October 15, 2012 Newsletter

Dear Friends,

Tangents:

I cut this editorial out of The Financial Times recently to share with you;  I think the writer is pretty clever:

Cameron’s lapsus

Prime minister strays from terra firma with Letterman

It is unlikely that the words veni, vidi, vici were running through David Cameron’s mind as he quit the set of the David Letterman talk show this week. Not because he failed to conquer the New York audience. But because Britain’s Eton-educated prime minister revealed a surprising ignorance of the most basic Latin.

High quality global journalism requires investment.

It is hard to believe that Mr. Cameron – whose alma mater, Oxford, is one of the most elite universities in the country – did not know the meaning of the words magna carta. When asked for a translation, the prime minister instead gave an ex tempore lesson on the significance of the 1215 document that enshrines individual freedom and, as he quite rightly said, sowed the seeds of Britain’s democracy. Pushed by his mischievous host to answer the question, Mr. Cameron was forced in extremis to admit defeat.

Whether this was bona fide ignorance or a quasi lapse of memory is up for debate.  Some are even suggesting that it was, de facto, an attempt to counter his posh image with a less elitist alter ego.  However, if this was Mr. Cameron’s strategy, a posteriori it was a mistake.  Even for those with no Latin education, per se, it does not take a great deal of imagination to work out the meaning of the words magna carta (great charter).

Mr. Cameron has made his mea culpa by promising to brush up on his Latin texts in future.  But this is not likely to be a priority in recession-hit Britain.  As he confessed, the British public is far from happy with the status quo.

The prime minister may have gone down well with a US audience charmed by his public school politeness.  But whether his appearance on one of America’s most popular chat shows will ipso facto boost his flagging standing in the polls at home is questionable.

Perhaps the gamble was that, in absentia, he could make the positive impression that eludes his party at home.  Instead, the risk is that his lapsus will return to haunt him, ad infinitum. –from the FT, September 28^th, 2012

On this day in 2007, the New York Yankees signed Alex Rodriguez to a 10-year, $275 million contract, the second 10-year contract of his career. The Yankee third baseman has three hits in 23 at bats this post season, with no home runs and no RBIs. –from The Wall Street Journal, October 15, 2012.

And also on this day in…

70 BC – Virgil, poet, was born.

1844 – Friedrich Nietzsche, philosopher, was born.

1881 – P. G. Wodehouse, writer, was born.

1905 -C. P. Snow, writer, was born.

1908 – John K. Galbraith, economist, was born.

1917 – Mata Hari was executed.

1924 – German ZR-3 flies 5000 miles, the furthest Zeppelin flight to date.

1941 – Odessa, a Russian port on the Black Sea which has been surrounded by German troops for several weeks, is evacuated by Russian troops.

1945 – Vichy French Premier Pierre Laval is executed by a firing squad for his wartime collaboration with the Germans.

1950 – President Harry Truman meets with General Douglas MacArthur at Wake Island to discuss U.N. progress in the Korean War.

1959 – duchess Sarah Ferguson was born.

1964 – Nikita Khrushchev is replaced by Leonid Brezhnev as leader of the Soviet Union.

If you risk nothing, then you risk everything. –Geena Davis

photos of the day

October 15, 2012

The sculpture ‘Irma’s White Head, 2008’ (r.) by Spanish artist Jaume Plensa is displayed in Place Vendome in Paris.

Francois Mori/AP

Indian Hindu devotees gather on the banks of the River Ganges on the auspicious occasion of Somvati Amavasya, or no moon day, in Allahabad, India. Amavasya is the new moon day that falls on a Monday in a traditional Hindu lunar calendar. It is a rare occurrence in a year and is considered highly auspicious.

Rajesh Kumar Singh/AP

Market Closes for October 15th, 2012:

International Markets

Bonds

Currencies

Commodities

Market Commentary:

Canada

By Inyoung Hwang and Eric Lam

Oct. 15 (Bloomberg) — Canadian stocks climbed, with the Standard & Poor’s/TSX Composite Index advancing in the last half hour of trading, as a rally in financial shares overshadowed a slump in commodities and a rise in household debt to a record.

Manulife Financial Corp., Canada’s largest insurer, advanced 1.5 percent. Royal Bank of Canada, the nation’s largest lender, and Toronto-Dominion Bank rose at least 0.5 percent.

Argonaut Gold Inc. plunged 7.9 percent after agreeing to buy Prodigy Gold Inc. for C$320.3 million ($327.6 million).

