October 24th, 2012 Newsletter

Dear Friends,

Tangents:

On this day in 1945, the United Nations became an official organization after a charter was ratified by 29 countries around the world.

And on this day in 1664, King Charles II wrote to his sister Henrietta:

You have heard of our taking of New Amsterdam, which lies just by New England.  ‘Tis a place of great importance to trade.  It did belong to England heretofore, but the Dutch by degrees drove our people out and built a very good town, but we have got the better of it, and ‘tis now called New York.

And also on this day in…

1934 – Mohandas Karamchand Gandhi, called Mahatma or “Great Soul,” resigns from Congress in India.

1938 – The Fair Labor Standards Act becomes law, establishing the 40-hour work week.

1947- Kevin Kline, actor, was born.

1952 – Presidential candidate Dwight D. Eisenhower announces that if elected, he will go to Korea.

2003 – The supersonic Concorde jet made its last commercial passenger flight from New York City’s John F. Kennedy International Airport to London’s Heathrow Airport, traveling at twice the speed of sound.

Fear is what stops you. Courage is what keeps you going. -Unknown

photos of the day

October 24, 2012

A sparrow is fed by a man at Madrid, Spain’s Retiro park during an autumn day.

Sergio Perez/Reuters

Fog lies in the valleys behind an autumnally colored tree seen from the Schauinsland mountain in the black forest, southwestern Germany.

Winfried Rothermel/AP

Market Closes for October 24^th, 2012:

International Markets

Bonds

Currencies

Commodities

Market Commentary:

Canada

By Inyoung Hwang

Oct. 24 (Bloomberg) — Canadian stocks fell, sending the Standard & Poor’s/TSX Composite Index lower for a fourth day, as declines in commodity shares overshadowed corporations topping earnings estimates and signs that a slump in China’s factory output is easing.

Barrick Gold Corp. and Goldcorp Inc. slid at least 0.7 percent as the metal’s price retreated. Encana Corp. dropped 3.1 percent after reporting a third-quarter loss. Canadian Pacific Railway Ltd. jumped 6 percent after reporting its best operating ratio in two years. Rogers Communications Inc. rallied 3.3 percent after posting quarterly profit that beat estimates.

The S&P/TSX lost 30.82 points, or 0.3 percent, to 12,195.02 in Toronto. The benchmark gauge for Canadian equities has erased 2.2 percent since Oct. 18 amid disappointing earnings results.

The index is down 1 percent in October, poised to end four consecutive months of gains.

“Despite some decent economic numbers out of China, there continues to be concern about commodity prices,” Timothy Lazaris, chief executive officer of Red Sky Capital Management Ltd. in Toronto, which oversees C$60 million ($60 million), said in a telephone interview. “The materials and energy sectors are weak again today.”

Raw material companies posted the biggest decline out of 10 groups in the S&P/TSX as the price of gold, copper and silver fell after a bigger-than-expected contraction in euro-area services and manufacturing added to concern that metals demand will slow.

Global equities rose earlier after a survey signaled a smaller contraction in China’s manufacturing and a report showed purchases of new homes in the U.S. rose in September to the highest level in more than two years.

Bank of Canada Governor Mark Carney said today the case for higher interest rates in Canada has become “less imminent.”

Speaking to reporters in Ottawa, Carney said that over time, interest rates are more likely to go up than not. The nation’s central bank also highlighted record household debt that may trigger a sudden drop in consumer spending in the world’s 11th largest economy.

Commodity companies sank as the Standard & Poor’s GSCI spot gauge of 24 raw commodities fell for the fourth straight session, losing 0.4 percent. The measure erased its gains for the year yesterday, poised for the first annual drop since 2008.

Barrick, the world’s largest gold producer, sank 0.7 percent to C$38.34. Goldcorp, the second-biggest producer, lost 3.5 percent to C$40.79.

