October 8, 2013 Newsletter

Dear Friends,

Tangents:

Last Sunday afternoon I attended a lecture entitled The God Particle.  It was a discussion by a group of physicists, namely Brian Greene, Joseph Incandela, Lisa Randall and Lawrence M. Krauss about the Higgs boson, which was discovered last year.   On July 4, 2012, Dr. Incandela announced the discovery of the particle known as the Higgs Boson.  He is currently based at CERN, and he described the process as “aiming two needles from either side of the ocean accurately enough so that they eventually meet in the middle tip to tip.”  It was incredibly interesting, so I was thrilled to read this headline today:

Higgs boson work leads to one Nobel Prize. Two physicists won the 2013 Nobel Prize in Physics for their theories 50 years ago on the Brout-Englert-Higgs field and its particle, the Higgs boson, which scientists reported discovering last year. By Peter Spotts/October 8, 2013.

Francois Englert and Peter Higgs were awarded the Nobel physics prize today.

In announcing the award on Tuesday, the Royal Swedish Academy of Sciences cited Drs. Englert and Higgs for their work on what has become known as the Brout-Englert-Higgs field and its related particle, the Higgs boson.

In 1964, Englert and his colleague, the late Robert Brout, proposed that space was permeated by a field that imparted mass to particles moving through it. A particle’s mass depended on how strongly it interacted with this field – the stronger the interaction, the more massive the particle.

Higgs offered a similar explanation and predicted that the field would have a particle associated with it. The particle became known as the Higgs boson. The prediction triggered a nearly 50-year quest among experimental physicists to find the particle.

Find it they did. On July 4, 2012, two international teams of physicists at the European Organization for Nuclear Research announced that they had discovered the particle at the facility’s Large Hadron Collider (LHC). Last March, the teams announced a higher level of confidence in their detection based on additional data their cathedral-scale detectors at the collider had amassed in the interim.

Sifting through the debris of some 2,000 trillion collisions at the accelerator – an underground race-track for protons accelerated to nearly the speed of light – researchers uncovered evidence for 1,500 Higgs bosons fleetingly created by the collisions.

“I am overwhelmed to receive this award and thank the Royal Academy,” Higgs said in a prepared statement issued by the University of Edinburgh, where he is a professor emeritus.

In issuing the award, the Academy used a unique turn of phrase that suggested to some that the body might be open to issuing another prize at some point for the discovery of the Higgs boson.

The Academy noted that the prize was “for the theoretical discovery of a mechanism that contributes to our understanding of the origin of mass of subatomic particles,” and went on to mention the work at CERN confirming Higgs’s prediction.

“The term ‘theoretical’ has never been used before with discovery,” observes Lawrence Sulak, a physicist at Boston University whose team contributed key instruments for one of the two massive detectors at the LHC, known as the CMS detector.

Physicists say they have every indication so far that the particle discovered last year is the Higgs. “But we are not yet confident,” Dr. Sulak cautions.

This means that even though a Nobel prize has been awarded for the theory describing the Higgs phenomenon, questions still swirl around the particle associated with the Higgs field.

Start with the particle’s mass. No one knew what it would be. Theories presented a range of possibilities. The particle physicists detected has far less mass than some models predict and far more than others.

“It’s too heavy to be light and too light to be heavy. It’s in a mysterious place, and we don’t understand why that is,” says Tom LeCompte, a physicist at Agronne National Laboratory in Argonne, Ill., and the physics coordinator for the ATLAS experiment, the second of the two large detectors at the LHC.

For instance, the “standard model,” which describes subatomic particles and their interactions, predicts that the Higgs boson’s mass should be a quadrillion times higher than the particles detected at CERN, says Dr. Lincoln.

Still, with the discovery of the particle, “we have completed our understanding of the standard model,” he continues. But there are mysteries that may point to something beyond it. It’s still unclear where gravity fits into this model, for instance, as well as dark matter and dark energy. The discovery of dark energy, which is accelerating the expansion of the universe, garnered its discoverers their own Nobel Prize in Physics in 2011.

The discovery of the Higgs boson “gives us a little frayed thread sticking out of the quilt that we will, of course, tug at” hoping to unravel these mysteries, he says.

Higgs and Englert will split the prize’s $1.2 million purse and are slated to receive the award at a ceremony in Stockholm Dec. 10.

