September 22, 2011 Newsletter

 

Dear Friends,

Tangents:

 

Just back from a two day wealth management conference in Calgary; excellent presentations on investing in the current challenging times.   Very reassuring.  More later….it was a busy catch-up day….not to mention emotional markets – crazy.  I never thought I’d live to see a 30-year-bond yield at 2.68%. 

Photos of the day 

September 22, 2011

A dew-laden spider web adorns a fence as a horse grazes in a pasture near Glencoe, Ky. Ed Reinke/AP

Fischer’s Lovebirds stand in a bird cage at Pairi Daiza, a zoo and botanical garden, in Brugelette Belgium.Yves Herman/Reuters

Market Commentary:

Canada

By Matt Walcoff and Whitney Kisling

Sept. 22 (Bloomberg) — Canadian stocks fell to the lowest level in a year after economic data from Europe, North America and China indicated the global recovery may be slowing and fuel and metal prices dropped on a stronger U.S. dollar.

Barrick Gold Corp., the world’s largest gold producer, declined 6.1 percent, sinking with precious metals as the U.S.

Dollar Index surged the most intraday since August 2010. Royal Bank of Canada, the country’s biggest lender by assets, lost 3.4 percent as financial shares slumped to a 12-month intraday low. Suncor Energy Inc., Canada’s largest oil and gas producer, dropped 6.8 percent as crude retreated as much as 7.1 percent.

The Standard & Poor’s/TSX Composite Index fell 483.10 points, or 4 percent, to 11,471.91 at 2:06 p.m. Toronto time, after sinking to 11,467.87, the lowest intraday level since July 2010. The index declined as much as 4.1 percent, the most in six weeks.

“Nothing has changed with respect to Europe and there’s still a response in the marketplace to the Federal Reserve,” which cited significant risks to growth yesterday, said Gareth Watson, at Richardson GMP Ltd. in Toronto. Watson is vice president of investment management at Richardson GMP, which oversees about C$16 billion ($15.5 billion). “In terms of the Canadian market, the Chinese PMI number this morning isn’t helping sentiment amongst resource names, so we’re being hit from all sides.”

Canada’s stock benchmark slumped 10 percent this quarter through yesterday as energy and financial stocks dropped on concern the world’s economy will grow at a slower pace than previously forecast.

The International Monetary Fund estimated on Sept. 20 that world gross domestic product will increase 4 percent this year and next, compared with June forecasts of 4.3 percent for 2011 and 4.5 percent for 2012. The S&P/TSX is set to decline for a seventh straight month, the longest streak since 1984.

Canadian retail sales fell twice as fast as economists forecast in July as demand for new automobiles and furniture dropped, Statistics Canada said today in Ottawa. The U.S. Labor Department said 423,000 Americans filed first-time claims for unemployment benefits last week, more than the 420,000 median estimate of economists in a Bloomberg News survey.

A report in Brussels showed that European services and manufacturing growth contracted for the first time in more than two years this month. China’s manufacturing may shrink for a third month in September, the longest contraction since 2009.

The Thomson Reuters/Jefferies CRB Index of 19 commodities fell as much as 4.5 percent, its biggest intraday slide since May 5. Gains in the dollar cut demand for gold as an alternative asset, sending the metal to a four-week low. Silver was set to retreat the most in a day since October 2008.

Barrick dropped 6.1 percent to C$50.34. Goldcorp Inc., the world’s second-largest gold producer by market value, declined 4.5 percent to C$49.20. Silver Wheaton Corp., Canada’s fourth- biggest precious-metals company by market value, lost 9 percent to C$37.19.

Keegan Resources Inc., which is developing a gold mine in Africa, plunged 27 percent to C$6.30 after issuing a resource estimate. The stock tumbled as much as 29 percent, the most intraday since 2004,

Forty of 43 S&P/TSX financial companies retreated. Royal Bank decreased 3.4 percent to C$44.97 after earlier touching C$44.38, the lowest intraday since June 2009. Canadian Imperial Bank of Commerce, the country’s fifth-largest lender by assets, slumped 4.9 percent to C$70.18 and earlier sank as much as 5.1 percent, the most intraday since May 2010. Manulife Financial Corp., North America’s fourth-biggest insurer, plunged 5.6 percent to C$11.24, the lowest since March 2009.                       

