October 7, 2013 Newsletter

Dear Friends,

Tangents:

Just back from the annual World Business Forum in NYC.   Interesting discussions and learned lots and incessant buzz on the dysfunctional situation in Washington.  Lots to catch up on…

Of note:  On this day in 1849, American author and poet Edgar Allen Poe passed away at the age of 40.

But it’s World Smile Day today, and,

Laughter is the shortest distance between two people.  – Victor Borge.

Photos of the day

Three-year-old Eva Mahesan and her grandfather look at the brightly colored leaves in the autumn sunshine in Sheffield Park Gardens near Haywards Heath in Southern England. Luke MacGregor/Reuters

Beads of morning dew rest atop a fallen leaf near the intersection of Wallenberg and Court Streets in downtown Flint, Mich. Jake May/The Flint Journal/AP

Market Closes for October 7^th, 2013

International Markets

Bonds

Currencies

Commodities

Market Commentary:

Canada

By Eric Lam

Oct. 7 (Bloomberg) — Canadian stocks rose, following a decline last week, after gold producers rallied as investors sought a store of value amid growing concern that the U.S. could default on its debt.

AuRico Gold Inc. and Osisko Mining Corp. jumped at least 5 percent as all 24 members of a gold index advanced with the price of the precious metal. Allied Nevada Gold Corp. surged 28 percent after saying it reached its production and sales targets for the third quarter. BlackBerry Ltd. rallied 4.1 percent after a Macquarie Group Ltd. analyst raised his rating on the smartphone maker to the equivalent of a hold amid a report the company was in new takeover discussions.

The Standard & Poor’s/TSX Composite Index climbed 29.60 points, or 0.2 percent, to 12,788.25 at 4 p.m. in Toronto. The index slipped 0.7 last week and has added 2.9 percent this year.

Trading volume was 13 percent lower than the 30-day average.

“It’s textbook, this is what should happen, gold should be going up so the market is responding rationally to this crisis,” said Jeffrey Burchell, co-chief investment officer with Aston Hill Financial Inc. in Toronto. The firm manages about C$7 billion ($6.8 billion). “Every time in the past when they’ve had these crises you have a situation where the market has sold off in advance. This time it hasn’t, the market is acting rationally because everyone knows at some point this is going to get solved.”

President Barack Obama said he would be willing to negotiate with Republicans on fiscal terms if they raised the debt limit by next week and restored government funding.

The U.S. government could default on its debt if lawmakers don’t reach an agreement to raise the borrowing limit by Oct. 17. Economists say failure by the world’s largest borrower to pay its debt will devastate stock markets from Brazil to Zurich and throw the U.S. and world economies into a recession that probably would become a depression.

The benchmark U.S. equity gauge fell more than 11 percent in three days in August 2011 amid a stalemate over the debt limit. The losses were later reversed and the S&P 500 gained 25 percent in the 12 months through August 2012.

In Canada today, building permits tumbled 21.2 percent to C$6.34 billion in August from a revised 21.4 percent gain in July, on a decline in commercial projects such as retail stores and office buildings.

Seven of 10 main industries in the S&P/TSX rose today, with producers of raw materials and technology stocks rising 0.8 percent to lead advances.

The S&P/TSX Gold Index jumped 2.3 percent, with all 24 members rising. Gold added 1.2 percent in New York for the first gain in three sessions as the U.S. budget impasse stoked demand for the metal as a store of value.

Osisko Mining climbed 7 percent to C$5.35 and AuRico Gold gained 5 percent to C$4.02.

Allied Nevada jumped 28 percent to C$5, the biggest gain since April, after the company said it is on track to meet its 2013 forecasts for gold and silver production. The miner plans to report third-quarter results during the week of Nov. 4.

Rio Alto Mining Ltd. added 4.4 percent to C$1.89, snapping a five-day slide, after saying it will meet its forecast for gold output this year.

BlackBerry rallied 4.1 percent to C$8.20, halting a two-day losing streak, after Kevin Smithen, analyst with Macquarie, raised his rating for the stock with a price target of $7.

BlackBerry has six buys, 22 holds and 14 sells, according to data compiled by Bloomberg.