Photos of the day

The Brandenburg Gate and pedestrians are illuminated by laser light patterns during a light rehearsal for the Festival of Lights in Berlin, Germany. Until October 20, many buildings and landmarks in Berlin will be illuminated. Gero Breloer/AP

A man watches a sea of clouds as he stands on a side summit of the Saentis mountain in Urnaesch near Appenzell, Switzerland. Gian Ehrenzeller/Keystone/AP

Market Closes for October 8^th, 2013

International Markets

Bonds

Currencies

Commodities

Market Commentary:

Canada

By Eric Lam

Oct. 8 (Bloomberg) — Canadian stocks fell to a five-week low as base metal producers retreated amid growing concern that a deadlock among U.S. lawmakers over the debt limit could lead to a government default.

Teck Resources Ltd. and First Quantum Minerals Ltd. dropped at least 2.2 percent as raw-materials producers plunged to a two-month low. Manitoba Telecom Services Inc. sank 8.5 percent after the Canadian government rejected the proposed sale of its Allstream unit. Saputo Inc., Canada’s largest dairy processor, jumped to a four-month high after agreeing to buy an Australian cheese producer.

The Standard & Poor’s/TSX Composite Index fell 95.84 points, or 0.8 percent, to 12,692.41 at 4 p.m. in Toronto, the lowest close since Aug. 30. Trading volume was in line with the 30-day average.

“The market is nervous about how entrenched the positions seem to be on both sides of the aisle,” said Matt Skipp, chief investment officer with Sw8 Asset Management Inc. in Toronto.

The firm manages about C$54 million ($52 million). “The irony is, it’s the market sell-off that generally gets Congress moving in the right direction. There’s always a moment of truth when the market starts to fear the excessive rhetoric being flung back and forth.”

U.S. President Barack Obama said the nation’s economy risks a “very deep recession” if Congress doesn’t raise the $16.7 trillion debt ceiling. Senate Majority Leader Harry Reid said the Republican-controlled House should vote to end the shutdown and drop demands to change the 2010 Affordable Care Act. House Speaker John Boehner said Reid and Obama should negotiate.

The U.S. government has been partially shut down since Oct. 1 and could default on its debt if lawmakers fail to 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.

U.S. equities retreated 1.2 percent, giving the S&P 500 the biggest two-day decline since June.

Eight of 10 groups in the Canadian benchmark equity gauge dropped, led by a 2.6 percent decline among health-care stocks.

Valeant Pharmaceuticals International Inc. lost 3.6 percent to C$109.80 for a third day of declines.

An S&P/TSX index of raw-materials producers plunged 2.4 percent to the lowest since Aug. 7. Fifty-four of the gauge’s 56 members fell.

Teck Resources, Canada’s largest diversified miner, lost 2.8 percent to C$26.56 and First Quantum retreated 2.2 percent to C$17.55 as copper futures dropped for a second day on concern demand will slow in the U.S. OceanaGold Corp. slumped 7.3 percent to C$1.40 after agreeing to acquire Pacific Rim Mining Corp. in a deal valued at C$10.2 million.

Manitoba Telecom plunged 8.5 percent to C$29.62, the biggest slide in three years and the most in the S&P/TSX. The Canadian government rejected the company’s planned sale of its Allstream fiber-optic network division to an investment firm co- founded by Egyptian billionaire Naguib Sawiris.

The decision raises questions about Canadian ownership policy in the wireless industry. Prime Minister Stephen Harper’s government has been trying to encourage competition in the nation’s wireless sector, while stepping up scrutiny of foreign investments.

Manitoba competitors, including Rogers Communications Inc., BCE Inc. and Telus Corp., advanced at least 0.2 percent to lift an index of phone stocks to the second-best performance in the S&P/TSX.

Saputo jumped 4.1 percent to C$51.50, the highest since May 30. The cheesemaker has agreed to pay about C$378 million for Warrnambool Cheese & Butter Factory Co., an Australian producer, topping a rejected bid from Bega Cheese Ltd.

The deal will allow Saputo to target rising demand in Asia for dairy products, Chief Executive Officer Lino Saputo said.

US

By Lu Wang and Alex Barinka

Oct. 8 (Bloomberg) — U.S. stocks fell, giving the Standard & Poor’s 500 Index its biggest two-day loss since June, as concern grew that a deadlock among U.S. lawmakers over the debt limit could lead to a government default.