Oil fell for a fifth day, the longest losing streak in five months, after the U.S. Energy Department said supplies rose three times as much as forecast last week, gaining 5.9 million barrels to 375.1 million. An increase of 1.8 million was expected.

Encana, Canada’s largest natural gas producer, dropped 3.1 percent to C$21.86 as third-quarter results were weighed down by a $1.19 billion writedown because of falling fuel prices.

Encana’s net loss was $1.24 billion compared with profit of $459 million a year earlier. Operating earnings fell 32 percent to $263 million, or 36 cents a share, from $389 million, or 53 cents, the company said.

Out of 247 companies in the S&P/TSX, 12 have reported earnings results. In the U.S., about 69 percent of the 192 S&P 500 companies that have posted quarterly results beat analysts’ earnings projections.

Canadian Pacific rallied 6 percent to C$93.18 after posting its best operating ratio in two years as new services and terminal closings helped boost profit 20 percent during Hunter Harrison’s first quarter as chief executive officer. That ratio, an industry benchmark of cost against revenue, fell to 74.1 in the third quarter, the lowest since 2010’s third quarter, based on data compiled by Bloomberg.

Rogers Communications added 3.3 percent to C$42.43.

Canada’s largest wireless carrier reported third-quarter profit that surpassed estimates, helped by an 18 percent jump in smartphone data spending and job cuts. Profit rose to 96 Canadian cents a share, excluding stock-based compensation expenses and restructuring and acquisition costs, beating the average estimate of 89 cents.

Teck Resources Ltd. rose 2.8 percent to C$31.39. Canada’s largest diversified miner said third-quarter adjusted earnings were 60 cents a share, exceeding the average analyst estimate by 1 cent.

US

By Rita Nazareth

Oct. 24 (Bloomberg) — U.S. stocks declined, sending the Standard & Poor’s 500 Index to a seven-week low, as the Federal Reserve’s call for moderate growth offset signs of improvement in Chinese factory output and America’s housing market.

Netflix Inc. plunged 12 percent after the world’s largest online video service cut its forecast for domestic growth.

Altera Corp. slumped 8.4 percent as the maker of programmable chips used in phone systems predicted sales that fell short of estimates. D.R. Horton Inc. and Toll Brothers Inc. added at least 1.5 percent to pace gains in homebuilders. Facebook Inc., the world’s biggest social networking site, surged 19 percent after reporting sales that topped analysts’ projections.

The S&P 500 declined 0.3 percent to 1,408.75 at 4 p.m. New York time, dropping 1.8 percent in two days. The Dow Jones Industrial Average lost 25.19 points, or 0.2 percent, to 13,077.34. Volume for exchange-listed stocks in the U.S. was 6.1 billion shares, or about in line with the three-month average.

“It’s been a pretty lackluster market,” Walter “Bucky” Hellwig, who helps manage $17 billion of assets at BB&T Wealth Management in Birmingham, Alabama, said in a telephone interview. “There’s nothing new or encouraging in terms of the Fed’s outlook regarding the economy. In addition to that, top line growth of companies has been disappointing.”

Equities erased gains as the Fed said the economy is still growing modestly and unemployment remains elevated as it maintains $40 billion in monthly purchases of mortgage-backed securities aimed at spurring the three-year expansion. An earlier advance was driven by a survey signaling a smaller contraction in China’s manufacturing. Purchases of new homes in the U.S. rose to the highest level in more than two years.

Forty-four companies in the S&P 500 were scheduled to release results today. Earnings at about 69 percent of the index’s companies beat analysts’ estimates, according to data compiled by Bloomberg. Third-quarter sales missed forecasts at 60 percent of companies, according to data compiled by Bloomberg, the data showed.

Concern about a worsening of the earnings picture has sent the S&P 500 down 3.9 percent from this year’s high on Sept. 14.

The decline has extended its October loss to 2.2 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.

Netflix lost 12 percent to $60.12. The company is counting on its profitable U.S. streaming and mail-order DVD businesses to pay for overseas growth, a plan analysts question with dwindling gains at home.

