October 21st, 2011 Newsletter

Dear Friends,

Tangents:

Birthdays: Dizzy Gillespie, October 21, 1917

             Alfred Nobel, October 21, 1833, established Nobel Prize

What counts in making a happy marriage is not so much

how compatible you are, but how you deal with incompatibility.

                                   -Leo Tolstoy, 1828-1910

-from the Book of Days:  reflections from the past…

Conrad Russell to Katharine Asquith, October 22, 1929:

Your mother and I dined off a tray and then we turned on H.G. Wells on the wireless and we were soon both in the Land of Nod.  I wonder what the point of that sort of listening in is.  We can all read Wells if we want to; he has a vulgar accent and a squeaky scrannel voice.  It’s a wonderful invention for blind and bedridden invalids of course.  Also you can hear the result of the boat race [between Oxford and Cambridge Universities] more quickly.

Photo of the day 

October 21, 2011

Migrating cranes fly during sunset near Straussfurt, central Germany.Jens Meyer/AP.

Market Commentary:

Canada

By Matt Walcoff

Oct. 21 (Bloomberg) — Canadian stocks gained, narrowing a weekly decline, as oil and metals rose after euro-area finance ministers began meetings aimed at preventing their sovereign debt crisis from damaging banks and the economy.

Canadian Natural Resources Ltd., the nation’s second- biggest oil and gas producer by market value, climbed 2.7 percent as crude advanced. First Quantum Minerals Ltd., the country’s second-largest publicly traded copper producer, gained 6.3 percent as the metal rallied after settling yesterday at the lowest since July 2010. Toronto-Dominion Bank, Canada’s second- biggest lender by assets, increased 1.1 percent.

The Standard & Poor’s/TSX Composite Index rose 119.16 points, or 1 percent, to 11,949.49, reducing its weekly loss to 1.1 percent.

“The market’s been moving on rumors there could be a start of a resolution to the difficulties they’re having over there,” Greg Eckel, a money manager at Morgan Meighen & Associates Ltd. in Toronto, said in a telephone interview of negotiations in Europe. The firm oversees about C$1 billion ($991 million). “If there’s actually some meat to the resolution, I could see the markets moving much higher,” he said.

The S&P/TSX slipped this week as European officials struggled to reach an agreement on changes to the continent’s rescue initiatives. Canada’s stock benchmark gauge is set to underperform the S&P 500 this year for the first time since 2003 as base metals and fuels have retreated. Energy and raw- materials companies make up 47 percent of Canadian stocks by market value, according to Bloomberg data.                   

Today’s meeting of euro-area finance ministers will be followed by a gathering of ministers from all 27 European Union countries tomorrow. Leaders of EU countries are scheduled to meet on Oct. 23 and Oct. 26. European governments may offer as much as 940 billion euros ($1.3 trillion) to fight the debt crisis, two people familiar with the discussions said yesterday.

The S&P/TSX Energy Index completed its fourth-straight weekly gain. Canadian Natural climbed 2.7 percent to C$33.31. Encana Corp., the country’s biggest natural gas producer, rose 3.2 percent to C$21.10.

Bankers Petroleum Ltd., which produces oil and gas in Albania, rallied 10 percent to C$4.88 a day after John Malone, an analyst at Ticonderoga Securities LLC, boosted his rating on the shares to “buy” from “neutral.” The company’s share price assumed too low of an oil price, Malone wrote in a note to clients.                       

Precision Drilling Corp, Canada’s largest contract drilling company, sank 5.3 percent to C$10.98 after reporting earnings that trailed the average analyst estimate in a Bloomberg survey by 11 percent, excluding certain items.

Raw-materials companies advanced as the U.S. Dollar Index fell to the lowest in five weeks.

First Quantum increased 6.3 percent to C$15.99 as copper futures surged the most since June 2009. Extorre Gold Mines Ltd., which explores in Argentina, soared 7.8 percent to C$8.02 as gold futures rebounded from the lowest settlement price since Sept. 26. Potash Corp. of Saskatchewan Inc., the world’s largest fertilizer producer by market value, climbed 0.9 percent to C$49.63 as wheat gained.

The six biggest S&P/TSX banks and the three largest insurers each rose. TD gained 1.1 percent to C$74.50. Royal Bank of Canada, its bigger domestic rival, advanced 1 percent to C$48.04. Manulife Financial Corp., North America’s fourth- largest insurer, climbed 2.5 percent to C$12.75.

Canadian National Railway Co., the country’s biggest railroad, rose 1.6 percent to C$75.04 to lead the S&P/TSX Industrials Index to its fourth-straight weekly gain, the longest streak since February. CN and Canadian Pacific Railway Ltd. advanced this week as CSX Corp. and Union Pacific Corp. reported profit increases.

US

By Rita Nazareth

Oct. 21 (Bloomberg) — U.S. stocks advanced, giving the Standard & Poor’s 500 Index its longest streak of weekly gains since February, amid speculation of an agreement to contain Europe’s debt crisis and further Federal Reserve stimulus.

Morgan Stanley and Wells Fargo & Co. added at least 2.1 percent as European lenders rallied. Alcoa Inc. and Boeing Co. rose more than 2.8 percent, pacing gains in companies most-tied to the economy. McDonald’s Corp. climbed 3.7 percent after profit jumped as lower-priced items boosted U.S. store sales.

Honeywell International Inc. advanced 5.8 percent as a recovery in commercial aerospace helped earnings climb 44 percent.  The S&P 500 increased 1.9 percent to 1,238.25 as of 4 p.m. New York time, the highest level since Aug. 3. The gauge rose 1.1 percent since Oct. 14, gaining for a third straight week.

The Dow Jones Industrial Average climbed 267.01 points, or 2.3 percent, to 11,808.79 today, erasing its 2011 decline.

