September 25, 2013 Newsletter

Dear Friends,

Tangents:

I just read the Dow News Wire that Oracle Team US won the America’s cup: this has to rank as one of the biggest comebacks in sports history.  Wow, when we were in San Francisco watching the races a couple of weekends ago, the Kiwis had only to win one more race for the cup, the Americans were down 10.  Just goes to show – never give up.

Getty Images

Oracle Team USA in action

I laughed at Yachtsman Jimmy Spithill’s endearing comment, “You’re a rooster one day; a feather duster the next.”

Every exit is an entry somewhere. – Tom Stoppard

Photos of the day

Britain’s Bradley Wiggins rides past the Basilica of Santa Maria del Fiore, on his way to clinching the silver medal in the men’s individual time trial event, at the road cycling world championships, in Florence, Italy. Fabrizio Giovannozzi/AP

Pittsburgh Pirates left fielder Starling Marte (l.), center fielder Andrew McCutchen (c.) and right fielder Marlon Byrd (r.) celebrate after beating the Chicago Cubs 8-2 during their MLB National League baseball game in Chicago. Jeff Haynes/Reuters

Baseball breaks your heart.  It is designed to break your heart.  The game begins in the spring, when everything else begins again, and it blossoms in the summer, filling the afternoons and evenings, and then as soon as the chill rains come, it stops and leaves you to face the fall alone. – A. Bartlett Giamatti, Major League Baseball Commissioner, 1938-1989.

Market Closes for September 25^th, 2013

International Markets

Bonds

Currencies

Commodities

Market Commentary:

Canada

By Eric Lam

Sept. 25 (Bloomberg) — Canadian stocks fell, after a two- day advance, as declines among telephone and consumer-staples companies offset a rally among raw-material shares amid the first gain in commodities prices in five days.

Torex Gold Resources Inc. and Yamana Gold Inc. gained at least 3 percent as the price of the metal snapped three days of losses. Teck Resources Ltd., Canada’s largest diversified miner, rose 1.4 percent as base metals prices advanced. Telus Corp. and BCE Inc. fell more than 1 percent as phone stocks retreated for the first time in nine days. BlackBerry Ltd. slumped 5.8 percent as investors continued to digest a potential $4.7 billion takeover by Fairfax Financial Holdings Ltd.

The Standard & Poor’s/TSX Composite Index fell 12.18 points, or 0.1 percent, to 12,836.71 at 4 p.m. in Toronto. The benchmark Canadian equity gauge has surged 5.8 percent this quarter and is up 3.2 percent in 2013.

“Today, the market has gold going for it,” said Keith Richards, fund manager with ValueTrend Wealth Management in Barrie, Ontario. His firm manages about C$110 million ($107 million). “The banks have supported the TSX, but they’re maybe a bit overbought, so it’s time to take a pause. I don’t see what else could really drive the TSX. It needs a catalyst and there isn’t one right now.”

Raw-materials stocks gained 1.4 percent as a group, the only increase among 10 industries in the S&P/TSX. Trading volume was 2.8 percent lower than the 30-day average.

“From time to time you see rebounds there in commodities, but the prices are stuck in a range,” said Stephen Gauthier, chief investment officer with Fin-XO Securities Inc. in Montreal. His firm manages about C$550 million. “What you need to see that change is stronger growth worldwide. That’s what people are waiting for.”

Alongside improvements in Europe and China, economic data in the U.S. will need to show signs beyond growth in real estate, Gauthier said. A report today showed U.S. new home sales in August climbed 7.9 percent compared with a revised 14 percent plunge in July.

Alacer Gold Corp. surged 9.6 percent to C$3.42. The gold producer, which is selling mines in Australia, said yesterday it expects to decide on an expansion at its Copler operation in Turkey by the end of 2014.

Torex Gold added 4.3 percent to C$1.46 and Yamana Gold rose 3 percent to C$11.01. Gold for December delivery increased 1.5 percent to $1,336.20 an ounce in New York. The price had declined 3.9 percent in the past three sessions.

Endeavour Silver Corp. climbed 6.6 percent to C$4.71 as silver futures rose 1.4 percent, snapping a three-day, 7.3 percent slide.

Teck Resources rose 1.4 percent to C$28.58 and First Quantum Minerals Ltd. rallied 1 percent to C$19.27 as base metals including copper, aluminum, zinc, tin and lead advanced.

Stockpiles of copper monitored by the London Metal Exchange fell for a 15th session.