Turquoise Hill Resources Ltd. retreated 5.1 percent after the company rejected demands from the Mongolian government to renegotiate a mining deal.

The S&P/TSX rose 27.92 points, or 0.2 percent, to 12,229.96 in Toronto, erasing earlier losses of as much as 0.5 percent.

The benchmark equity gauge slumped 1.8 percent last week for the biggest drop since June 1.

“There’s a lot of cash on the sidelines and people are skittish. You need some impetus to buy,” Irwin Michael, fund manager with ABC Funds, said in an interview from Toronto. His firm manages about C$800 million. “It’s to be expected debt will go up in tougher economic times, but we can’t get mesmerized by all the data.”

Canadian household debt compared with disposable income jumped to a record 165.8 percent in the second quarter, Statistics Canada said, heightening concerns borrowing will weigh on the country’s economic outlook.

The first-quarter figure was also revised to 164.2 percent from a previous 154.3 percent. Today’s report made historical revisions back to 1990, which raised the debt ratio in recent years due to a higher estimate of credit-market debt and reduced income.

Manulife added 1.5 percent to C$12.03. Royal Bank rose 0.7 percent to C$57.24 and TD Bank gained 0.5 percent to C$81.45.

Financial stocks contributed most to gains on the benchmark Canadian equity gauge as nine of 10 industries advanced on trading 25 percent lower than the 30-day average.

Raw materials stocks had the only decline among groups in the S&P/TSX, falling 0.2 percent. Gold for December delivery fell the most in three months, slipping 1.3 percent to settle at $1,737.60 an ounce in New York as reports showed U.S. retail sales increased last month more than forecast and inflation slowed in China.

Argonaut Gold tumbled 7.9 percent to C$9.65, its biggest loss since May 2011, after announcing a deal to buy Vancouver- based Prodigy Gold and its Magino gold project in northern Ontario. Prodigy Gold soared 42 percent to 98 cents, its highest level in almost four years.

Turquoise Hill Resources retreated 5.1 percent to C$8.12 after the company, along with its partner Rio Tinto Group, said they rejected a request by Mongolia to renegotiate a 2009 deal over the $6.2 billion Oyu Tolgoi copper and gold mine.

London-based Rio Tinto owns 51 percent of Turquoise Hill, formerly Ivanhoe Mines Ltd.

Barrick Gold Corp., the world’s largest gold producer, slipped 0.8 percent to C$37.99 and Detour Gold Corp. retreated 4.1 percent to C$26.60.

Crude for November delivery fell 1 cent to settle at $91.85 a barrel in New York. Oil last week posted its first weekly gain in a month as increasing Middle East tension prompted concern that supplies may be disrupted.

Canadian Natural Resources Ltd., the nation’s third-largest oil company by market value, lost 0.5 percent to C$30.10 and Talisman Energy Inc. declined 0.6 percent to C$12.70.

US

By Nikolaj Gammeltoft

Oct. 15 (Bloomberg) — U.S. stocks rose, as the Standard & Poor’s 500 Index rebounded from its biggest weekly drop in four months, after American retail sales and Citigroup Inc.’s earnings topped estimates.

Citigroup soared 5.5 percent, the most since March, as results were helped by a surge in bond-trading revenue. Texas Instruments Inc. rose 3.5 percent on a report Amazon.com Inc. may buy its mobile chip unit. PulteGroup Inc. and KB Home jumped more than 4.9 percent as homebuilders rallied. Apple Inc. added 0.8 percent after falling as much as 0.9 percent earlier.

The S&P 500 climbed 0.8 percent to 1,440.13 at 4 p.m. in New York. The Dow Jones Industrial Average rose 95.38 points, or 0.7 percent, to 13,424.23. About 5.9 billion shares traded hands on U.S. exchanges, 2 percent below the three-month average.

“The retail sales report looked a little bit better than expected,” Dan Veru, who oversees $3.5 billion as chief investment officer at Palisade Capital Management LLC in Fort Lee, New Jersey, said in a phone interview. “The big question regarding earnings is whether expectations have come down enough so that companies can beat guidance.”

U.S. stocks rose as the Commerce Department said retail sales climbed 1.1 in September following a revised 1.2 percent increase in August that was the biggest since October 2010 and larger than previously reported. The median forecast of 77 economists surveyed by Bloomberg called for a 0.8 percent rise.

A separate report showed manufacturing in the New York region contracted for a third straight month in October as shipments and employment declined.

