October 23, 2012 Newsletter

Dear Friends,

Tangents:

I attended the annual Barron’s The Art of Successful Investing in NYC yesterday and as always, it was a very educational and worthwhile experience.  I came away, as I do every year, with excellent ideas to explore for my own portfolio management strategies.  Many of the most highly esteemed money managers in the world, including Marc Faber from Hong Kong and Felix Zulauf from Switzerland,  Scott Black, Meryl Witmer, Bill Priest, among others, attend and give their very specific portfolio recommendations in the current investment environment.  I was pleased to see that several of them were recommending the exact same investments I have been recommending to you over the past year.   The one area where I have not been investing very much this past many years and where many of the money managers in attendance, (especially David Herro, named Morningstar’s International Stock Fund Manager of the Year in 2006 and International Manager of the Decade in 2010) are beginning to do so, is Japan.  In fact, Herro’s top holding is Daiwa.  When I got back to the office this morning (yes, after the red-eye from JFK on Cathay; watched the debate in the airport lounge), I did some research on Bloomberg.  I’ll watch it.  My fear is that the Japanese will start printing like the Fed is doing with QE and the yen declines.  It is a cheap stock, at $3.96, yielding almost 2%; still need to study it more before I recommend it.  All were bullish on gold, especially the mining stock that have underperformed the commodity.  Dr. Faber, ever the cynic, cautioned that if you own physical gold, you should be careful where you hold it because it can be confiscated.  I’m going home to sleep J.

P.S. The Alba truffles have arrived at those select NYC restaurants.

An interesting article in the Wall Street Journal today on preventing cognitive decline in aging.  You might want to drop the crossword puzzle and head out for a brisk walk of bike ride instead:

“In a study published in the journal of Neurology of almost 700 people born in 1936, researchers found physically active people showed fewer signs of brain shrinkage and other deterioration than those who got less exercise….’People who exercise more have better brain health,’ said Alan Gow, one of the study’s researchers and a senior research fellow at the University of Edinburgh in Scotland.’….Researchers found that higher levels of physical activity were associated with less brain atrophy, or shrinkage, and less brain damage.  They found no link between brain health and leisure activities.

‘We are coming to appreciate the fact that people with who remain physically active are less likely to show cognitive decline,’ said Stephen Rao, the director of the Cleveland Clinic Schey Center for Cognitive Neuroimaging…”  -WSJ, 10/23/12

On this day in…

1925 – Johnny Carson was born.

1929 – The first transcontinental air service begins from New York to Los Angeles.
1952 – The Nobel Prize for Medicine is awarded to Ukranian-born microbiologist Selmart A. Waksman for his discovery of an effective treatment of tuberculosis.
1954 – In Paris, an agreement is signed providing for West German sovereignty and permitting West Germany to rearm and enter NATO and the Western European Union.

1956 – Hungarian Revolution.
1983 – A truck filled with explosives, driven by a Moslem terrorist, crashes into the U.S. Marine barracks in Beirut, Lebanon. The bomb kills 237 Marines and injures 80. Almost simultaneously, a similar incident occurs at French military headquarters, where 58 die and 15 are injured.

1989 – Hungarian Independence.

Difficulties increase the nearer we get to the goal. – Johann Wolfgang von Goethe

photos of the day October 23, 2012

A streetlight and the London Eye are seen on a foggy autumn morning in central London.

Andrew Winning/Reuters

A man fixes a lantern at the Dragon Temple in Bangkok for Thailand’s Vegetarian Festival. Devotees all over the country eat only vegan or vegetarian food for 10 days in the belief that strict adherence to the diet and abstaining from all vices purifies the body.

Sukree Sukplang/Reuters

Market Closes for October 23^rd, 2012:

International Markets

Bonds

Currencies

Commodities

Market Commentary:

Canada

By Lu Wang

Oct. 23 (Bloomberg) — Canadian stocks slumped, giving the benchmark index its biggest decline since June, as the Bank of Canada strengthened its bias for raising interest rates and commodities erased their gains for the year.

All 10 industry groups in the Standard & Poor’s/TSX Composite Index slipped. Commodity companies dropped 2.1 percent, as Canadian Natural Resources Ltd. and Suncor Energy Inc. tumbled at least 2.1 percent. Royal Bank of Canada declined 1.8 percent after agreeing to buy Ally Financial Inc.’s Canadian auto-finance and deposit business. Canadian National Railway Co. lost 0.9 percent after saying it may not reach the upper end of a full-year profit forecast range.

The S&P/TSX slumped 177.7 points, or 1.4 percent, to 12,225.84 in Toronto. The benchmark gauge is down 0.7 percent in October, poised to end four consecutive months of gains. The index rallied as much as 11 percent from its 2012 low on May 18 as the Federal Reserve and the European Central Bank took actions to stimulate the economy.

