September 12, 2013 Newsletter

Dear Friends,

Tangents:

A good news story appeared today:

By MIKE PFLANZ:

NAIROBI, KENYA – Scientists using technology for discovering oil have found a vast underground water reservoir in one of Kenya’s driest regions that could supply the country’s needs for nearly 70 years, potentially turning arid zones into lush farmlands.  The new reserves are located in a basin in the extreme northwest that has a surface area the size of Delaware and is estimated to hold

billions of gallons, nearly nine times Kenya’s current reserves.  Almost half of Kenya’s 41 million people  have no access to clean water, and farmers in arid areas struggle to raise crops without  adequate irrigation.  Scientists say it is possible that, along with  water runoff from surrounding hills and plains that replenish the aquifer, the newly discovered resources could fulfill the country’s water demands indefinitely.  Tapping the new reserves in the basin, located in Kenya’s northern Turkana region, may allow for vast new zones of farmland in landscapes where today even the hardiest plants struggle to survive.  “The news about these water reserves are highly needed,” said Judi Wakhungu,  cabinet secretary at the Kenyan Environment,  Water, and Natural Resources Ministry.

It’s fun; baseball’s fun. –Yogi Berra

Photos of the Day –September 12th, 2013

Mascots make their way around the track in the Minnesota Twins Race at Target field after the fourth inning of a baseball game against the Oakland Athletics in Minneapolis. Jim Mone/AP

Flood waters course through a small park in Boulder, Colo., in this image made with a slow shutter speed. Heavy rains and scarring from recent wildfires sent walls of water crashing down mountainsides in the area. Jud Valeski/AP

Market Closes for September 12^th, 2013

International Markets

Bonds

Currencies

Commodities

Market Commentary:

Canada

By Eric Lam

Sept. 12 (Bloomberg) — Canadian stocks fell the most in two weeks as precious metals plunged on speculation the U.S. Federal Reserve will taper stimulus when policy makers meet next week.

Goldcorp Inc. and Eldorado Gold Corp. sank at least 6.2 percent as the price of gold slumped the most in nine weeks.

Endeavour Silver Corp. retreated 9 percent. Teck Resources Ltd. lost 3.5 percent as copper touched a five-week low. Reitmans Canada Ltd. tumbled 13 percent to a nine-year low after reporting weaker-than-estimated profits yesterday.

The Standard & Poor’s/TSX Composite Index fell 124.37 points, or 1 percent, to 12,701.05 at 4 p.m. in Toronto, the biggest decline since Aug. 27. The benchmark Canadian equity gauge has risen 2.2 percent this year.

“All across Canada you can see gold and the resource sector are down quite aggressively today,” said John Tsagarelis, a fund manager with Manulife Asset Management Ltd. in Toronto. He manages C$550 million ($533 million). “If tapering happens, yields go up, the U.S. dollar strengthens and gold sells off. Somebody was being very aggressive with gold this morning. The Syrian situation is probably the story getting the most headlines.”

U.S. Federal Reserve officials, set to meet Sept. 17-18, are watching economic data to determine when to begin scaling back the central bank’s $85 billion in monthly asset purchases.

The U.S. and Russia met today to discuss a plan for Syria to surrender its chemical weapons, potentially averting a military strike. Syrian President Bashar al-Assad said negotiating a deal must be a “two-way street” in which the Obama administration drops its military threats and stops arming Syrian rebels. Last month, gold gained 6.3 percent on escalating tensions in the Middle Eastern country.

Raw-materials stocks sank 3.5 percent as a group, leading declines as all 10 groups in the S&P/TSX retreated. Trading volume was in line with the 30-day average.

Goldcorp slumped 6.3 percent to C$26.81 and Eldorado Gold fell 7.5 percent to C$7.19 as all 24 members of the S&P/TSX Gold Index declined. The index is down 5.3 percent, the lowest close in a month.

Gold for December delivery lost 2.4 percent to settle at $1,330.60 an ounce in New York, the biggest drop since July 5.

Endeavour Silver sank 9 percent to C$4.36 and Silvercorp Metals Inc. tumbled 8.2 percent to C$3.48 as silver futures plunged 4.4 percent in New York. The metal has slumped 27 percent this year.

Teck Resources, Canada’s largest diversified miner, declined 3.5 percent to C$28.43 and First Quantum Minerals Ltd. slipped 2.2 percent to C$18.59 as the price of copper slid 1.4 percent. Wholesale prices dropped the most since 2009 last month in Germany, the world’s third-biggest copper consumer, official statistics showed today.