Insurance holding company Fairfax Financial Holdings Ltd. rallied 5.6 percent to C$402.01 after saying it may buy back shares.

The S&P/TSX Energy Index fell for a fifth day, touching the lowest intraday level since September 2009. Suncor dropped 6.8 percent to C$26.22, the lowest since March 2009. Canadian Natural Resources Ltd., the country’s second-largest energy company by market value, declined 3.8 percent to C$30.76. Trican Well Service Ltd., Canada’s biggest oilfield-services company, slid 9.4 percent to C$16.67 after plunging as much as 18 percent, the most intraday since December 2008.

Petrominerales Ltd., which produces oil in Colombia, tumbled 10 percent to C$26.10 after saying it failed to find oil in at least three exploration wells. The shares sank as much as 14 percent, the most intraday since December 2008. Base-metals and coal producers in the S&P/TSX retreated to the lowest since August 2010 as copper decreased the most since October 2008.

Teck Resources Ltd., Canada’s largest company in the industry, fell 6.3 percent to C$31.90, the lowest since July 2010. First Quantum Minerals Ltd., the country’s second-biggest publicly traded copper producer, slumped 8.7 percent to C$15.33 to extend its four-day plunge to 28 percent, the most since November 2008. Grande Cache Coal Corp., which mines in Alberta, tumbled 14 percent to C$5.27.

Potash Corp. of Saskatchewan Inc., the world’s largest fertilizer producer by market value, dropped for a sixth day, declining 3.5 percent to C$48.63. The shares touched a 2011 intraday low of C$47.98. Corn futures decreased as much as 5.1 percent.

US

By Rita Nazareth

Sept. 22 (Bloomberg) — U.S. stocks slumped, giving the Dow Jones Industrial Average its biggest two-day decline since December 2008, amid investors’ concern that policy makers are running out of tools to avoid another global economic recession.

All 10 industries in the Standard & Poor’s 500 Index retreated at least 1.8 percent as losses were led by commodity and industrial shares. Alcoa Inc., Caterpillar Inc. and Bank of America Corp. dropped more than 5 percent, pacing declines in companies most-tied to economic growth. FedEx Corp., operator of the biggest cargo airline and a proxy for the economy, tumbled 8.2 percent after cutting its profit forecast.

The S&P 500 fell 3.2 percent to 1,129.56 at 4 p.m. New York time, dropping 7.1 percent in four days. The Dow lost 391.01 points, or 3.5 percent, to 10,733.83, bringing its two-day retreat to 5.9 percent. About 13.2 billion shares changed hands on U.S. exchanges at 4:47 p.m., 54 percent more than the three-month average, according to Bloomberg data.

“People are selling first and asking questions later,”

David Kelly, chief market strategist for JPMorgan Funds in New York, said in a telephone interview. “The problem is that policy makers seem to have no clue what the solutions are. The Fed needs to express confidence on the economy itself. I don’t know how much further the market can go down.”

The MSCI All-Country World Index slid 4.5 percent, extending a drop from its May 2 high to more than 20 percent, entering a bear market. The S&P 500 has fallen 17 percent since April 29 amid concern about a global economic slowdown.

Benchmark indexes for the U.S., U.K., Canada, Singapore and New Zealand are the only ones among 24 developed countries that haven’t fallen at least 20 percent from their highs.                         

Stocks fell yesterday on the Federal Reserve’s assessment that the turmoil caused by Europe’s crisis is taking a toll on the economy. The Fed said it will replace $400 billion of short- term debt with longer-term Treasuries to spur growth. Stocks also fell as Moody’s Investors Service cut three U.S. banks.

The world is on the eve of the next financial crisis, with sovereign debt its epicenter, said Mohamed El-Erian, chief executive officer of Pacific Investment Management Co., which runs the biggest bond fund. The European Central Bank hasn’t put in place a “circuit breaker” to contain the region’s debt crisis, El-Erian, who is also Pimco’s co-chief investment officer, said at an event in Washington today. “There has been a significant increase in the financial requirements of international intervention,” El-Erian said.

