October 9, 2013 Newsletter

Dear Friends,

Tangents:

John Lennon’s birthday, October 9^th, 1940.

28 years ago today, Strawberry Fields, “a garden of peace” inspired by her late husband is donated to New York City’s Central Park by Yoko Ono.

Life is what happens to you while you’re busy making other plans.  –John Lennon.

Photos of the day

People look at a light installation at the Berlin Cathedral during the opening day of the ‘Festival of Light’ show in Berlin. Several landmarks and tourist spots will be illuminated in the German capital from October 9 to 20. Tobias Schwarz/Reuters

Rafael Nadal of Spain serves to Alexandr Dolgopolov of Ukraine during their men’s singles match at the Shanghai Masters tennis tournament in Shanghai. Carlos Barria/Reuters

Market Closes for October 9^th, 2013

International Markets

Bonds

Currencies

Commodities

Market Commentary:

Canada

By Eric Lam

Oct. 9 (Bloomberg) — Canadian stocks rose from a five-week low as telephone companies jumped the most in a two weeks amid speculation that Janet Yellen won’t rush to withdraw stimulus when she takes over as Federal Reserve chairman.

BCE Inc. and Telus Corp. gained at least 1.4 percent as phone stocks gained for a fourth day. Wi-Lan Inc. added 1 percent after settling litigation with BlackBerry Ltd. Pretium Resources Inc. sank 31 percent as a company overseeing its gold project in northern British Columbia resigned. Jean Coutu Group PJC Inc. tumbled 4.2 percent after posting worse-than-estimated results.

The Standard & Poor’s/TSX Composite Index rose 37.92 points, or 0.3 percent, to 12,730.33 at 4 p.m. in Toronto, after earlier falling 0.1 percent. The index is up 2.4 percent this year.

“What we’re seeing today and all week is quite a bit of volatility and sensitivity to news headlines in the U.S.,” said Youssef Zohny, portfolio manager with Stenner Investment Partners of Richardson GMP Ltd. in Vancouver. Richardson GMP manages about C$16 billion ($15.4 billion). “There’s a little more certainty on the direction of monetary policy now that we know who’s going to be in charge and more details from the minutes. The market is responding well to that.”

Janet Yellen, the current Fed vice chairman, was nominated by U.S. President Barack Obama to succeed Ben S. Bernanke as chairman of the Federal Reserve. Yellen is expected to advocate for maintaining stimulus that has helped fuel a global rally in equities.

Most Fed policy makers said the central bank was likely to reduce the pace of its bond purchases this year, according to minutes released today of their last meeting, which took place before the government shutdown.

The S&P/TSX retreated 0.8 percent yesterday to the lowest since Aug. 30 as concern grew that U.S. lawmakers may fail to raise the federal debt ceiling in time to avoid a government default, expected on 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.

Some possible paths out of the partisan impasse in Washington are starting to emerge. Each option is tentative and lawmakers remain far from an agreement amid verbal sparring between President Barack Obama and House Speaker John Boehner.

“The longer this thing goes on and the lower the market goes, the more bargains there will be,” said John Kinsey, fund manager with Caldwell Securities Ltd. in Toronto. He helps manage about C$1 billion ($962 million).

Eight of 10 industries in the S&P/TSX advanced, with telephone stocks adding 1.5 percent for a fourth day of gains.

Trading volume was 9.3 percent lower than the 30-day average.

BCE added 2.2 percent, the most in a month, to C$44.70.

Telus increased 1.4 percent to C$34.39 and Rogers Communications Inc. rose 0.9 percent to C$45.18.

The Canadian government on Oct. 7 rejected Manitoba Telecom Services Inc.’s proposed C$520 million sale of its Allstream business division to Accelero Capital Holdings Sarl Group, an investment firm co-founded by Egyptian billionaire Naguib Sawiris, due to national security concerns.

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.

Wi-Lan added 1 percent to C$3.90 after settling litigation with BlackBerry. The smartphone maker obtains licenses for some patents. Terms of the agreement were not disclosed.

Allana Potash Corp. jumped 11 percent to 47 Canadian cents after the fertilizer producer said it has been granted a mining license for the Danakhil potash project in Ethiopia.

