October 9, 2012 Newsletter

Dear Friends,

Tangents:

Just back from the annual World Business Forum in NYC and impressed as always by the progressive changes in the world of business.  This year the themes were mostly about technology transformation and interestingly – and of course, encouraging – the idea that successful businesses today and in future have to be more collaborative rather than fiercely competitive as in the past.

Strolling through Soho on Saturday, we came across an art gallery that was featuring art by John Lennon as a tribute to his birthday this month….many wonderful pieces, lovely to reminisce about some of the great lyrics he wrote, all of which were on display in his handwriting…

October 9^th, 1940 – John Lennon was born.

Blackbird singing in the dead of night

Take these broken wings and learn to fly

All your life

You were only waiting for this moment to arise…

-John Lennon and Paul McCartney

And also on this day in…

1941 – President Franklin D. Roosevelt requests congressional approval for arming U.S. merchant ships.
1946 – Eugene O’Neill’s play The Iceman Cometh opens at the Martin Beck Theatre in New York.
1949 – Harvard Law School begins admitting women.
1950 – U.N. forces, led by the First Cavalry Division, cross the 38th parallel in South Korea and begin attacking northward towards the North Korean capital of Pyongyang.
1983 – The president of South Korea, Doo Hwan Chun, with his cabinet and other top officials are scheduled to lay a wreath on a monument in Rangoon, Burma, when a bomb explodes. Hwan had not yet arrived so escaped injury, but 17 Koreans–including the deputy prime minister and two other cabinet members–and two Burmese are killed. North Korea is blamed.

A successful person is one who can lay a firm foundation with the bricks that others throw at him or her. – David Brinkley

photos of the day October 9, 2012

A ray of sunlight illuminates sunflowers, on display at a market stand near Waag, the historical weighing station, in the center of Amsterdam, Netherlands.

Peter Dejong/AP

Elsie Davies of London poses for her parents next to a giant pumpkin at the Royal Horticultural Society’s London Harvest Festival. The pumpkin, which won first prize in the giant pumpkin competition, was grown by horticulturalist Stuart Paton, of Pennington, Hampshire, and weighs 1054 pounds.

Suzanne Plunkett/Reuters

Market Closes for October 9th, 2012:

International Markets

Bonds

Currencies

Commodities

Market Commentary:

Canada

By Eric Lam

Oct. 9 (Bloomberg) — Canadian stocks fell the most in three months after the International Monetary Fund cut its global growth forecasts and warned of “alarmingly high” risks of a steeper slowdown.

Research In Motion Ltd. lost 5.5 percent after Jefferies & Co. said the release of the company’s BlackBerry 10 phone may be delayed. Taseko Mines Ltd. slid 5.5 percent as analysts at Canaccord Genuity lowered the stock’s rating to hold.

The Standard & Poor’s/TSX Composite Index slumped 145.42 points, or 1.2 percent, to 12,273.57 in Toronto, its biggest loss since July 6. The benchmark equity gauge is up 2.7 percent this year. Raw-materials stocks contributed most to declines on the S&P/TSX as all 10 industries retreated.

“The weight of all these macro issues are bearing down on people, be it whether Spain will ask for money, will Germany do anything and then this report reducing global GDP, it’s all weighing on the market,” said Robert Sneddon, president of Oakville, Ontario-based CastleMoore Inc., in a phone interview.

“And we’re seeing in the Canadian market some talk of housing pressure starting to build.”

Canadian housing starts fell 2.3 percent to an annual pace of 220,215 from a revised 225,328 in August, Ottawa-based Canada Mortgage & Housing Corp. said today. Economists surveyed by Bloomberg had forecast a median pace of 205,000 starts.

The world economy will grow 3.3 percent this year, the slowest since the 2009 recession, and 3.6 percent next year, the IMF said today, compared with July predictions of 3.5 percent in 2012 and 3.9 percent in 2013.

Taseko Mines slumped 5.5 percent to C$3.12 after Orest Wowkodaw, an analyst with Canaccord Genuity, cut the company’s rating to hold from buy, citing recent price gains. The copper and molybdenum mining company has risen 12 percent this year, compared with a 2.3 percent loss for the S&P/TSX Materials Index.

