September 23, 2013 Newsletter

Dear Friends,

Tangents:

On this day in 1930, Ray Charles was born.  It was wonderful to read about the new stamp (see photo below) being issued to commemorate him.  During his lifetime, he gave the world more than 50 years of jazz, blues, R & B, country and gospel.  He worked as a professional musician in Florida, but at age 17, he took his savings of $600 and moved to Seattle.  There he met Quincy Jones, who was 14 years old at the time, and a friendship began that would last a lifetime.

Must be an auspicious day for musicians –  Bruce Springsteen turns 64 today.  John Coltrane was born on September 23^rd, 1926.

Singer Hank Williams had his last studio session on September 23, 1952, recording Your Cheatin’ Heart and other songs.

The planet Neptune has a birthday of sorts today – it was discovered on this date in 1846 by German astronomer Johann Gottfried Galle.

You better live every day like your last because one day you’re going to be right. –Ray Charles, 1930-2004.

Photos of the Day –September 23rd, 2013

A stamp featuring musician Ray Charles is unveiled as singer Ashanti performs at the event at Morehouse College in Atlanta. The US Postal Service is planning to add soul singer Ray Charles to its ‘Music Icons Forever’ stamp series. David Goldman/AP

A member of the media tries out a Surface 2 tablet during the launch of the Microsoft Surface 2 tablets in New York. Shannon Stapleton/Reuters

Market Closes for September 23^rd, 2013

International Markets

Bonds

Currencies

Commodities

Market Commentary:

Canada

By Eric Lam

Sept. 23 (Bloomberg) — Canadian stocks rose, halting a two-day slide, as phone stocks gained after foreign competitors signaled no intention to join a wireless-spectrum auction and BlackBerry Ltd. pared declines after agreeing to a buyout.

BlackBerry was unchanged, erasing earlier losses of as much as 8.2 percent, after saying it has a deal to sell itself for $4.7 billion to a group led by Fairfax Financial Holdings Ltd.

Rogers Communications Inc. rose 1.2 percent as Canada’s three largest phone carriers placed deposits to bid in a spectrum auction that is not expected to attract a foreign competitor.

National Bank of Canada climbed 0.9 percent to pace gains among the nation’s lenders. Catamaran Corp. dropped 3.5 percent after Morgan Stanley cut its rating on the stock.

The Standard & Poor’s/TSX Composite Index rose 4.71 points, or less than 0.1 percent, to 12,811.18 at 4 p.m. in Toronto. The benchmark Canadian equity gauge has surged 5.6 percent this quarter and is up 3 percent in 2013. Trading volume was 3.3 percent above the 30-day average.

“The big news event today was BlackBerry,” said John O’Connell, chief executive officer with Davis Rea Ltd. in Toronto. The firm manages about C$600 million. The gains among phone stocks show “the markets were overreacting to the threat of an entrance from foreign telecoms,” he said.

The S&P/TSX traded little changed for most of the morning session before the BlackBerry announcement sent the index up by as much as 0.2 percent. The company’s shares erased an earlier drop to turn as high as 4.1 percent before finishing the day unchanged at C$9.08.

That’s roughly in line with the $9 a share offered by a group led by Fairfax, its largest shareholder, in a tentative deal. The deal values BlackBerry at a 3.1 percent premium over its closing price last week.

The stock plunged 16 percent Sept. 20 after the company released second-quarter earnings on that fell short of analysts’ estimates. The Waterloo, Ontario-based company also said it’s cutting 4,500 jobs and taking a writedown of as much as $960 million for unsold inventory of its Z10 phone — a touch-screen device unveiled in January as its answer to the iPhone.

The acquirers will have six weeks to scrutinize BlackBerry’s books, a span in which the smartphone maker can seek other takeover offers. Fairfax, a financial services holding company, added 1.1 percent to C$420.45.

Wireless carriers rallied after the industry’s largest domestic players applied to bid in a wireless spectrum auction on Jan. 14, according to a list on Industry Canada’s website.

Rogers Communications, Canada’s largest wireless carrier, increased 1.2 percent to C$45.36 and BCE Inc. added 1.3 percent to C$44.51. Telus Corp. jumped 2.5 percent to C$35.44.

The roster of applicants doesn’t appear to include major foreign players. Verizon Communications Inc. said Sept. 3 it wouldn’t enter the Canadian market after saying earlier in the summer it was exploring the idea.

It’s “good for incumbents,” Greg MacDonald, an analyst in Toronto at Macquarie Capital Markets, said in an e-mail, referring to the three largest companies.

Financial firms advanced. National Bank rose 0.9 percent to C$85.78 and Canadian Imperial Bank of Commerce gained 0.8 percent to C$83.47. Royal Bank of Canada, the nation’s largest lender, added 0.5 percent to C$66.26.