Reitmans Canada, a women’s apparel retailer, slumped 13 percent to C$8.03, the lowest since 2004. The company posted adjusted earnings of 16 Canadian cents a share, short of the 36 cents mean estimate of analysts surveyed by Bloomberg. Same- store sales, a measure of revenue from outlets open at least a year, sank 6.8 percent in the second quarter.

Transat A.T. Inc., the travel services company, jumped 6 percent to C$9.90, the highest since August 2011, after reporting higher-than-estimated third-quarter earnings and forecasting better results than last year for the fourth quarter.

“We are on our way to a profitable year,” Jean-Marc Eustache, chief executive officer with Transat, said in the release.

Encana Corp. gained 3.8 percent to C$18.61, the highest close since June, after signaling potential asset sales in a strategy update. The company has more inventory, particularly in dry natural gas, than can be optimally developed, and must focus its portfolio, Encana said in a statement.

“Encana appears to be back on the road to winning again,” said Greg Pardy, co-head of global energy research with RBC Capital Markets, in a note to clients today. Pardy upgraded his rating for the stock to outperform, the equivalent of a buy, from sector perform. “Encana’s efforts to re-engineer its strategic game plan appear to be nearing completion sooner than its target of year-end 2013.”

US

By Nikolaj Gammeltoft and Aubrey Pringle

Sept. 12 (Bloomberg) — U.S. stocks fell, halting a seven- day win streak for the Standard & Poor’s 500 Index, as materials producers slid amid growing concern over Syria and investors weighed the prospects for Federal Reserve stimulus cuts.

Barrick Gold Corp. dropped 5.5 percent as the precious metal slumped the most since July. Newmont Mining Corp., the largest U.S. gold producer, lost 4.2 percent. Lululemon Athletica Inc. tumbled 5.4 percent after cutting its earnings forecast. Walt Disney Co. rallied 2.4 percent after saying it would buy back as much as $8 billion in shares. Pandora Media Inc. jumped 12 percent to a record after naming digital- advertising veteran Brian McAndrews as its new chief executive officer.

The S&P 500 fell 0.3 percent to 1,683.42 at 4 p.m. in New York, snapping the longest streak of gains since July. The Dow Jones Industrial Average slipped 25.96 points, or 0.2 percent, to 15,300.64. About 5.7 billion shares changed hands on U.S. exchanges, 4 percent below the three-month average.

“It shouldn’t be too surprising to see a modest pullback after the strong moves we’ve seen so far this month,” Ryan Larson, the Chicago-based head of U.S. equity trading at RBC Global Asset Management (U.S.) Inc., said in an interview. His firm oversees $290 billion. “With data light over the next several sessions, potential headlines regarding Syria and the much anticipated FOMC meeting next week will garner much of the attention.”

The S&P 500 rallied 3.4 percent in September through yesterday, rebounding from the worst monthly loss since May 2012, as reports showed China’s economy has strengthened and the U.S. looked less likely to attack Syria.

The tensions increased today as U.S. Secretary of State John Kerry told top Syrian opposition figures in a phone call today that the option of a U.S. military strike remains on the table, according to a State Department official. Kerry arrived in Geneva for talks with his Russian counterpart on a proposal for Syria to surrender its chemical weapons.

Syrian President Bashar al-Assad set conditions for the U.S., saying a deal must be a “two-way street” in which the Obama administration drops its military threats and stops arming Syrian rebels.

The tensions over Syria have competed for investor attention with concern about reductions in Fed stimulus.

Investors have been scrutinizing economic data to determine whether growth is robust enough for the Federal Open Market Committee to pare back its monthly bond buying following its Sept. 17-18 meeting.

A report today showed jobless claims in the U.S. declined last week to the lowest level since April 2006 as upgrades to computer systems in two states caused those employment agencies to report fewer applications.

“We’re going to ignore the report given the Labor Day holiday and this computer problem which calls into question the efficacy of the data,” said Phil Orlando, New York-based chief equity strategist at Federated Investors, which manages about $380 billion in assets.

Economists estimate the Fed this month will taper its stimulus by $10 billion a month, to $75 billion, according to the median of 34 responses in a Bloomberg News survey. The purchases have helped the S&P 500 rally as much as 153 percent since the beginning of the bull market in March 2009.