Endeavour Silver Corp. fell 6.2 percent to C$8.97 after the company said an illegal work stoppage at its El Cubo mine in Guanajuato, Mexico, is preventing management and personnel from reaching parts of the site. Fortuna Silver Mines Inc., which also mines in Mexico, declined 7.6 percent to C$4.60.

RIM fell 5.5 percent to C$7.62 in Toronto after Peter Misek, an analyst with Jefferies, said the company probably won’t release BlackBerry 10 smart phones until March, missing the fiscal fourth quarter. The delay would push back the timing of any licensing deals with other companies until after the release, Misek said in a research note today.

Alacer Gold Corp. fell 4.2 percent to C$6.68 and Novagold Resources Inc. decreased 4.9 percent to C$4.87. Gold futures for December delivery dropped 0.6 percent to settle at $1,765 an ounce in New York, its lowest in more than a week.

Crew Energy Inc. jumped 5 percent to C$7.93, its highest price in six months, after Michael Harvey, an analyst at RBC Capital Markets, raised the stock to an outperform from sector perform rating and increased the price target to C$10 from C$7.50 on the view its Montney natural gas asset base is undervalued.

Trilogy Energy Corp. rose 1.7 percent to C$27.68, as crude for November delivery increased 3.4 percent to settle at $92.39 a barrel in New York.

US

By Paul Dobson and Inyoung Hwang

Oct. 9 (Bloomberg) — U.S. stocks slid amid concern corporate earnings will disappoint investors and after the International Monetary Fund cut growth forecasts. Oil surged as Mideast tensions flared; Treasuries rose and the euro weakened.

The Standard & Poor’s 500 Index decreased 1 percent to 1,441.48 at 4 p.m. in New York while the Stoxx Europe 600 Index lost 0.5 percent. The S&P GSCI gauge of 24 commodities was 1.6 percent higher as oil surged more than 3 percent after Turkey sent more weapons to the Syrian border. U.S. 10-year note yields dropped three basis points to 1.71 percent, while the dollar climbed versus 12 of its 16 major peers.

The U.S. third-quarter earnings season began with Alcoa Inc. today, the fifth anniversary of the S&P 500’s record close at 1,565.15. The IMF said the world economy will grow 3.3 percent this year, the slowest pace since the 2009 recession, and 3.6 percent next year. The euro slid versus most major peer as a meeting between German Chancellor Angela Merkel and Greek Prime Minister Antonis Samaras failed to reassure investors an accord is imminent on Greece’s next aid installment.

“There’s so much pessimism over earnings that there’s room for upside with any positive surprise,” Paul Zemsky, the New York-based head of asset allocation for ING Investment Management, which oversees $170 billion, said in a telephone interview. “Overall I think traders are too pessimistic. Even with the IMF economic numbers we got, those are still pretty good numbers. The IMF is forecasting global growth next year will be above 3 percent. That’s probably higher than what most people are fearing at the moment.”

The IMF’s forecasts were reduced from a July prediction of 3.5 percent for 2012 and 3.9 percent next year.

Alcoa climbed 1.2 percent in extended trading. After the close of exchanges, the largest U.S. aluminum producer reported earnings and sales that exceeded analysts’ estimates after reporting improved productivity at its primary metals and engineered-products units. The company reduced its forecast for global aluminum consumption this year by 1 percentage point to 6 percent.

Apple Inc. closed down 0.4 percent, paring an earlier plunge of 2.3 percent that extended its decline from a record $702.10 on Sept. 19 to more than 10 percent. Apple is likely to face “increasing challenges” as smartphone growth in developed markets slows, Nomura Holdings Inc. analyst Stuart Jeffrey said today.

Analysts’ average estimate for Apple’s fiscal fourth- quarter adjusted earnings have fallen as much as 15 percent this year to $8.92 a share from $10.55 in April, according to data compiled by Bloomberg. The company reports results on Oct. 25.

Technology shares in the S&P 500 slid 1.3 percent and were among the biggest drag among 10 groups. Intel Corp., the world’s largest semiconductor maker, slipped 2.7 percent as Sanford C.