Pretium Resources plunged 31 percent to C$4.87, the lowest since its initial offering in 2010. Strathcona Mineral Services Ltd., hired for an independent assessment of a 10,000-metric-ton ore sample, resigned, Pretium said today in a statement.

Jean Coutu, the drugstore chain operator, lost 4.2 percent to C$18.12, the biggest decline since July 2012. The company reported second-quarter adjusted earnings per share that fell short by 1 Canadian cent of analysts surveyed by Bloomberg.

Comparable pharmacy sales dropped 0.5 percent in the quarter.

US

By Lu Wang and Aubrey Pringle

Oct. 9 (Bloomberg) — U.S. stocks rose, rebounding from the benchmark index’s biggest two-day slump since June, amid optimism that Janet Yellen won’t rush to withdraw stimulus and signs that lawmakers could raise the debt ceiling.

Hewlett-Packard Co. rallied 8.9 percent after saying it expects to return more cash to shareholders and see revenue stabilize after a multiyear decline. Alcoa Inc. gained 2 percent amid better-than-forecast profit. Yum! Brands Inc. sank 6.7 percent after third-quarter income fell 68 percent on lower same-store sales in China.

The Standard & Poor’s 500 Index climbed 0.1 percent to 1,656.40 at 4 p.m. in New York. The Dow Jones Industrial Average added 26.45 points, or 0.2 percent, to 14,802.98. The Nasdaq Composite Index fell 0.5 percent to 3,677.78, extending its three-day slide to 3.4 percent, the most since June 24. About 7.1 billion shares exchanged hands on U.S. exchanges today, 15 percent above the three-month average.

“Today’s reaction is favorable based on Yellen’s nomination, and secondly there seems to be some thawing of the rhetoric which sets the stage for a resolution that could come before the deadline,” Terry Sandven, chief equity strategist at U.S. Bank Wealth Management, said in a phone interview from Minneapolis. He helps oversee $112 billion. “That’s positive for the broad equity market.”

The S&P 500 retreated 2.1 percent over the previous two days as concern grew that lawmakers may not raise the federal debt ceiling in time to avoid a government default. 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.

The S&P 500 erased an earlier loss of as much as 0.5 percent today and the Dow rallied after touching its lowest level since June as some possible paths out of the partisan impasse in Washington started to emerge.

House Republican and Senate Democratic leaders are open to a short-term increase in the debt limit, said congressional aides of both parties who spoke on condition of anonymity to discuss strategy.

Republicans haven’t decided how long an extension they would support or whether it would include policy conditions and how to advance it through the House, a House Republican aide said. Republican leaders have been calling party members to talk about ideas and all House Republicans are scheduled to meet at 10 a.m. tomorrow.

The U.S. government is in the ninth day of a partial shutdown and just over a week before U.S. borrowing authority lapses Oct. 17.

President Barack Obama nominated Yellen, the current Fed vice chairman and an architect of its stimulus program, to succeed Ben S. Bernanke as chairman. As a top deputy to Bernanke, whose term expires Jan. 31, Yellen supported the central bank’s bond-buying programs that have helped propel the S&P 500 up as much as 155 percent from a 12-year low in March 2009.

“The market breathes a sigh of relief with Yellen’s appointment,” Chris Gaffney, senior market strategist at Everbank Wealth Management Inc., said in an interview from St. Louis. “The markets like the fact that Yellen is a known quantity. She has supported the stimulus program, in fact she’s largely thought to be the architect.”

Most Fed policy makers said the central bank was likely to reduce the pace of its bond purchases this year, according to minutes released today of their last meeting, which took place before the government shutdown.

At the Sept. 17-18 gathering, officials unexpectedly maintained the pace of its monthly purchases. That decision pushed the S&P 500 to a record close of 1,725.52. The gauge retreated 4.1 percent through yesterday since then.

“If you read the minutes with blinders on what’s going on in Washington, you might think the next meeting in October is on the table for tapering to start, but obviously given what we’re dealing with the debt ceiling, that likelihood is extremely thin,” Liz Ann Sonders, New York-based chief investment strategist at Charles Schwab Corp., said in a phone interview.

Her firm has $2.08 trillion in client assets.

