October 15, 2013 Newsletter

Dear Friends,

Tangents:

On this  day in 1993, 20 years ago, Nelson Mandela won the Nobel Peace Prize for his role in ending apartheid in South Africa.

Last night I finished reading a book entitled Summertime written by another Nobel laureate, J.M. Coetzee.  Coetzee is from South Africa and he won the Nobel prize for literature in 2003.  I’ve read a few of his books, Disgrace, Elizabeth Costello, are two that come to mind easily; I quite like his writing.  Apartheid is often an underlying theme in his work.  What makes Summertime remarkable is it is about the life of the writer Coetzee written by Coetzee but told through the fictional biographer he creates in this novel.  The chapters are interviews with people who knew him when he was alive, growing up in South Africa and afterwards, when he was an English Professor in South Africa.  This book was written in 2009 – a good read.  Now I can begin Jhumpa Lahiri’s  recently published novel Lowland.  I love her writing.

Photos of the day

Torch bearers Nataliya Golovina (l.) and Olga Puchkova hold Olympic torches during a relay in Ryazan, Russia. The relay for the Sochi Winter Games will pass through many cities that showcase the historical, cultural, and ethnic richness of Russia. Olympictorch2014.com/AP

A girl and a boy walk on the first day of the Eid al-Adha feast near the Saudi city of Tabuk. Mohamed Al Hwaity/Reuters

Market Closes for October 15^th, 2013

International Markets

Bonds

Currencies

Commodities

Market Commentary:

Canada

By Eric Lam

Oct. 15 (Bloomberg) — Canadian stocks rose, after posting the biggest weekly gain in a month, as metal producers rallied with the price of gold to help erase earlier declines amid political brinkmanship in the U.S. over avoiding a debt default.

Miners accounted for the 10 biggest advances in the benchmark equity index, with AuRico Gold Inc. soaring 12 percent to pace gains among gold producers. BlackBerry Ltd. gained 1.6 percent after a report that private-equity firm Cerberus Capital Management LP is considering an offer for the company. Canadian National Railway Co. dropped 0.4 percent after the Teamsters Canada union threatened to strike over contract talks.

The Standard & Poor’s/TSX Composite Index rose 39.35 points, or 0.3 percent, to 12,931.46 at 4 p.m. in Toronto, erasing an earlier loss of as much as 0.4 percent. Canadian markets were closed yesterday for the Thanksgiving holiday. The gauge advanced 1.1 percent last week, most since Sept. 6.

“There continues to be pockets of attractiveness, and we continue to be favorable on stocks,” said Barry Schwartz, fund manager with Baskin Financial Services in Toronto. He helps manage about C$535 million ($516 million). “I don’t think anyone should be distracted by what’s going on. Don’t let it scare you.”

The fiscal showdown in Washington entered its final stages as the House and Senate prepared competing plans that would end the 15-day-old government shutdown and prevent the U.S. from missing promised payments.

The House and Senate plans would both fund the government through Jan. 15, 2014, and suspend the U.S. debt limit until Feb. 7. As the differences narrow between the parties, a House vote as soon as tonight would test whether Republicans are willing to raise borrowing authority and end the shutdown without major changes to the 2010 health-care law.

“The only thing you can’t model is crazy politicians,” Schwartz said. “You cannot put that into your formulas to come up with a value when you have nut cases running the asylum. I’m not concerned about global growth, or the economy.”

Five of 10 main industries in the S&P/TSX rose, with materials and technology stocks increasing the most. Trading volume was 16 percent lower compared with the 30-day average at this time of the day.

Materials producers rallied 2.1 percent as gold, silver and copper prices reversed earlier declines. The S&P/TSX Gold Index gained 2.9 percent, the most in almost a month.

AuRico Gold surged 12 percent to C$4.04, the most since Sept. 18, after the company reported third-quarter production of about 48,900 ounces of gold and reiterated its production forecast for the year.

