September 23, 2022 Newsletter

Dear Friends,

Tangents: Happy Friday
September 23, 1846: The planet Neptune was discovered by German astronomer Johann Gottfried Galle.  Go to article »

9/23/2019: The British travel company, Thomas Cook Group, declares bankruptcy, leaving employees without jobs and 600,000 customers stranded abroad.  Hotels throughout the world are stuck with £338 million in unpaid bills.  Independent travel agent Hays Travel acquires 555 former Thomas Cook travel stores in the UK.

Bruce Springsteen, b. 1949.
Ray Charles, b. 1930
Euripides, b.480 BC.

China discovers rare lunar crystal and nuclear power source on near side of the moon: Researchers in China have discovered a new type of crystal nestled among the volcanic debris of the near side of the moon, as well as a potential fuel source that could help revolutionize the production of clean and efficient energy on Earth.  The small, transparent crystal — named Changesite-(Y), after the Chinese moon goddess Chang’e — is more than a billion years old and is as wide as a human hair, according to Global Times, a Chinese state-run news site. In early September, researchers with the International Mineralogical Association confirmed that the tiny moon crystal has a never-before-seen composition and is related to other minerals found only on the moon or in meteors.  Full Story: Live Science (9/23)

DeepMind scientists win $3 million ‘Breakthrough Prize’ for AI that predicts every protein’s structure: Scientists from Google DeepMind have been awarded a $3 million prize for developing an artificial intelligence (AI) system that has predicted how nearly every known protein folds into its 3D shape.  One of this year’s Breakthrough Prizes in Life Sciences went to Demis Hassabis, the co-founder and CEO of DeepMind, which created the protein-predicting program known as AlphaFold, and John Jumper, a senior staff research scientist at DeepMind, the Breakthrough Prize Foundation announced Thursday (Sept. 22).  Full Story: Live Science (9/22)

Mysterious ‘nightmare’ shark with unnerving human-like smile dragged up from the deep sea: A bizarre deep-sea shark with bulging eyes and an unnerving, human-like smile was recently dragged up from the depths off the coast of Australia. Shark experts are uncertain exactly which species the creepy-looking creature might belong to, adding to the mystery surrounding the unusual specimen.  A deep-sea angler, who goes by the online name Trapman Bermagui, reeled in the mysterious shark from a depth of around 2,130 feet (650 meters) off the coast of New South Wales in Australia. The fisher later shared a snap of the deep-sea specimen on Sept. 12 on Facebook. The image shows off the dead shark’s rough sandpaper-like skin, large pointed snout, large bulging eyes and exposed pearly whites.  Full Story: Live Science (9/23)

Inside the $1 billion sale of Paul Allen’s art collection.

Highlights from London Fashion Week.  After the death of Queen Elizabeth II, the UK went into national mourning. But emerging brands made sure the show went on, with many designers honoring the late monarch in creative ways.
PHOTOS OF THE DAY

Locals watch as increasing wind pushes waves towards the south shore before the arrival of Hurricane Fiona
Photograph: Nicola Muirhead/Reuters

French street artist and photographer JR directs the unfurling of his giant photograph of five-year-old Ukrainian refugee Valeriia from the city of Lviv
Photograph: Alberto Pizzoli/AFP/Getty Images

A worker passes See Monster, a decommissioned North Sea offshore platform that has been transformed into a public art installation at the Tropicana on the seafront
Photograph: Geoff Caddick/AFP/Getty Images
Market Closes for September 23, 2022