“Most of the rally that we’ve seen over the past few months has been on central bank coordinated easing,” Mathieu Roy, a money manager at Louisbourg Investments Inc. in Moncton, New Brunswick, said in a telephone interview. The firm oversees about C$1.5 billion ($1.5 billion). “Any thoughts of them taking some of the liquidity away will have an impact on sentiment and stocks.”

Policy makers led by Governor Mark Carney kept the benchmark rate at 1 percent, where it’s been more than two years, and said “some modest withdrawal of monetary policy stimulus will likely be required.” The central bank retained its outlier status among the Group of Seven nations, citing rising household debts amid a “moderate” economic recovery.

The decision to keep the rate unchanged was expected by all 26 economists in a Bloomberg News survey.

Commodity companies sank as the Standard & Poor’s GSCI spot gauge of 24 raw materials fell for a third consecutive session, dropping 1.4 percent today. The last annual drop was in 2008.

Canadian Natural Resources, an oil and gas company, tumbled 3.7 percent to C$29.65. Suncor Energy, Canada’s largest energy company, slumped 2.1 percent to C$32.66.

Royal Bank declined 1.8 percent to C$56.94. The nation’s largest lender agreed to buy Ally Financial’s Canadian auto- finance and deposit business in a cash deal providing $4.1 billion in proceeds to Ally. The deal is the largest takeover ever for Royal Bank, eclipsing a $2.16 billion purchase of Centura Banks in 2001.

Toronto-Dominion Bank retreated 1.1 percent to C$82.09.

Canada’s second-largest bank agreed to buy the $5.9 billion U.S. credit card portfolio of Target Corp.

Canadian National, the country’s biggest railroad, slipped 0.9 percent to C$86.29. While the company said adjusted full- year earnings may increase as much as 15 percent, reaffirming a forecast made in July, Chief Financial Officer Luc Jobin cited a “challenging” view on the economy. Canadian National won’t announce profit targets for 2013 until its fourth-quarter earnings call in January, he said.

Canfor Pulp Products Inc. dropped 7.1 percent to C$9.02.

The Canadian pulp and paper producer reported its first quarterly loss since 2009. Stephen Atkinson, an analyst with BMO Capital Markets, lowered the stock’s rating to underperform, an equivalent of sell, from market perform, citing an “extended price war” in the pulp market.

US

By Rita Nazareth

Oct. 23 (Bloomberg) — U.S. stocks retreated, giving the Dow Jones Industrial Average its biggest decline since June, amid disappointing results at companies from 3M Co. to DuPont Co. and as commodities erased their gain for the year.

3M, the maker of products ranging from Scotch tapes to dental braces, and DuPont, the most valuable U.S. chemical maker, slumped at least 4.1 percent. Freeport-McMoRan Copper & Gold Inc. and Halliburton Co. dropped more than 3.1 percent as commodities sank amid concern about a global economic slowdown.

Facebook Inc. surged 9.5 percent at 4:39 p.m. New York time after posting sales that topped analysts’ projections.

The Standard & Poor’s 500 Index decreased 1.4 percent to 1,413.11 at 4 p.m. New York time, the lowest level since Sept.5. The Dow slumped 243.36 points, or 1.8 percent, to 13,102.53.

Volume for exchange-listed stocks in the U.S. was 6.6 billion shares, or 9.1 percent above the three-month average.

“That’s the reality of the situation that investors are facing,” said Bruce Bittles, chief investment strategist at Milwaukee-based RW Baird & Co., which oversees $85 billion. He spoke in a phone interview. “There’s not much growth in the economy. There’s lack of demand. How can revenues grow?”

Thirty-three companies in the S&P 500 were scheduled to release results today. Third-quarter sales missed forecasts at 60 percent of companies, according to data compiled by Bloomberg. Earnings at about 70 percent of the index’s companies beat analysts’ estimates, the data showed.

Concern about a worsening of the earnings picture has sent the S&P 500 down 3.6 percent from this year’s high on Sept. 14.

The decline has extended its October loss to 1.9 percent after the index capped four straight months of gains. The benchmark measure is still up 12 percent in 2012 on speculation central bankers will keep economies expanding.

All 10 groups in the S&P 500 retreated at least 0.8 percent today as commodity and financial shares had the biggest losses.

The Morgan Stanley Cyclical Index of companies most-tied to economic growth declined 1.1 percent.

“The earnings season has not gone as well as many would like,” said Tom Wirth, who helps manage $1.6 billion as senior investment officer for Chemung Canal Trust Co., in Elmira, New York. “In general, sales have been disappointing. There’s heightened concern about global growth.”

3M dropped 4.1 percent to $88.73. The St. Paul, Minnesota- based company, which makes a majority of revenue in Europe and Asia, cut the profit target and the top end of its goal for sales from existing businesses to reflect what it called “current economic realities.”