An index of Internet stocks tumbled the most in almost two years, sinking 4.1 percent. Facebook Inc. and Yahoo! Inc. lost at least 3.5 percent. Xerox Corp. slid 2.5 percent after announcing the U.S. has been probing the accounting practices of its outsourcing division. Alcoa Inc. gained 1.5 percent in late trading after posting quarterly earnings that topped forecasts.

The S&P 500 fell 1.2 percent to 1,655.45 at 4 p.m. in New York, the lowest since Sept. 6. The Dow Jones Industrial Average lost 159.71 points, or 1.1 percent, to 14,776.53. The Nasdaq Composite Index tumbled 2 percent to 3,694.83. About 6.9 billion shares changed hands on U.S. exchanges, nearly 20 percent higher than the three-month average.

“The market is going to start to push the government,” Rick Fier, director of equity trading at Conifer Securities LLC in New York, said in an interview. “The longer it drags on, the more uncomfortable everyone gets because we will not rally until something gets done. Get out now and wait for the storm to pass to get back in.”

The S&P 500 slumped 0.9 percent yesterday to a four-week low as lawmakers remained deadlocked over extending the nation’s debt limit to avoid a default. Its two-day slide of 2.1 percent is the biggest since June 21. The gauge has fallen 4.1 percent since its latest record on Sept. 18.

President Barack Obama said the U.S. economy risks a “very deep recession” if Congress doesn’t raise the debt ceiling.

Obama spoke less than four hours after he called House Speaker John Boehner to “reiterate that he won’t negotiate on a government-funding bill or debt-limit increase,” said Brendan Buck, a Boehner spokesman.

Lawmakers began taking the first tentative steps toward a path to raising the limit even as the rhetoric grew more divisive. Senate Democrats are planning a test vote before the end of this week on a measure that would grant Obama authority to raise the ceiling, probably for a year, unless two-thirds of both chambers of Congress oppose.

The Treasury has said that it will exhaust measures to avoid exceeding the borrowing limit on Oct. 17. If that happens, the government will run out of cash to pay all of its bills at some point between Oct. 22 and Oct. 31, according to the Congressional Budget Office.

Even as the probability of a U.S. government default is “very, very small,” volatility in the markets will increase in coming days, Mohamed El-Erian, chief executive officer and co- chief investment officer at Pacific Investment Management Co. A U.S. default on its debt obligations would prove more unpredictable to financial markets than the 2008 collapse of Lehman Brothers Holding Inc., he said.

“What frightens us the most is what happens to the plumbing system of the global-financial system,” El-Erian said in an interview on Bloomberg Television’s “Bloomberg Surveillance” with Tom Keene. “You will have cascading failure, multiple defaults, and Treasuries that act as collateral would be very difficult to exchange and people will simply step back. It will be like Lehman, but more unpredictable.”

The Chicago Board Options Exchange Volatility Index, the gauge of S&P 500 options prices known as the VIX, jumped 4.8 percent today to 20.35, its highest close in 2013.

From its intraday low of 12.52 on Sept. 20, the VIX jumped 68 percent to its highest level of today, 21.01. That’s the fifth time in 2013 that the index climbed more than 50 percent from trough to peak, according to data compiled by Bespoke Investment Group and Bloomberg. The gauge of options prices remains almost 58 percent below its 2011 high, the data show.

Volume on the VIX rose to a record 1.78 million contracts, according to data compiled by Bloomberg. About 1.14 million calls changed hands compared with more than 639,000 puts, data compiled by Bloomberg show.

“The VIX pit was nuts, all day, non-stop,” Mark Caffray, who brokers contracts on the VIX and the S&P 500 at Chicago- based PTR Inc., said in an interview. “Customers are hedging either side of the government gridlock outcome. We are assuming the trend continues as customers continue to use the VIX as a bigger part of their hedging strategy.”

Nine of the 10 S&P 500 main industries fell as telephone, materials, consumer-discretionary and technology stocks slipped more than 1.6 percent for the worst performance.

The Nasdaq Internet Index tumbled 4.1 percent for the biggest decline since November 2011, as all its 81 members dropped. The gauge had surged 49 percent this year through yesterday, almost triple the gain in the S&P 500. At 24 times reported income, the valuation in Internet shares has risen 67 percent this year.