The government shutdown has delayed the release of economic data, including the Labor Department’s monthly payrolls report, which was due Oct. 4. The lack of data is making it harder for Fed policy makers to assess the health of the economy as they consider when to start paring unprecedented monetary stimulus.

Central bankers next convene Oct. 29-30.

Investors will turn to companies’ financial results for clues on the economy’s performance, as Alcoa yesterday became the first S&P 500 company to report earnings whose fiscal year follows the calendar. JPMorgan Chase & Co. and Wells Fargo & Co. will also report this week.

Profits for companies in 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 forecast earnings growth will accelerate to 8.9 percent in the final three months of the year.

“It’s important to see how earnings are going to set up for 2014,” Russell Croft, who helps manage about $850 million as a fund manager at Croft-Leominster Inc. in Baltimore, said by phone. “They’re still going to be muted by the macro pressure out of Washington. The government shutdown and the debt ceiling will continue to drive the near-term volatility.”

The Chicago Board Options Exchange Volatility Index, the gauge of S&P 500 options prices known as the VIX, fell 3.6 percent to 19.60 after closing yesterday at the highest level since June.

Investors’ appetite for risk has diminished this week. The Nasdaq Internet Index, which had risen 52 percent this year through Oct. 4, lost 0.7 percent today, extending its three-day slide to 6.6 percent. The gauge yesterday fell the most in almost two years. Netflix Inc., an online subscription-streaming service that’s is still more than three times higher than where it started 2013, dropped 4.6 percent to $288.43, the lowest since Aug. 30.

“Owners of star performers may well head to the exit doors to preserve gains,” Michael Purves, head of derivatives research at Weeden & Co., wrote in a note to clients today.

“This theme may extend to the broader market itself. Fear momentum takes time to start, but these can be early indications that a fear snowball may well be in the making.”

Six of 10 main S&P 500 groups advanced today. Phone stocks rose 1.3 percent for the biggest gain in a month. Makers of consumer-discretionary products dropped 0.4 percent to lead declines.

AT&T Inc. rallied 1.9 percent, the most in the Dow, to $33.75. The largest U.S. phone company is near an agreement to sell its wireless towers to Crown Castle International Corp., people familiar with the matter said. People with knowledge of the talks said in September the assets could fetch $5 billion.

Alcoa climbed 2 percent to $8.10. The aluminum producer reported better-than-forecast quarterly earnings after its smelting business returned to profitability and results improved at a unit that makes auto and aerospace parts.

Hewlett-Packard rallied 8.9 percent, the most since May 23, to $22.60. Meg Whitman, who enters her third year as CEO, is contending with declining sales from slack demand for personal computers and price cuts in the business-technology market.

While analysts are projecting a 3 percent drop in 2014 revenue to $107.6 billion, according to data compiled by Bloomberg, Whitman said she expects “total revenue to stabilize.”

Men’s Wearhouse Inc. jumped 28 percent to $45.03 after Jos. A. Bank Clothiers Inc. said it’s seeking to buy the apparel retailer for $2.3 billion in cash, or $48 a share. Men’s Wearhouse rejected the offer, saying the bid “significantly” undervalued the company and wasn’t in the best interest of shareholders. Jos. A. Bank gained 6.4 percent to $44.33.

Yum retreated 6.7 percent to $66.48, the lowest since April 23. The owner of the KFC fast-food chain cut its 2013 earnings forecast as third-quarter earnings trailed analysts’ estimates.

Family Dollar Stores Inc. dropped 1.1 percent to $68.71.

The discount retailer issued a forecast for fiscal 2014 profit that fell short of estimates and reported fourth-quarter revenues and same-store sales that missed forecasts.

Fastenal Co. sank 6.3 percent to $46.85. The largest U.S. retailer of nuts, bolts and other fasteners reported third- quarter revenue and profit that missed analysts’ estimates.

Have a wonderful evening everyone.

Be magnificent!

Man is setting out to satisfy needs that mean more to him

than simply nourishment and clothing.

He is embarking on a rediscovery of himself.

The history of man is that of his voyage toward the unknown,

in the search for the realization of this immortal Self, of his soul.

Rabindranath Tagore, 1861-1901

As ever,

Carolann

When your work speaks for itself,

don’t interrupt.

-Henry J. Kaiser, 1882-1967

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