Materials producers declined as prices for metals from gold to copper slumped amid speculation the U.S. Federal Reserve will reduce fiscal stimulus, outweighing data from China showing a preliminary manufacturing index gauge climbed more than expected in September.

Iamgold Corp. retreated 4.2 percent to C$4.99 and Osisko Mining Corp. tumbled 5.6 percent to C$5.11. Silver Standard Resources Inc. dropped 7.5 percent to C$6.57.

Catamaran, a pharmacy benefits management company, slumped 3.5 percent to C$49.29, the lowest close since May. The stock has lost 14 percent since customer Walgreen Co. said on Sept. 17 it is moving staff into a private health exchange. Analysts with Morgan Stanley today lowered Catamaran’s rating to equal weight, the equivalent of a hold.

Agrium Inc., North America’s third-largest fertilizer producer, lost 3.1 percent to C$89.49, the biggest drop since July 30. The company said earnings will fall in its wholesale unit this quarter because of declines in sales volumes of as much as 30 percent compared with a year earlier.

Prices for potash, a major fertilizer used to strengthen crops, have declined since OAO Uralkali, the world’s biggest producer, pulled out of a trading venture with Belarus in July and said it would sell its product at a lower price.

US

By Lu Wang

Sept. 23 (Bloomberg) — U.S. stocks fell, with the Standard & Poor’s 500 Index having the longest retreat in a month, as financial shares slumped and investors watched speeches from Federal Reserve officials for clues on monetary policies.

Goldman Sachs Group Inc. and Citigroup Inc. declined more than 2.7 percent as Atlantic Equities LLP forecast a drop in fixed-income trading revenue for the biggest U.S. banks.

Homebuilders slipped 1.6 percent as a group before Lennar Corp. and KB Home report earnings tomorrow. Apple Inc. surged 5 percent after saying first-weekend sales of its new iPhones topped 9 million units.

The S&P 500 retreated 0.5 percent to 1,701.84 at 4 p.m. in New York. The benchmark gauge has lost 1.4 percent over three days, giving back all its gains from the Fed’s unexpected move last week to maintain stimulus levels. The Dow Jones Industrial Average slipped 49.71 points, or 0.3 percent, to 15,401.38.

About 5.8 billion shares changed hands on U.S. exchanges, in line with the three-month average.

“At some point, investors are going to say, ‘What’s underpinning this strong rally? We need some solid numbers,’” Scott Armiger, chief investment officer at Christiana Trust in Wilmington, Delaware, said in a phone interview. The firm has $6 billion under administration. Fed policy makers “are trying to neutralize the market. This time Bernanke said no tapering and they’re all running out and saying ‘wait a minute, folks, don’t get carried away.’”

The S&P 500 rose 1.3 percent last week, touching a record high, as the Federal Open Market Committee said at its Sept. 17-18 meeting that it will continue to buy $85 billion of assets a month, surprising economists who had forecast a reduction. The S&P 500 has gained 6 percent for the quarter and is up 19 percent for the year.

The central bank has left its main interest rate near zero since December 2008 and has expanded its balance sheet to a record $3.66 trillion through three rounds of stimulus. The quantitative easing program has helped the S&P 500 surge more than 150 percent since March 2009.

The rally has pushed equities to their highest valuations in more than three years. At a record close on Sept. 18, the S&P 500 traded at 16.5 times reported earnings, a multiple not seen since May 2010, data compiled by Bloomberg show.

Three regional bank presidents spoke today. Fed Bank of New York President William C. Dudley said policy makers must “forcefully” push against economic headwinds as the U.S. has yet to show “any meaningful pickup” in momentum. Fed Bank of Atlanta President Dennis Lockhart said monetary policy should focus on creating a more dynamic economy. Fed Bank of Dallas President Richard Fisher said the central bank harmed its credibility with the decision last week.

The S&P 500 fell 0.7 percent on Sept. 20 as Fed Bank of St. Louis President James Bullard said policy makers may decide to reduce their monthly bond purchases at the meeting in October.

“The more people who speak from the Fed in one day, the less clarity there is,” Richard Sichel, who oversees about $1.9 billion as chief investment officer at Philadelphia Trust Co., said by phone. “People will be hanging at every word that’s said for more clues about our monetary policy.”

Even as investors focus on the Fed’s policies, a risk is rising from another corner of Washington. Hardening positions on the federal budget and borrowing limit, and recent political setbacks suffered by both President Barack Obama and Republican congressional leaders as they go into the fight, are raising the odds of a government shutdown, debt default or near-miss that could roil equities markets.