Altera retreated 8.4 percent to $29.89. Two customers are switching away from Altera’s processors to alternatives, the company said on a conference call with analysts yesterday.

That’s taking a bite out of fourth-quarter revenue. One of the customers is Huawei Technologies Co., China’s biggest maker of telecommunications-network equipment, representing $150 million in lost sales, according to a report by Chris Danely, an analyst at JPMorgan Chase & Co.

IAC/InterActiveCorp slid 8.4 percent to $48. The company founded by Barry Diller forecast a 2013 operating loss for units that include Newsweek, which it plans to convert to an online- only publication after 80 years of print.

Eli Lilly & Co. lost 2.7 percent to $50.50 after reporting third-quarter earnings that missed analyst estimates after generic competition reduced revenue from the schizophrenia treatment Zyprexa, once the company’s top-selling drug.

Tempur-Pedic International Inc. plunged 19 percent to $25.66. The mattress maker acquiring rival Sealy Corp. cut its 2012 profit forecast amid increased U.S. competition and weakening sales in Europe.

Brinker International Inc. sank 10 percent to $30.01. The owner of the Chili’s and Maggiano’s dining chains forecast profit that was less than analysts estimated.

A measure of 11 homebuilders in S&P indexes added 1 percent. D.R. Horton advanced 1.5 percent to $21.41. Toll Brothers increased 2 percent to $35.25.

Facebook surged 19 percent to $23.23. Ads delivered to people on mobile devices generated about $150 million during the quarter, or 14 percent of all advertising revenue. That compares with about $10 million in the second quarter, according to an estimate by Brian Wieser, an analyst at Pivotal Research Group.

The shares were raised to buy from hold at Stifel Nicolaus & Co.

Dow Chemical Co. climbed 4.7 percent to $29.88. The chemical producer eliminating 2,400 jobs to cope with a slowing economy reported better-than-expected earnings as volumes rose and plastics output benefited from low-cost natural gas.

Lockheed Martin Corp. increased 2.1 percent to $93.92. The world’s largest defense contractor said third-quarter profit rose 9.3 percent and raised its full-year earnings forecast. The company also projected a decline in 2013 sales.

US Airways Group Inc. jumped 2.3 percent to $12.37. The carrier that wants to merge with American Airlines said third- quarter profit more than doubled as passenger traffic increased and the price it paid for jet fuel declined.

Molina Healthcare Inc. rallied 14 percent to $25.81. The insurer specializing in Medicaid plans for the poor reported a profit on improved results from its biggest market.

Yelp Inc. climbed 7.4 percent to $25.77. The U.S. website that lets users review businesses ranging from plumbers to pet shops announced an acquisition to expand in Europe and reported sales that topped estimates.

The S&P 500 will advance 5 percent to about 1,480 over the next two weeks before the rally ends and stocks fall, according to Tom DeMark, the creator of indicators to show turning points in securities.

The gain would push the benchmark index above the 2012 intraday high of 1,474.51 reached on Sept. 14 before buyers are exhausted, said DeMark, whose prediction last year that the S&P 500’s decline would stop at 1,076 proved prescient when the index bottomed at 1,074.77 on Oct. 4, 2011. The advance will fizzle, with the S&P 500 heading for a potential decline of 12 percent to 17 percent, he said in an e-mailed statement.

“There is still some unfinished business upside that will totally surprise and shock most market followers,” DeMark, the founder of Market Studies LLC, wrote. The S&P 500 “rally is a solo move in a sense that the overall market trend has been down since Sept. 14,” he wrote.

Have a wonderful evening everyone.

Be magnificent!

Differentiation, infinitely contradictory, must remain,

but it is not necessary that we should hate each other;

it is not necessary therefore that we should fight each other.

Swami Vivekananda, 1863-1902

As ever,

Carolann

People don’t choose their careers; they are

engulfed by them.

-John Dos Passos, 1896-1970

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