal government shutdown lasting through the end of this week would pare 0.2 percentage point from U.S. economic growth and cost as much as 0.5 point if it continues another two weeks, according to the median estimate in a Bloomberg survey of economists taken Oct. 4-9. The Claims for U.S. jobless benefits jumped last week to the highest level in six months, a Labor Department report today showed, providing the first statistical warning that the damage from the partial federal shutdown is starting to ripple through the economy.

Most Fed officials last month predicted drag from fiscal restraint would be a reason for them to hold the benchmark lending rate at 2 percent or lower until the end of 2016 to support growth and job creation.

Investors will watch financial reports as more companies release third-quarter results. Profits for companies in the S&P 500 probably increased 1.7 percent during the three months while sales rose 2.2 percent, according to analysts’ estimates compiled by Bloomberg. The projections are down from 5.7 percent and 3.6 percent, respectively, from the end of June.

“There is not a pent-up expectation that this is going to be a gangbuster quarter,” Mangus said. “Consequently, you can have some positive surprises.”

All 10 S&P 500 industry groups jumped at least 1.4 percent.

Companies whose earnings are most tied to economic swings led the gains. The Morgan Stanley Cyclical Index jumped the most in a month, adding 1.9 percent.

Industrial shares surged 2.7 percent to pace gains. Boeing, the world’s largest planemaker, rallied 3.9 percent to $118.90 for the biggest gain in the Dow.

Nike advanced 3.6 percent to $73.44. DA Davidson & Co. raised its stock-price estimate for the world’s largest sporting-goods maker to $76 from $75 after the company said yesterday that annual sales will rise to $36 billion by the end of fiscal 2017.

Financial shares surged 2.9 percent as a group, the biggest rally since June 2012, as all 81 members of an S&P index advanced. American Express, the biggest U.S. credit-card issuer by purchases, jumped 3.4 percent to $74.66.

Wells Fargo gained 2.7 percent to $41.44 while JPMorgan added 3.5 percent to $52.52. JPMorgan is among lenders that said earnings will suffer from a bond-trading slump, while Wells Fargo guided analysts to expect mortgage originations to fall by almost 30 percent.

MetLife Inc. added 3.7 percent to $48.11 and Prudential Financial Inc. climbed 4.1 percent to $79.07, pacing gains among insurers as bond yields rose. The firms invest funds from clients in bonds and other assets to back future payouts.

Gilead Sciences jumped 6.5 percent to $62.74. The company said patients benefited enough from the cancer drug idelalisib to end a late-stage study early.

Netflix Inc. rose 5.4 percent to $303.99, snapping a three- day slide. Laura Martin, an analyst with Needham & Co., started coverage of the stock with a buy rating and said the video service provider has the ability to boost subscription prices.

While Netflix fell 12 percent this week through yesterday, the stock has more than tripled since the start of the year.

Time Warner Cable Inc. jumped 6.1 percent to $116.95. The cable company and Univision Communications Inc., a media group that caters to Hispanic Americans, agreed to extend their partnership and deliver more content to Time Warner subscribers.

UnitedHealth Group Inc. surged 3.6 percent to $73.98. The biggest U.S. insurer had the outlook on its credit rating raised to positive from stable by S&P on expectation that the company will strengthen its leadership in the industry.

Citrix Systems Inc. slumped 12 percent to $58.75 as the technology company reported preliminary third-quarter earnings of 68 cents to 69 cents a share. That missed the average analyst estimate compiled by Bloomberg of 73 cents.

Quest Diagnostics Inc. slipped 4.9 percent to $58.66. The biggest U.S. operator of medical laboratories said preliminary results showed that, excluding some items, it earned $1.02 a share in the third quarter. Analysts, on average, estimated $1.20, according to a Bloomberg survey.

Have a wonderful evening everyone.

Be magnificent!

The Upanishad tells us:  Know the soul that is your own.

In other words:  Realize the grand unique principle of the whole that is in all men.

Rabindranath Tagore, 1861-1901

As ever,

Carolann

In three words I can sum up everything I’ve learned

about life:  it goes on.

-Robert Frost, 1874-1963

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