The S&P 500 sank 2.2 percent last week, the biggest retreat since June 1, as the International Monetary Fund reduced its global growth forecasts and earnings projections from Alcoa Inc. and AMD disappointed investors. The benchmark index has rallied 15 percent this year as the Fed announced a third round of bond purchases and companies posted better-than-expected earnings in the first half of 2012.

Some 84 companies in the S&P 500 release results this week, according to data compiled by Bloomberg. Of the 38 companies in the benchmark index that have reported since Oct. 9, 27 posted earnings that exceeded analyst estimates, according to data compiled by Bloomberg.

Citigroup jumped 5.5 percent to $36.66 today. Chief Executive Officer Vikram Pandit, 55, is cutting jobs and shedding unwanted assets, including a 49 percent stake in Smith Barney, as he seeks to return capital to shareholders and comply with new regulations on buffers against losses. Revenue from fixed-income trading surged 63 percent excluding accounting adjustments after tumbling last year during the European sovereign-debt crisis.

Texas Instruments, the largest maker of analog chips, jumped 3.5 percent to $28.22. Amazon.com is seeking to provide processors for smartphones and tablets by buying Texas Instruments’ mobile chip unit, Calcalist reported without saying where it got the information.

Advanced Micro Devices Inc. added 0.4 percent to $2.75 after a person familiar with the matter said the second-largest maker of processors for personal computers plans to cut as many as 2,340 jobs, or about 20 percent of its workforce. Third- quarter sales will decline about 10 percent from the prior period, a bigger drop than previously forecast, the company said on Oct. 11.

Investors bought shares of companies most tied to economic growth. The Morgan Stanley Cyclical Index, containing 30 U.S. stocks, gained 1.1 percent, while an S&P gauge of homebuilders rallied 3.6 percent as all of its 11 members advanced.

PulteGroup soared 5.1 percent to $16.40. KB Home jumped 4.9 percent to $15.32.

Apple, the world’s most valuable company, gained 0.8 percent to $634.76. Shares of the iPhone maker have fallen 9.6 percent from an all-time high of $702.10 on Sept. 19, driving the stock below its average price in the past 50 days for the first time since July. The shares are still up 57 percent this year.

Sprint Nextel Corp. lost 0.7 percent to $5.69, while phone stocks erased 0.6 percent for the only decline among 10 groups in the S&P 500. Softbank Corp. agreed to buy a 70 percent stake in Sprint as Japan’s third-biggest mobile-phone operator seeks growth overseas amid a declining local market.

AT&T Inc., the largest U.S. phone carrier, retreated 1.2 percent to $35.21 for the biggest decline in the Dow. MetroPCS Communications Inc., which Sprint has considered buying, fell the most in the S&P 500, dropping 4.6 percent to $11.33.

Hasbro Inc. fell 3.9 percent to $37.75. The world’s second- largest toymaker was downgraded to sell from neutral at Goldman Sachs Group Inc.

Consol Energy Inc. decreased 2.2 percent to $34.36. The largest U.S. coal producer by market value announced an unexpected third-quarter net loss after idling mines in response to lower demand.

“The upcoming U.S. election and resolution of the fiscal cliff pose a significant risk for equities,” Marko Kolanovic, global head of derivatives and quantitative strategy at JPMorgan & Chase Co., wrote in a report today. “Higher taxes could negatively impact all equities with a proportionally larger impact on specific groups such as high-dividend yielding stocks.”

The so-called fiscal cliff refers to the $600 billion of tax increases and spending cuts that will kick in automatically in 2013 unless Congress fails to break a partisan deadlock and reach agreement on the nation’s budget deficit.

Republican presidential nominee Mitt Romney and President Barack Obama will hold their second debate at 9 p.m. tomorrow at Hofstra University in Hempstead, New York. It will be a town hall format, which will allow audience questions on a full range of issues.

“In the U.S., the continuous threat to raise taxes has led to unprecedented levels of public policy uncertainty, dampening economic activity,” Barry Knapp, head of U.S. equity strategy at Barclays Plc’s securities unit, wrote in a note to clients today. “If the small business sector believes pro-growth tax reform and entitlement restructuring will keep the tax issue off the table, then the cyclical recovery becomes more probable.”

The S&P 500 has gained 16 percent on average in election years when a Republican wins and an equal amount when the incumbent remains in the White House, according to Credit Suisse Group AG.

Have a wonderful evening everyone.

Be magnificent!

Each one has a special nature peculiar to himself which he must follow

and through which he will find his way to freedom.

Swami Vivekananda, 1863-1902

As ever,

Carolann

The mind reaches great heights

only by spurts.

-Vauvenargues, 1715-1747

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