Torex Gold Resources Inc. climbed 6.8 percent to C$1.26 and Silvercorp Metals Inc. added 3.9 percent to C$3.24 as gold and silver prices pared earlier losses in New York.

Teck Resources Ltd. rallied 2.7 percent to C$27.89 as copper rose for a fourth day.

BlackBerry gained 1.6 percent to C$8.48 as technology stocks climbed 1.3 percent as a group.

Cerberus Capital, the private-equity firm that focuses on distressed assets, has signed a nondisclosure agreement with BlackBerry and is in the early stages of considering an offer to acquire all of the company, a person with knowledge of the situation said.

Wi-Lan Inc., the patent licensing company, climbed 3.2 percent to C$4.25, the highest since July, after the company settled a patent case with Novatel Wireless Inc. Wi-Lan has jumped 10 percent in the past four sessions.

Canadian National Railway lost 0.4 percent to C$109.07 as industrial stocks slipped 0.2 percent as a group.

Teamsters Canada Rail Conference, which represents about 3,300 railway workers including conductors, said Canadian National Railway has rejected the union’s proposal for further mediation and warned there may be a strike or lockout on Oct. 28.

Talisman Energy Inc. dropped 1.5 percent to C$12.52 as the price of crude slipped to a three-month low amid talks with Iran over its nuclear program. Two days of negotiations with the U.S., U.K., France, Germany, Russia and China began today in Geneva.

US

By Nick Taborek

Oct. 15 (Bloomberg) — U.S. stocks dropped, following a four-day rally in the Standard & Poor’s 500 Index, as lawmakers failed to reach an agreement to extend the government’s borrowing limit less than two days before the deadline.

Citigroup Inc. dropped 1.5 percent as its profit fell short of analysts’ estimates. Teradata Corp. declined 18 percent after the computer-data storage company’s earnings missed projections.

Flir Systems Inc. dropped 14 percent after preliminary earnings fell short of analyst estimates. FedEx Corp. jumped 4.1 percent after the world’s largest cargo airline operator announced a share repurchase program.

The S&P 500 fell 0.7 percent to 1,698.06 at 4 p.m. in New York. The Dow Jones Industrial Average declined 133.25 points, or 0.9 percent, to 15,168.01. About 6.2 billion shares changed hands on U.S. exchanges today, 6.3 percent above the three-month average.

“Everyone is somewhat over-caffeinated and a bit jittery in part because of politicians not doing their job,” Chad Morganlander, a Florham Park, New Jersey-based portfolio manager at Stifel Nicolaus & Co., which oversees about $130 billion of assets, said by phone. “The markets are trading on every news clip and the uncertainty is increasing, which is having an unstabilizing effect in the markets.”

The benchmark index dropped as much as 0.8 percent after Senate Majority Leader Harry Reid rejected a House plan to halt the fiscal impasse and Senate leaders stopped talks on a bill that would fund the government through Jan. 15, 2014, and suspend the U.S. debt limit until Feb. 7. The Senate talks haven’t broken down, spokesmen for the chamber’s top leaders said.

The House later revised its plan, which would extend government funding through Dec. 15, rather than Jan. 15, 2014, in the Senate plan, said Representative Devin Nunes of California, who had been meeting with leaders. A vote could come as soon as tonight.

The new House proposal would bar government subsidies of health insurance for congressional staff members, along with lawmakers and high-ranking administration officials, Nunes said. A two-year delay in the medical-device tax was dropped, he said.

The Congressional impasse has left the government partially shut down since Oct. 1 and could lead to the U.S. reaching on Oct. 17 the limit on federal borrowing.

The S&P 500 closed at the highest since Sept. 19 yesterday after a four-day rally gave it the biggest advance since January, as optimism grew that lawmakers would reach a deal to prevent a government default. The rally pushed the gauge to within 16 points of its Sept. 18 record of 1,725.52.