Facebook, the operator of the world’s most popular social network, slumped 6.7 percent to $47.14. The stock had advanced 90 percent this year through yesterday. Yahoo declined 3.5 percent to $32.93, trimming its 2013 gain to 65 percent.

TripAdvisor Inc., an online travel agent that’s up 71 percent this year, sank 5.5 percent to $71.70.

“The debt ceiling is causing the fear over locking in returns,’” Ian Winer, director of equity trading at Wedbush Securities Inc., said in an interview. “Guys are looking at their portfolios and saying, ’These are up huge, maybe I sell some to lock in some gains and revisit post debt-ceiling resolution.’”

Stocks with the highest short interest were among the market’s biggest losers. A Goldman Sachs Group Inc.’s basket of stocks with the most bearish bets against them slid 2.3 percent, paring its rally in 2013 to 35 percent.

Xerox dropped 2.5 percent to $10.14. The U.S. Securities and Exchange Commission has been probing the accounting practices of Affiliated Computer Services Inc., an outsourcing company acquired in 2010, Xerox said in a regulatory filing. The SEC focused on whether revenue from ACS equipment and resale transactions should have been recorded on a net rather than gross basis, Xerox said in the filing.

Masco Corp. fell 5.3 percent to $19.40. The maker of home improvement and building products faces slowing growth amid a potential loss in the market share, Kenneth Zener, an analyst with Keybanc Capital Markets Inc., said in a note. He cut the stock’s rating to underweight from hold.

McKesson Corp. climbed 3.2 percent to a record $133.72. The largest U.S. drug distributor is in advanced talks buy German drug wholesaler Celesio AG, Dow Jones reported, citing unidentified people.

Alcoa gained 1.5 percent to $8.06 at 5:42 p.m. in New York.

The largest U.S. aluminum producer, reported third-quarter profit that surpassed analysts’ expectations after higher earnings from one of its divisions that turns the metal into auto and aerospace parts. The stock fell 0.4 percent during the regular session today.

The Alcoa release marks the unofficial start of the U.S. quarterly earnings season as it is the first S&P 500 company to report results whose fiscal year follows the calendar. JPMorgan Chase & Co. and Wells Fargo & Co. will also report this week.

Investors will look to companies’ financial results for clues on the economy’s performance as the government shutdown, in its eighth day, delays the publication of some data. The S&P 500 has declined 1.6 percent since the government began on Oct. 1 its first shutdown in 17 years after lawmakers failed to reach an agreement on budgets before the start of a new fiscal year.

Profits for the S&P 500 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.

“A lot of the S&P earnings for the year are fourth-quarter loaded,” Bernie Williams, chief investment officer of investment solutions who oversees $16.7 billion at USAA Investments in San Antonio, said in a phone interview. “It’s more of the commentary that counts.”

Garry Evans, global head of equity strategy at HSBC Holdings Plc, cut his recommendation on U.S. equities to neutral from overweight, saying valuations are “a little stretched.”

He advised investors to increase holdings in emerging markets because growth in China is stabilizing and stocks are cheap.

The S&P 500 has climbed 16 percent this year as earnings beat estimates and data from manufacturing to housing and the labor market improved. The benchmark gauge is trading at 15.9 times reported earnings, up 12 percent from the beginning of the year and compared with a multiple of 11.9 for the MSCI Emerging Markets index, data compiled by Bloomberg show.

The International Monetary Fund reduced its global outlook for this year and next as capital outflows further weaken emerging markets and warned that a U.S. government default “could seriously damage the global economy.”

Growth worldwide will be 2.9 percent this year and 3.6 percent next year, the IMF said in a report released today in Washington, compared with July predictions of 3.1 percent for 2013 and 3.8 percent for 2014. The IMF’s forecasts factor in a short U.S. government shutdown and an agreement on the nation’s debt-limit before the Oct. 17 deadline.

Have a wonderful evening everyone.

Be magnificent!

To know our soul apart from our ego

is the first step toward accomplishing supreme deliverance.

It is necessary that we know with absolute certainty that in essence we are spirit.

And we can only arrive at this knowledge if we render ourselves masters of our ego,

if we rise above all pride, all appetite, all fear, by knowing that material losses and the

death of the body can never take away the truth and the greatness of our soul.

Rabindranath Tagore, 1861-1901

As ever,

Carolann

It’s not what you look at that matters,

it’s what you see.

-Henry David Thoreau, 1817-1862

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