Reuters reported on Oct. 4 after the close that BlackBerry was in talks with six firms, including Google Inc. and Cisco Systems Inc. for a potential sale. The company has a conditional deal to sell itself to a group led by Fairfax Financial Holdings Ltd., its largest shareholder, for about $4.7 billion, or $9 a share.

Air Canada soared 4.3 percent to C$4.66. The nation’s largest airline extended a five-year high and has rallied 32 percent in the past five sessions. It said on Oct. 3 that costs for the third quarter and full year will decline more than anticipated. Air Canada has surged 166 percent in 2013 for the best performance in the S&P/TSX.

US

By Lu Wang and Aubrey Pringle

Oct. 7 (Bloomberg) — U.S. stocks fell, with the Standard & Poor’s 500 Index dropping to the lowest level in a month, as lawmakers remained deadlocked over extending the nation’s debt limit to avoid a default.

Bank of America Corp. and Wells Fargo & Co. paced declines among banks, each slipping 1.7 percent. International Business Machines Corp. retreated 1.1 percent as Barclays Plc lowered its recommendation. Cooper Tire & Rubber Co. sank 13 percent as Apollo Tyres Ltd. is seeking to cut its $2.5 billion offer to buy the U.S. company. Apple Inc. gained 1 percent after Jefferies Group LLC upgraded the stock.

The S&P 500 fell 0.9 percent to 1,676.12 at 4 p.m. in New York, the lowest since Sept. 9. The Dow Jones Industrial Average declined 136.34 points, or 0.9 percent, to 14,936.24. About 5 billion shares changed hands on U.S. exchanges, the slowest trading since Aug. 29.

“The volume is very light so I do think investors are trying to feel their way through this,” Walter Todd, chief investment officer at Greenwood Capital Inc., said in a phone interview from Greenwood, South Carolina. He helps manage $950 million. “Each day that it goes by without any type of solution or any hope of a solution, the market gets more and more concerned about what the ultimate outcome is.”

Speaker John Boehner said yesterday in an interview on ABC’s “This Week” that the House of Representatives can’t pass a debt-ceiling increase without packaging it with other provisions. Boehner said the country could default if President Barack Obama doesn’t negotiate. Obama today challenged congressional Republicans to raise the U.S. debt limit by next week and said he’s willing to negotiate on fiscal terms once that is done and government funding is restored.

Without an increase to the debt limit, the U.S. will exhaust its borrowing authority on Oct. 17 and would run out of funds to pay all of its bills sometime between Oct. 22 and Oct. 31, according to the Congressional Budget Office. Senate Democrats could introduce legislation as soon as today that gives Obama the authority to raise the debt ceiling unless two- thirds of Congress disapproves, according to a Senate Democratic aide.

S&P stripped the U.S. of its AAA credit rating in August 2011 amid a stalemate between Obama and Congress over whether to raise the debt ceiling. The S&P 500 fell more than 11 percent in three days.

Moody’s Investors Service said it sees a “very low” chance the U.S. will default on its debt payments. The impact of the partial government shutdown on the economy may not be particularly damaging in the short term, and the effect would be seen gradually over time if it was an extended one, Chief Executive Officer Ray McDaniel said in a Bloomberg Television interview in Bali on Oct. 5.

The S&P 500 had its first back-to-back weekly decline since August as the government began on Oct. 1 its first shutdown in 17 years, placing as many as 800,000 federal employees on unpaid leave and closing some services, after lawmakers failed to reach an agreement on budgets before the start of a new fiscal year.

The action delayed the release of the Labor Department’s monthly payrolls report, due last week. Should the shutdown continue, economic data to be postponed this week include September retail sales and August trade.

The lack of data is making it harder for Federal Reserve policy makers to assess the health of the economy as they consider when to start paring unprecedented monetary stimulus.

The S&P 500 jumped to a record on Sept. 18 as the central bank unexpectedly refrained from reducing its $85 billion monthly bond-buying program, saying it wants more evidence of an economic recovery before scaling back stimulus. The Fed will release the minutes of its Sept. 17-18 meeting on Oct. 9.

“The economy is too fragile if they push to the limit” on the debt ceiling, said Tom Stringfellow, president and chief investment officer of San Antonio-based Frost Investment Advisors LLC, which manages $9.3 billion. “I suspect the central bank will continue with the channels and volume they’ve been going through for the last several years.”