Speculation about reductions has whipsawed stocks since May, when Fed officials first indicated cuts could start this year. The S&P 500 tumbled 5.8 percent from a record on May 21 through June 24. It rebounded 8.7 percent to close at its latest all-time high of 1,709.67 on Aug. 2. The gauge then slumped as much as 4.6 percent before the seven-day rally through yesterday brought it back to within 1.2 percent of the record and above the May 21 peak.

“The Fed has a golden opportunity next week to really provide the market needed visibility on the taper program,” Jim Russell, the senior equity strategist for U.S. Bank Wealth Management, said in an interview from Cincinnati. His firm oversees $112 billion. “Next week is going to be crucial for the markets.”

The CBOE Volatility Index, the gauge of S&P 500 options prices known as the VIX, rose 3.4 percent to 14.29. The equity volatility gauge has tumbled 16 percent in September after rallying 26 percent in August, the biggest monthly gain since May 2012. The index moves in the opposite direction to the S&P 500 about 80 percent of the time.

Gauges of materials producers and financial companies fell the most among the 10 main industry groups in the S&P 500 today.

JPMorgan Chase & Co. slid 1.9 percent to $52.24 for the worst performance in the Dow. The bank may settle regulators’ probes into the bank’s credit-card debt collection practices and sales of identity-theft products as early as next week, according to two people with knowledge of the matter.

Silver dropped the most in nine weeks and gold touched a four-week low as a report showed euro-area industrial output contracted more than analysts estimated in July. Copper declined to a one-month low.

Barrick Gold, the largest miner of the metal, slipped 5.5 percent to $17.61 as gold futures for December delivery dropped 2.4 percent for the biggest drop for a most-active contract since July 5. Newmont decreased 4.2 percent to $28.23.

Cliffs Natural Resources Inc., the largest U.S. iron-ore producer, slumped 5.2 percent to $22.42 for the biggest drop in the benchmark index for American equities.

Lululemon retreated 5.4 percent to $65.29. The yogawear retailer searching for a new chief executive officer cut its profit forecast as new rivals enter its market and shoppers cut spending on clothing. Earnings per share will be as much as $1.97, down from a previous projection of a maximum of $2.01, the Vancouver-based company said. The average of 29 analysts’ estimates compiled by Bloomberg was $1.99.

Disney jumped 2.4 percent to $65.49, the most in the Dow.

The world’s biggest entertainment company plans to start the repurchase plan next year. The company will borrow to finance some of the buys, Chief Financial Officer Jay Rasulo said.

Pandora Media surged 12 percent to $23.97, the highest close since the stock began trading in June 2011. The biggest online radio service hired McAndrews in a push to lift revenue while fending off competition from Apple Inc. The executive was also named chairman and president, succeeding Joe Kennedy.

Phone stocks were the only group among 10 in the S&P 500 to advance, rallying 1 percent. AT&T Inc. jumped 1.2 percent to $34.38 and Verizon Communications Inc. rose 1.8 percent to $47.35 to pace gains among Dow companies.

Verizon produced a profit for investors of about $2.09 billion for agreeing to buy the record $49 billion of bonds it sold yesterday as the price of the securities surged. The debt sale topped Apple Inc.’s $17 billion offering in April and will help pay for the company’s planned $130 billion purchase of Vodafone Group Plc’s stake in Verizon Wireless.

Vertex Pharmaceuticals Inc., a developer of small-molecule pharmaceuticals, rose 2 percent to $81.40, and Ametek Inc., a manufacturer of electronic instruments, added 2.6 percent to $45.57. S&P Dow Jones Indices said the two companies will join the S&P 500, replacing Advanced Micro Devices Inc. and SAIC Inc. AMD dropped 1.8 percent to $3.75 and SAIC added 1.3 percent to $14.96.

Strategists at Goldman Sachs Group Inc. said stocks will continue to rally as the bull market in equities moves into a new phase driven by earnings growth rather than expanding valuations.

Equities will produce more moderate returns with lower volatility in the second phase of the bull market, according to Peter Oppenheimer, Goldman’s chief global equity strategist, who reiterated his bullish stance on stocks. Oppenheimer said in a March 2012 report that the prospects for returns from equities versus bonds “are as good as they have been in a generation.”

Have a wonderful evening everyone.

Be magnificent!

If you are in the moment, you are in the infinite.

-Swami Prajnanpad, 1891-1974

As ever,

Carolann

If anything is sacred the human body is sacred.

-Walt Whitman, 1819-1892

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