“There’s a sense that Europe will come out with something that will calm down imminent fears of the crisis escalating out of control,” James Paulsen, chief investment strategist at Minneapolis-based Wells Capital Management, which oversees about $360 billion, said in a telephone interview. “Markets are also digesting Federal Reserve lip service given to additional  quantitative easing moves. However, it appears most investors are unsure whether additional easing is needed.”

Gains accelerated after the S&P 500 climbed past 1,233.10, its intraday peak on Oct. 18. A burst of trading in E-Mini S&P 500 futures occurred at that level, according to data compiled by Bloomberg. Volume jumped to 31,774 contracts at 10:17 a.m. New York time, the most for any minute of the day at that point.

Three rallies since the U.S. government was stripped of its AAA credit rating by S&P have stopped around 1,220.

“The path of least resistance is higher,” Christopher Verrone, head of technical analysis at New York-based Strategas Research Partners, said in a phone interview. “I’m interested to see what happens in the 1,260-1,270 range. That is when we’ll get more information on how durable this advance is.”

France retreated in a clash with Germany over how to expand the power of Europe’s bailout fund after the first meeting in a six-day marathon intended to solve the debt crisis. France’s view that the fund, the European Financial Stability Facility, should get a banking license enabling it to borrow from the European Central Bank, “is not a definitive point of discussion for us,” French Finance Minister Francois Baroin told reporters today in Brussels. “What matters is what works.”

French President Nicolas Sarkozy and German Chancellor Angela Merkel are scheduled to meet tomorrow in Brussels before a summit the next day and a follow-up leaders’ gathering on Oct. 26 to nail down what they’ve called a “comprehensive” plan.

“While we won’t get a definitive response from the Europeans this weekend on how best to deal next with their debt crisis, officials are still holding out hope that just a few extra days will complete the job,” Peter Boockvar, an equity strategist at Miller Tabak & Co., wrote in a note today.

American banks rallied following gains in European lenders. Morgan Stanley rose 2.5 percent to $17.02. Wells Fargo added 2.1 percent to $26.31.

Investors also reacted to comments from Fed Governor Daniel Tarullo, who late yesterday called for resuming large-scale purchases of mortgage bonds, boosting chances of a third round of asset buying aimed at reviving growth. Today, Fed Vice Chairman Janet Yellen said a third round of large-scale securities purchases might become warranted if necessary.

“While the hurdles for QE3 remain high, it’s still on the table as an option,” Alan Gayle, a senior strategist at RidgeWorth Capital Management in Richmond, Virginia, which oversees about $47 billion, said in a telephone interview. “It becomes a question of whether or not it’s effective.”

The Morgan Stanley Cyclical Index of companies most-tied to the economy rose 3 percent. The Dow Jones Transportation Average, a proxy for the economy, added 2.2 percent. Alcoa, the largest U.S. aluminum producer, advanced 2.8 percent to $10.23. Boeing climbed 3.4 percent to $64.59.

Earnings reports have also gained investors’ attention today. Profit for S&P 500 companies will climb 16 percent in the third quarter and rise 18 percent to a record $99.25 for all of 2011, according to analyst estimates compiled by Bloomberg.

About three quarters of the S&P 500 companies that reported results since Oct. 11 beat analysts’ estimates.

McDonald’s added 3.7 percent to $92.32. Chief Executive Officer Jim Skinner has sought to draw American diners with low- priced menu items, such as the $1 McDouble burger, as the nation’s 9.1 percent unemployment rate saps consumer confidence. Sales in the U.S. were driven by fruit smoothies, Chicken McNuggets and breakfast foods, the company said.

Honeywell climbed 5.8 percent to $51.28 as the company also increased its full-year forecast. Honeywell and other U.S. manufacturers have posted earnings growth this year amid a slowing economy by keeping costs in check and expanding abroad.

Aerospace sales rose 8 percent in the quarter, the company said. Seagate Technology Plc surged 28 percent, the most since it went public in 2002, to $15.42. ThinkEquity LLC analysts said that the maker of disk drives may gain market share from rival Western Digital Corp. due to recent Thai floods.

Energy and raw material producers gained as the S&P GSCI Index of commodities advanced 1 percent. Freeport-McMoRan Copper & Gold Inc. gained 5.2 percent to $36.58. ConocoPhillips added 2.2 percent to $71.83.

General Electric Co. slid 1.9 percent, the biggest decline in the Dow, to $16.31 as tighter profit margins in industrial businesses from energy to aviation overshadowed third-quarter growth led by the finance unit.                     

Companies transporting holiday merchandise may outperform the stock market as a rise in consumer spending indicates seasonal shopping may be better than forecast.

Retailers were cautious when they placed orders this summer amid concerns the economy was “falling apart” and headed for a double-dip recession, said David Ross, a Baltimore-based transportation analyst at Stifel Nicolaus & Co. Even though September retail sales rose the most in seven months, shares of trucking and airfreight companies still reflect pessimistic forecasts, he said.

 “There is a greater chance of a positive holiday-shopping surprise than a negative one,” said Ross, who maintains “buy” ratings on United Parcel Service Inc. and Old Dominion Freight Line Inc. If retailers are caught short after under-ordering, the peak shipping period — typically July through September — will occur later, he said.

Have a wonderful weekend everyone.

Be magnificent!

It is man’s social nature which distinguishes him from the brute creation.

If it is his privilege to be independent, it is equally his duty to be inter-dependent.

Only an arrogant man will claim to be independent of everybody else and be self-contained.

-Mahatma Gandhi, 1869-1948

As ever,

Carolann

I think you should take your job seriously,

but not yourself – that is the best combination.

            -Judi Dench, 1934-