“You need a lot more firepower in order to be a circuit breaker. Look at how much the ECB has put in and ask yourself the question: has it created a circuit breaker? The answer is no, even though the amounts involved have been massive.”

Bets that stocks will gain make up 20 percent of Traxis Partners LLC’s holdings, down from as much as 85 percent six months ago, as the threat of a recession makes equities too risky, according to co-founder Barton Biggs.

 “I wish I was minus 20,” Biggs said during an interview today on Bloomberg Television’s “Street Smart” with Matt Miller and Carol Massar. “I wish I was zero. I don’t think any place is a place to invest.”

Global stocks fell amid the Fed’s economic outlook and data indicating China’s manufacturing may shrink for a third month in September, the longest contraction since 2009, after a preliminary index of purchasing managers showed measures of export orders and output declined.

Stock futures extended losses after a Labor Department report showed that more Americans than forecast filed first-time claims for unemployment insurance payments last week.

Separately, U.S. consumer confidence dropped last week to the weakest point since the recession ended in June 2009, according to the Bloomberg Consumer Comfort Index.                      

The Morgan Stanley Cyclical Index lost 5.2 percent. The Dow Jones Transportation Average decreased 3.1 percent. The KBW Bank Index slumped 2.7 percent. Gauges of raw material and energy producers had the biggest declines in the S&P 500, slumping at least 5.3 percent, as commodities erased this year’s gain.

Alcoa, the largest U.S. aluminum producer, dropped 6.7 percent to $10.11. Caterpillar fell 6.9 percent to $73.90. Bank of America slid 5 percent to $6.06.

FedEx tumbled 8.2 percent to $66.58. The company, which ships more packages by air than rival United Parcel Service Inc., has seen volume growth slow as demand for express shipments stagnates amid a weakening economic recovery. FedEx also has been spending more on jet fuel, whose average cost jumped about 48 percent in the period.

 The S&P 500 may drop as low as 1,076 before investor panic abates and stocks rally, according to Tom DeMark, the creator of indicators for identifying turning points in securities.

The benchmark index for U.S. equities may fall that far intraday as early as next week and then gain as much as 20 percent, DeMark said in a telephone interview from Phoenix today. The swings will push the VIX, as the Chicago Board Options Exchange Volatility Index is known, above the high of 48 it reached on Aug. 8, he said.

“We’re trying to identify when selling capitulation is about to be completed,” said DeMark, the founder of Market Studies LLC. “We’re trying to identify the inflection point on the downside when the last seller sold. It could come as early as next Thursday.”

U.S. equities briefly trimmed losses as the Financial Times reported that the European Union is looking to speed up a recapitalization of 16 banks. The move would affect mostly “mid-tier” banks, the FT reported, citing a senior French official.

Companies that are least-tied to economic growth, known as “defensive,” outperformed the S&P 500. Gauges of utility and telephone companies fell less than the benchmark index. Only 27 stocks in the S&P 500 rose.

“The market is pricing in a recession,” Peter Sorrentino, a senior money manager at Huntington Asset Advisors in Cincinnati, said in a telephone interview. The firm oversees $14.8 billion. “We don’t see a repeat of 2009. “We’re into a crisis of confidence.”

Goodrich Corp. surged 10 percent to $120.60 for the biggest gain in the S&P 500. United Technologies Corp. agreed to buy Goodrich for $16.5 billion, adding the maker of aircraft landing gear and jet-turbine casings to take advantage of a record surge in commercial plane orders. Goodrich stockholders will get $127.50 a share. United Technologies dropped the most in the Dow, erasing 8.8 percent to $68.31.

Have a wonderful evening everyone.

Be magnificent!

Every day we see or read of appalling things happening in the world as the result of violence in man.

You may say, “I can’t do anything about it,” or “How can I influence the world?”

I think you can tremendously influence the world if you yourself are not violent,

if you lead actually every day a peaceful life – a life which is not competitive, ambitious, envious –

a life which does not create enmity.

Small fires can become ablaze.

 

-Krishnamurti, 1895-1986

As ever,

Carolann

Diligence is the mother

of good fortune.

          -Miguel de Cervantes, 1547-1616