Forty percent of global investors surveyed in a Sept. 10 Bloomberg poll said they would pull back on U.S. markets in the event of a government shutdown, which many economists say would be less damaging than a debt default.

“We are in for another ugly confrontation,” said Howard Ward, the chief investment officer for growth equity at Rye, New York-based Gamco Investors Inc., which oversees about $40 billion. “Even though everyone knows the impasse will be short- lived, it is a sad reminder of how dysfunctional Washington has become. It will be a catalyst for taking profits after the recent run-up.”

Outside the U.S., German Chancellor Angela Merkel was re- elected yesterday, winning the biggest tally since Helmut Kohl’s post-reunification victory of 1990. In Asia, the preliminary reading of a purchasing managers’ index for Chinese manufacturing compiled by HSBC Holdings Plc and Markit Economics climbed to 51.2 in September from 50.1 in August. That beat the 50.9 median estimate of economists surveyed by Bloomberg News.

U.S. equities will likely extend their declines this week, if history is any guide, after the Sept. 20 expiration in futures and options contracts, according to MacNeil Curry, a New York-based technical strategist at Bank of America Corp.

When the quarterly expiration process known as triple witching occurs in September, the following week has resulted in losses 68 percent of the time for the S&P 500 since equity index futures were created in 1982, according to a study by Curry. In the past 10 years, the S&P 500 has fallen 80 percent of the time in the week after September triple witching, averaging a decline of 1.9 percent, the data show.

The Chicago Board Options Exchange Volatility Index, the gauge of S&P 500 options prices known as the VIX, jumped 9.1 percent, the most since Aug. 27, to 14.31. The measure is still down 21 percent this year.

Seven of 10 S&P 500 industry groups declined, with financial shares falling 1.5 percent as a group for the largest drop. Utility and technology shares had the best performance, rising 1.2 percent and 0.3 percent, respectively.

The largest U.S. banks’ fixed-income trading revenue will probably fall 20 percent in the third quarter from a year ago on lower volumes, Richard Staite, an analyst at Atlantic Equities wrote in a note. Staite cut his estimate for Goldman Sachs’s per-share earnings 18 percent to $2.47 and Citigroup’s by 14 percent to $1.05.

Goldman Sachs slid 2.7 percent to $165.25 for the biggest retreat in the Dow. Citigroup sank 3.2 percent to $49.57.

JPMorgan Chase & Co. retreated 2.5 percent to $51.46 and Bank of America Corp. erased 2.1 percent to $14.14.

The S&P Supercomposite Homebuilding Index declined 1.6 percent, with all 11 members falling. Lennar slid 1.7 percent to $34.54 while KB Home lost 3.4 percent to $17.03.

Lennar’s profit growth during the three months ended August probably slowed to 13 percent from 105 percent in the previous quarter while KB Home’s earnings may have increased 32 percent, less than half its pace in the previous quarter, analyst estimates compiled by Bloomberg show.

Apple jumped 5 percent, the most in the S&P 500 and its biggest gain since July 24, to $490.64. The company sold 9 million iPhone 5s and 5c models. That topped the 5 million in opening-weekend sales for last year’s model and surpassed analyst estimates that ranged from 6 million to 7.75 million, according to a Bloomberg poll.

Pandora Media Inc., the biggest web radio service, tumbled 10 percent to $24.26 after Apple said more than 11 million listeners have used iTunes Radio since its launch this year.

BlackBerry Ltd. added 1.1 percent to $8.82. The company entered a tentative agreement for a $4.7 billion buyout from a group led by its biggest shareholder, Fairfax Financial Holdings Ltd., forging a path to go private after a new line of smartphones failed to catch on.

Shares of BlackBerry fell as much as 6.1 percent earlier as Jefferies Group LLC lowered its rating on the shares to hold from buy, saying the handset business has a negative value. The stock tumbled 17 percent on Sept. 20 after the company posted quarterly sales that trailed analysts’ estimates by half and announced 4,500 job cuts.

General Electric Co. advanced 1.1 percent to $24.28 after winning contracts worth $2.7 billion from a unit of Sonelgaz, Algeria’s state-owned electricity and gas company. GE will supply heavy-duty gas turbines, steam turbines and generators for nine power plants, according to a statement.

Walgreen Co. added 1.3 percent to a record $56.23. Morgan Stanley boosted its rating on the drugstore chain to overweight from equal weight.

Have a wonderful evening everyone.

Be magnificent!

A mind that is burdened with the past is a sorrowful mind.

Krishnamurti, 1895-1986

As ever,

Carolann

From even the greatest of horrors

irony is seldom absent.

-H.P. Lovecraft, 1890-1937

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