International Markets

Bonds

Currencies

Commodities

Market Commentary:
On this day in 1998, Wall Street’s top investment banks completed marathon negotiations for a $3.65 billion bailout of Long-Term Capital Management. The hedge fund had lost nearly $2 billion in a single month when the mathematical models designed by two Nobel laureates failed
Canada
By Bloomberg Automation
(Bloomberg) — The S&P/TSX Composite fell for the fourth  day, dropping 2.7%, or 521.7 to 18,480.98 in Toronto.
The move was the biggest since falling 3.1% on June 16.
Today, energy stocks led the market lower, as 10 of 11  sectors lost; 226 of 236 shares fell, while 9 rose.
Canadian Natural Resources Ltd. contributed the most to the index decline, decreasing 7.0%.
Bombardier Inc. had the largest drop, falling 14.0%.
Insights
* In the past year, the index had a similar or greater loss two times. The next day, it declined after both occasions
* This year, the index fell 13%, heading for the worst year in at least 10 years
* This quarter, the index fell 2%
* This month, the index fell 4.4%
* So far this week, the index fell 4.7%, heading for the biggest decline since the week ended June 17 * The index declined 9.7% in the past 52 weeks. The MSCI AC Americas Index lost 19% in the same period
* The S&P/TSX Composite is 16.8% below its 52-week high on April 5, 2022 and 1.7% above its low on July 14, 2022
* S&P/TSX Composite is trading at a price-to-earnings ratio of 12.5 on a trailing basis and 11.4 times estimated earnings of its members for the coming year
* The index’s dividend yield is 3.4% on a trailing 12-month basis
* S&P/TSX Composite’s members have a total market capitalization of C$3.04t
* 30-day price volatility rose to 16.61% compared with 15.11% in the previous session and the average of 14.02% over the past month
================================================================
| Index Points | |
Sector Name | Move | % Change | Adv/Dec
================================================================
Energy | -224.3988| -6.5| 0/38
Financials | -114.4176| -1.9| 1/28
Materials | -97.9172| -4.5| 0/51
Industrials | -33.7435| -1.4| 1/26
Communication Services| -12.5243| -1.3| 0/7
Consumer Discretionary| -12.3042| -1.8| 0/14
Utilities | -11.5196| -1.1| 2/13
Real Estate | -9.2271| -1.9| 0/22
Consumer Staples | -4.9481| -0.6| 0/11
Health Care | -0.7184| -0.9| 2/5
Information Technology| 0.0156| 0.0| 3/11
================================================================
| | |Volume VS| YTD
|Index Points | | 20D AVG | Change
Top Contributors | Move | % Change | (%) | (%)
================================================================
Canadian Natural Resources | -37.2900| -7.0| 27.6| 21.7
Suncor Energy | -35.8300| -9.3| -28.9| 16.7
Enbridge | -33.6000| -4.5| 14.9| 4.5
Dye & Durham | 0.2490| 5.0| 12.7| -71.8
Canopy Growth | 0.3320| 4.4| 7.2| -65.3
Shopify | 4.7390| 1.5| -8.6| -77.6
US
By Rita Nazareth
(Bloomberg) — A selloff in the riskier corners of the market deepened as the UK’s plan to lift its economy fueled concerns about heightened inflation that could lead to higher rates, adding to fears of a global recession.
It was a sea of red across equity trading desks, with the S&P 500 briefly breaching its June closing low before paring losses.
Chartists looking for signs of where the rout might ease had identified that as a potential area for support.
Yet the lack of full-blown capitulation may be an indication the drawdown isn’t over.
Goldman Sachs Group Inc. slashed its target for US stocks, warning that a dramatic upward shift in the outlook for rates will weigh on valuations.
As risk-off sentiment took hold, Wall Street’s “fear gauge” soared toward a three-month high, with the Cboe Volatility Index momentarily topping 30.
Throughout the year, the US equity benchmark has hit near-term lows when the VIX was above that level, according to DataTrek Research.
Trading volume in the S&P 500 was above the average of the past month, data compiled by Bloomberg showed.
A surge in the greenback to a fresh record swept aside global currencies.
The euro slid to its weakest since 2002, while sterling hit its lowest in 37 years — with former US Treasury Secretary Lawrence Summers saying that “naive” UK policies may create the circumstances for the pound to sink past parity with the dollar.
Treasury 10-year yields fell after earlier topping 3.8%.
“It appears that traders and investors are going to throw in the towel on this week in what feels like ‘the sky is falling’ type of event,” said Kenny Polcari, chief strategist at SlateStone Wealth. “Once everyone stops saying that they ‘think a recession is coming’ and accepts the fact that it is here already – then the psyche will change.”
Liz Truss’s new UK government delivered the most sweeping tax cuts since 1972 at a time when the Bank of England is  struggling to rein in inflation, which is running at almost five times its target.
The plunge in gilts means that investors are now betting the central bank boosts its benchmark lending rate by a full point to 3.25% in November, which would be the sharpest increase since 1989.
Amid heightened fears over a hard economic landing, commodities got hammered across the board.
West Texas Intermediate tumbled below $80 a barrel for the first time since January and was set for a fourth week of declines.
Not even gold — a haven asset — was able to gain due to a surging dollar, and tumbled to the lowest level in two years.
China’s yuan extended losses to a level closest to the weak end of its allowed trading band since a shock currency devaluation in 2015.
With a hawkish Federal Reserve set to sustain the dollar at high levels, analysts say there’s only so much Beijing could do to shore up its currency at a time of economic difficulties.
The greenback’s strength has been unrelenting and will also exert a “meaningful drag” on corporate earnings — serving as a key headwind for stocks, said David Rosenberg, founder of his namesake research firm.
KKR & Co. sees potential trouble ahead, including a mild recession next year, with the Fed narrowly focused on driving up unemployment to tame inflation.
The US labor shortage is so severe that it’s possible the Fed’s tightening doesn’t work, wrote Henry McVey, chief investment officer of the firm’s balance sheet.
“This is a more draconian outcome than corporate profits falling,” he noted, “because it will encourage the Fed to tighten even further.”
Investors are flocking to cash and shunning almost every other asset class as they turn the most pessimistic since the global financial crisis, according to Bank of America Corp.
Investor sentiment is “unquestionably” the worst it’s been since the crisis of 2008, with losses in government bonds being the highest since 1920, strategists led by Michael Hartnett wrote in a note.
“It’s a realization that interest rates are going to continue to rise here and that that’s going to put pressure on earnings,” said Chris Gaffney, president of world markets at TIAA Bank. “Valuations are still a little high even though they’ve come down, interest rates still have a lot further to go up and what impact that will have on the global economy – are we headed for a sharper recession than the recession everybody expected? I think it’s a combination of all of that, it’s not good news.”
Stocks are indeed still far from being obvious bargains.
At the low in June, the S&P 500 was trading at 18 times earnings, a multiple that surpassed trough valuations seen in all previous  11 bear cycles, data compiled by Bloomberg show.
In other words, should equities recover from here, this bear-market bottom will have been the most expensive since the 1950s.
Bleak sentiment is often considered a contrarian indicator for the US stock market, under the belief that extreme pessimism may signal brighter times ahead.
But history suggests that equity losses may accelerate even further from here before the current bear market ends, according to Ned Davis Research.
The firm’s Crowd Sentiment Poll has been in an extreme pessimism zone since April 11, or 112 consecutive trading days that mark the third-longest streak of gloom since the data began in 1995.
Over the subsequent few months following those periods of extreme pessimistic sentiment, equity gains were fleeting, with negative median returns three and six months after the 100-day mark.
In another threat to stocks, different iterations of the so-called Fed model, which compares bond yields to stock earnings’ yields, show equities are least appealing relative to corporate bonds and Treasuries since 2009 and early 2010,respectively.
This signal is getting attention among investors, who can now know look to other markets for similar or better returns.
“The next question is when and how far do earnings estimates decline for 2023,” said Ellen Hazen, chief market strategist and portfolio manager at F.L. Putnam Investment Management. “Earnings estimates for next year are too high, they really have not come down, and as that happens you’re going to have further equity pain because in addition to the multiple coming down via the yield mechanism, the earnings you’re applying that multiple to are going to come down as well.”
As slower growth and tighter financial conditions start catching up to companies, a wave of downgrades will come for the US investment-grade corporate bond market.
That’s according to strategists at Barclays Plc, who say companies are facing margin pressure thanks to high inventories, supply chain issues, and a strong dollar.
The firm expects the average monthly volume of downgrades to increase to $180 billion of bonds over the next half year.
The current monthly average is closer to $40 billion.