Bernstein & Co. downgraded the shares. Edwards Lifesciences Corp. sank 21 percent after saying preliminary third-quarter sales would be lower than forecast. Netflix Inc. tumbled 11 percent after Bank of America Corp. lowered its rating to underperform.

Earnings at companies in the S&P 500 are projected to fall 1.7 percent in the third quarter in the first decline since 2009, according to analyst forecasts compiled by Bloomberg.

Wagers that U.S. stocks will move in lockstep have dropped to a four-year low on speculation investors will focus on company results during earnings season.

The Chicago Board Options Exchange S&P 500 Implied Correlation Index has fallen 41 percent this year and reached 45.42 last week, the lowest level since October 2008, according to data compiled by Bloomberg. The gauge uses options to measure expectations about whether S&P 500 companies will move in unison.

The S&P 500 index closed yesterday at 1,455.88, less than 7 percent below the 2007 record. The measure has recovered after plunging 57 percent to a 12-year low on March 9, 2009, as the subprime mortgage crisis spread among financial firms. Consumer discretionary shares and financial firms, which advanced more than 150 percent, have led the gains.

Banks, lenders and insurers are still down 55 percent since October 2007, more than three times any other industry, data compiled by Bloomberg show. Even after doubling, U.S. stocks are trading at 14.7 times earnings, about a 10 percent discount to their five-decade average ratio, data compiled by Bloomberg show.

Treasuries rose the most in three weeks as the U.S. sale of $32 billion in three-year notes met record demand after the International Monetary Fund cut its economic forecasts, boosting the appeal of the safest assets. The bid-to-cover ratio, which gauges demand by comparing total bids with the amount of securities offered, was a 3.96, topping the previous high last month of 3.94 and an average of 3.56 for the previous 10 sales.

Existing three-year yields were little changed at 0.34 percent.

European banks fell 0.9 percent as a group and were the biggest drag on the Stoxx 600 among 19 groups. Nationalized Spanish lender Bankia dropped 9.8 percent as Expansion reported that parent company BFA will book losses of more than 4.5 billion euros ($5.8 billion) this year.

The euro retreated against 13 of 16 major peers, weakening 0.7 percent to $1.2872, as a meeting between German Chancellor Angela Merkel and Greek Prime Minister Antonis Samaras failed to reassure investors an accord is imminent on Greece’s next aid installment.

The two leaders stood side by side at a press conference as protesters massed outside the Parliament building in a capital on virtual lockdown. Merkel has become the face of austerity in a country suffering a fifth year of recession, which many Greeks blame on German-led conditions attached to emergency loans.

European finance ministers met for second day in Luxembourg after yesterday declaring operational the permanent aid fund, the 500 billion-euro European Stability Mechanism.

Ten-year Spanish yields increased 11 basis points to 5.82 percent, while Italian rates were up three points at 5.11 percent.

Of the 24 commodities tracked by the S&P GSCI Index, 15 advanced. Crude rebounded 3.4 percent to $92.39 a barrel as Turkey sent more tanks and missile defense systems to the Syrian border yesterday. Brent oil increased 2.4 percent to $114.50.

Brent touched a $23.10 a barrel premium to West Texas Intermediate oil traded in New York, the highest intraday level since Oct. 21, 2011, according to Bloomberg calculations of exchange data, before slipping back to $22.11.

Iranian authorities are still seeking to stabilize the currency market days after a plunge in the value of the rial and protests that have left transactions by exchange houses almost at a halt. The central bank today announced a rate of 25,480 rials to the dollar for trading in the government’s newly opened exchange center, according to the state-run Mehr news agency.

Today’s official rate is lower than yesterday’s, which the government had set at 25,550 rials against a dollar.

The Shanghai Composite Index rose 2 percent as investors bet the government will come up with steps to support the market. South African’s rand strengthened 1.4 percent to 8.7723 per dollar, climbing for the first time in five days, after the currency’s decline to the weakest in more than three years yesterday.

Have  a wonderful evening everyone.

Be magnificent!

Love implies generosity, care, not to hurt another,

not to make them feel guilty, to be generous, courteous,

and behave in such a manner that your words and thoughts are born out of compassion.

Krishnamurti, 1895-1986

As ever,

Carolann

Difficulty is the excuse history never accepts.

-Edward R. Murrow, 1908-1965

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