“If we can get through this political mess, then we can really start to focus on more fundamental things like earnings,” Thomas Garcia, head of equity trading at Santa Fe, New Mexico-based Thornburg Investment Management Inc., said in a phone interview. His firm manages more than $90 billion. “The numbers that we are going to start to get for the last month, you might see a little bit of a slowdown from the government shutdown.”

A report today showed manufacturing in the New York region grew at a slower pace than projected in October as sales and hiring cooled. The government shutdown has delayed the publication of some closely watched economic data, including the Labor Department’s monthly jobs gauge.

Profits for companies in the S&P 500 probably increased 1.4 percent during the three months while sales rose 2 percent, according to analysts’ estimates compiled by Bloomberg. Intel Corp., Johnson & Johnson, Yahoo! Inc. and Coca-Cola Co. were are among nine companies in the S&P 500 that released third-quarter results today.

The Chicago Board Options Exchange Volatility Index, the gauge of S&P 500 options prices known as the VIX, jumped 16 percent to 18.66. the biggest gain since June 20.

All 10 main industries in the S&P 500 fell at least 0.4 today, as utility stocks dropped 1.4 percent to lead losses.

Industrial companies and producers of consumer-discretionary products sank more than 0.5 percent.

Home Depot Inc. retreated 1.5 percent to $75.18 and Procter & Gamble Co. sank 1.5 percent to $77.60 for the biggest slides in the Dow.

An S&P index of homebuilders fell 2.6 percent for a second day of losses. KB Home slid 3.2 percent to $16.09 and Lennar Corp. fell 2.8 percent to $33.34.

Teradata sank 18 percent to $42.91. The company said adjusted earnings per share amounted to 69 cents to 70 cents in the third quarter, compared with the average analyst estimate that called for 81 cents. Teradata cut its earnings forecast for the year to $2.70 to $2.80, down from a previous prediction of $3.05 to $3.20.

Flir Systems Inc. lost 14 percent to $28.59. The maker of surveillance and broadcast systems reported preliminary third- quarter profit below analyst estimates as exposure to the U.S. federal government hurt results.

Citigroup dropped 1.5 percent to $48.86. The third-biggest U.S. bank reported a $3.23 billion profit that missed estimates as bond trading slumped 26 percent and U.S. mortgage revenue declined.

Charles Schwab Corp. gained 4.6 percent to $23.03. The brokerage reported third-quarter profit that beat analyst estimates as average revenue per trade increased.

Coca-Cola increased 0.7 percent to $37.66. The world’s largest beverage company said third-quarter profit rose as sales volumes advanced in North America.

FedEx rallied 4.1 percent to $120.08, the highest since February 2007. The package delivery company said it would buy back 32 million shares, or about 10 percent of its outstanding stock as of Sept. 30. The repurchase program comes in addition to an existing plan to buy back 7.4 million shares.

Even with a deadline looming for the U.S. to avoid a debt default, it’s been a comparatively calm October for financial markets. Daily swings in the S&P 500 have averaged 0.78 percent so far this month through yesterday, down from 0.9 percent for Octobers over the last eight decades and less than a quarter the moves in 1929, 1987 and 2008, data compiled by Bloomberg show.

U.S. equities aren’t overpriced even though they have historically elevated valuations, Robert J. Shiller, a co-winner of this year’s Nobel Prize in economics, said today in a Bloomberg Television interview with Tom Keene and Sara Eisen.

Companies are “relatively high-priced” according to Shiller’s cyclically adjusted price-earnings ratio, or CAPE, which compares the S&P 500 with companies’ average profits during the past 10 years, he said.

“The U.S. market is still not that overpriced, not like it was in 2000,” even though “we’re pretty high” using the CAPE gauge, he said. “Looking at the alternatives, it should be a part of your portfolio.”

Have a wonderful evening everyone.

Be magnificent!

The very essence of the Hindu Philosophy

is that man is a spirit, and has a body,

and not that man is a body and

may have a spirit also.

Swami Vivekananda, 1863-1902

As ever,

Carolann

Do what you can, with what you have,

where you are.

-Theodore Roosevelt, 1858-1919

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