Some of the main moves in markets:
Stocks
* The S&P 500 fell 1.7% as of 4 p.m. New York time
* The Nasdaq 100 fell 1.7%
* The Dow Jones Industrial Average fell 1.6%
* The MSCI World index fell 2.1%
Currencies
* The Bloomberg Dollar Spot Index rose 1.3%
* The euro fell 1.5% to $0.9693
* The British pound fell 3.5% to $1.0868
* The Japanese yen fell 0.6% to 143.30 per dollar
Cryptocurrencies
* Bitcoin fell 2.2% to $18,823.63
* Ether fell 2.4% to $1,292.77
Bonds
* The yield on 10-year Treasuries declined four basis points to 3.68%
* Germany’s 10-year yield advanced six basis points to 2.02%
* Britain’s 10-year yield advanced 33 basis points to 3.83%
Commodities
* West Texas Intermediate crude fell 5.3% to $79.06 a barrel
* Gold futures fell 1.7% to $1,651.80 an ounce
–With assistance from Abigail Moses and Vildana Hajric.
Have a wonderful weekend everyone.

Be magnificent!

As ever,

Carolann

Behavior is the mirror in which everyone shows their image. –Johann Wolfgang Von Goethe, 1749-1832.

Carolann Steinhoff, B.Sc., CFP®, CIM, CIWM
Senior Investment Advisor

Queensbury Securities Inc.,
St. Andrew’s Square,
Suite 340A, 730 View St.,
Victoria, B.C. V8W 3Y7

Tel: 778.430.5808
(C): 250.881.0801
Toll Free: 1.877.430.5895
Fax: 778.430.5828
www.carolannsteinhoff.com