Three rounds of Federal Reserve stimulus have helped drive the S&P 500 up about 150 percent from a 12-year low in 2009. The benchmark index has rallied 18 percent this year on better-than- estimated earnings and as data from manufacturing to housing and the labor market improved.

The U.S. earnings season starts tomorrow with Alcoa Inc., America’s biggest aluminum producer, scheduled to release third- quarter results after the market closes.

Profits for the broad index probably increased 1.7 percent during the third quarter while sales rose 2.2 percent, according to analysts’ estimates compiled by Bloomberg. Analysts anticipate earnings growth to accelerate to 8.9 percent in the final three months of the year, the data show.

“Some people are a little nervous that companies are going to use the excuse of the uncertainty in Washington yet again as to why they don’t have to or why they’re not going to perhaps be as optimistic about the fourth quarter and 2014 as the estimates currently reflect,” Darren Bagwell, director of research at Thrivent Asset Management in Minneapolis, said in a phone interview. His firm oversees about $82 billion.

The Chicago Board Options Exchange Volatility Index, the gauge of S&P 500 options prices known as the VIX, jumped 16 percent today to 19.41, erasing its loss for the year and reaching the highest closing level since June 24.

All 10 industries in the S&P 500 declined except for telephone companies. Consumer-discretionary, financial and raw- materials stocks fell the most, sinking at least 1.2 percent.

The KBW Bank Index sank 1.9 percent as all its 24 members retreated. Bank of America dropped 1.7 percent to $13.81. Wells Fargo, the largest U.S. home lender, lost 1.7 percent to $40.62.

Cooper Tire tumbled 13 percent to $25.72. Apollo Tyres is seeking to cut offer to buy Cooper after U.S. and Chinese workers challenged the takeover plan. Cooper acknowledged the $35-a-share offer should be reduced and that “the issue now is by how much,” Gurgaon, India-based Apollo said.

IBM slipped 1.1 percent to $182.01. Barclays cut its rating on the world’s largest computer-services provider to equal- weight, or hold, from overweight, citing concern that IBM’s cash flow may be affected as customers move to online-based software.

Qualcomm Inc. dropped 1.2 percent to $67.19. Tal Liani, an analyst with Bank of America Corp., cut the rating on the largest U.S. wireless equipment maker to neutral from buy, citing a potential “significant deceleration” in revenue and earnings growth over the next two years amid a slowdown in the smartphone market.

Time Warner Cable Inc. fell 1.6 percent to $111.02. The second-largest U.S. cable company agreed to buy fiber-optic network provider DukeNet Communications LLC for $600 million in cash. Time Warner Cable plans to use DukeNet to expand its business services in seven Southeastern states, including North and South Carolina.

Apple climbed 1 percent to $487.75. Peter Misek, an analyst with Jefferies, raised the stock’s rating to buy from hold, citing suppliers becoming more lenient on price.

Demand for iPhone 5 remains solid and expectations for iPhone sales are “conservative,” Timothy Arcuri, an analyst with Cowen & Co., said in a note to clients.

Alcoa added 0.1 percent to $7.97, erasing a loss of as much as 1.5 percent in the final minute of trading. Alcoa’s profit probably doubled during the third quarter to 6 cents a share amid higher demand from the aircraft and automotive industries, according to analysts’ estimates compiled by Bloomberg.

Intuitive Surgical Inc. jumped 4.6 percent, the most in the S&P 500, to $380.99. The maker of robot surgery devices is seeing many general surgeons moving “aggressively” to learn the company’s da Vinci system, according to Ben Andrew, an analyst with William Blair & Co. who attended the Clinical Robotic Surgery Association meeting in Washington.

Have a wonderful evening everyone.

Be magnificent!

The Hindu believes that he is a spirit.

He believes that the sword cannot pierce him, that fire cannot burn him,

that water cannot dissolve him, that air cannot dry him out.

He believes that the soul is a circle whose circumference has no limits, but whose center is situated in the body.

Death signifies the transference of this center of a body to another.

We are the children of God.

Matter is our servant.

Swami Vivekananda, 1863-1902

As ever,

Carolann

If all men were just, there would be no need

of valor.

-Agesilaus, 444-360 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