DuPont retreated 9.1 percent, the most in the Dow, to $45.25. The company said it will eliminate about 1,500 jobs after posting a smaller third-quarter profit than analysts estimated on falling demand for paint pigment.

Xerox Corp. fell 5.1 percent to $6.67. The provider of printers and business services said third-quarter profit fell 12 percent as demand for its equipment and supplies declined.

Commodity companies had the biggest losses in the S&P 500 among 10 industry groups, dropping at least 2.3 percent.

Freeport-McMoRan declined 3.9 percent to $38.98. Halliburton dropped 3.2 percent to $33.47.

The Standard & Poor’s GSCI spot gauge of 24 raw materials fell for a third consecutive session, dropping 1.4 percent today. It first erased gains for the year in May and the last time it happened was in July. The last annual drop was in 2008.

Refiners including Tesoro Corp. and Valero Energy Corp. fell on speculation by Deutsche Bank that a win by Republican presidential candidate Mitt Romney may threaten restrictions on U.S. crude exports. Tesoro fell 4.5 percent to $36.42. Valero dropped 3.8 percent to $28.36.

“We believe a Mitt Romney election win — broadly supported by the refining industry — could in fact threaten the crude export ban,” Paul Sankey, a Deutsche Bank energy analyst based in New York, wrote today in a note to investors.

Apple Inc. slid 3.3 percent to $613.36, after surging 4 percent yesterday. Chief Executive Officer Tim Cook introduced a smaller version of the iPad designed to keep customers from buying low-cost tablets from competitors Microsoft Corp., Amazon.com Inc. and Google Inc.

Apple, the most valuable company, unveiled the iPad at an event today in San Jose, California. The device boasts a  7.9- inch screen diagonally, compared with the 9.7-inch screen of the current iPad. It is priced starting at $329.

Regions Financial Corp. fell 7.6 percent to $6.54 after the bank said it would move as much as $400 million in loans to non- performing status in the fourth quarter.

Monster Beverage Corp. slid 10 percent to $41.08. The company was removed from the Conviction Buy list at Goldman Sachs Group Inc. The shares tumbled 14 percent yesterday after its energy drinks have been cited in the deaths of five people in the past year, according to incident reports that doctors and companies submit to the U.S. Food and Drug Administration.

Facebook Inc. rose 0.9 percent to $19.50 ahead of its earnings report. The shares rallied 9.5 percent to $21.36 after the close of regular trading. Third-quarter sales rose 32 percent to $1.26 billion, Menlo Park, California-based Facebook said today in a statement. That compares with the average estimate of $1.23 billion, according to data compiled by Bloomberg. Profit excluding certain items also exceeded projections by a penny.

Coach Inc. surged 7.4 percent to $58.15. The largest U.S. luxury handbag maker reported fiscal first-quarter profit that exceeded analysts’ estimates as it kept expenses for acquisitions and e-commerce from increasing too quickly.

Yahoo! Inc. rose 5.7 percent to $16.67. New Chief Executive Officer Marissa Mayer outlined her turnaround strategy for the biggest U.S. Web portal, emphasizing mobile technology and personalized services.

United Parcel Service Inc., which is considered an economic bellwether, rose 3 percent to $73.73. It reduced the top end of its 2012 profit forecast after posting third-quarter earnings that matched analysts’ estimates, buoyed by a gain in U.S. package volumes and international exports.

Harley-Davidson Inc. added 7.7 percent to $46.89. The biggest U.S. motorcycle maker surged after touting new models headed to dealerships by 2015. New bikes coming by 2015 will benefit from the company’s focus on the flagship Harley brand, Chief Executive Officer Keith Wandell said today.

Federal Reserve Chairman Ben S. Bernanke is trying to inject a little of the exuberance his predecessor Alan Greenspan called “irrational” into markets for everything from stocks to housing.

Bernanke, who is seeking to spur the economy with a third round of so-called quantitative easing, has said his stimulus works by lowering borrowing costs and encouraging investors to seek higher-yielding assets. Boosting home and equity prices through bond buying will encourage consumers and businesses to spend more, according to Bernanke.

Since these are the same assets that plummeted during the financial crisis after reaching record highs, “is there some risk you could start a new bubble and repeat the whole cycle? I suppose there is,” said Robert Shiller, the Yale University professor who forecast the end of the Internet boom in his book, “Irrational Exuberance,” which was published in March 2000, the month the Nasdaq Composite Index peaked before crashing 78 percent.

Have a wonderful evening everyone.

Be  magnificent!

To love is to understand and feel that the other person is different.

Swami Prajnanpad, 1891-1974

As ever,

Carolann

By nature, men are nearly alike; by practice,

they get to be wide apart.

-Confuscius, 551-479 BC

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