Telus lost 2.2 percent to C$34.78 and BCE Inc. fell 1 percent to C$44.13 as telephone stocks slumped 1.1 percent, the first decline since Sept. 12. Telus, BCE and Rogers Communications Inc. have signaled their intent to bid in a wireless spectrum auction that didn’t include any submissions from major foreign companies.

CGI Group Inc. rose 0.3 percent to C$36.85, a record high, after the technology services company said it has signed an eight-year deal worth 75 million British pounds ($121 million) with Smart DCC Ltd. to develop and operate a system to link gas and electricity meters for utility companies.

BlackBerry, the smartphone maker, slumped 5.8 percent to C$8.27, the lowest close since November 2012.

On Sept. 23, BlackBerry said it had agreed to a tentative deal to sell itself to a group led by Fairfax, the largest company shareholder. The sale, for $9 a share in cash, is still subject to several conditions including securing financing and due diligence.

BlackBerry has plunged 24 percent in the past four days, since announcing on Sept. 20 worse-than-estimated earnings and smartphone sales for its second quarter and plans to fire 4,500 employees.

Consumer-staples shares slid 0.7 percent. Maple Leaf Foods Inc., the Canadian food processor, retreated 2.3 percent to C$13 for its fifth straight loss. Alimentation Couche-Tard Inc., the largest public convenience-store operator in North America, tumbled 2.4 percent to C$63.77.

US

By Lu Wang

Sept. 25 (Bloomberg) — U.S. stocks fell, giving the Standard & Poor’s 500 Index its longest slump this year, as Wal- Mart Stores Inc. retreated and concern grew that a political showdown over government spending poses a threat to growth.

Wal-Mart lost 1.5 percent after the retailer told suppliers it’s cutting orders this quarter and next to address rising inventories. J.C. Penney Co. slumped 15 percent as Goldman Sachs Group Inc. said the department-store chain’s liquidity will be strained. Stryker Corp. slipped 2.9 percent on an agreement to buy Mako Surgical Corp. for $1.65 billion. Noble Corp. added 1.8 percent after the offshore rig contractor said it plans to spin off about half its fleet.

The S&P 500 fell 0.3 percent to 1,692.77 at 4 p.m. in New York, its fifth straight losing session. The Dow Jones Industrial Average, which includes Wal-Mart, slid 61.33 points, or 0.4 percent, to 15,273.26. About 5.9 billion shares changed hands on U.S. exchanges, in-line with the three-month average.

“There is a lot of noise that’s disruptive to people doing anything with a great deal of confidence,” Don Hodges, founder of Dallas-based Hodges Funds, said in a phone interview,referring to budget negotiations. His firm manages about $1.3 billion. “Anytime the market is as strong as it’s been in the last few weeks, you just know that it’s capable of having a pullback that shakes off people a little bit.”

The S&P 500 has dropped 1.9 percent in the past five days as investors weighed whether a looming government shutdown will hamper economic growth. The current losing streak is the index’s longest since Dec. 28, when lawmakers wrangled over impending automatic spending cuts and tax increases known as the fiscal cliff.

The Senate likely will not vote on a stopgap spending bill until this weekend, leaving the House just one full workday to act before spending authority for the federal government expires on Oct. 1. The House and Senate are at odds over language that withdraws funding for the 2010 health-care law.

On another fiscal front, Treasury Secretary Jacob J. Lew told Congress that the extraordinary measures being used to avoid breaching the debt ceiling “will be exhausted no later than Oct. 17.” Failure to increase the debt limit could lead to a downgrade of the U.S. government’s credit rating.

The wrangling comes as Americans are losing faith in the nation’s economic recovery, according to a Sept. 20-23 Bloomberg National Poll. Forty-four percent of poll respondents say they expect the economy, which has expanded for nine consecutive quarters, to remain about the same over the next year, while 28 percent see it weakening.

Investors have also been scrutinizing data to determine whether economic growth is robust enough for the Federal Reserve to begin paring back its $85 billion in monthly bond purchases.

A report from the Commerce Department today indicated purchases of new homes rose in August, capping the weakest two months this year, showing the fallout from mortgage rates at a two-year high is cooling the real-estate rebound. Demand slumped 14 percent in July. Separate government data showed orders for equipment such as computers and machinery climbed less than forecast in August.

The central bank’s decision Sept. 18 to refrain from slowing stimulus sent the S&P 500 to a record close of 1,725.52.

The gauge has retreated every session since the decision, as policy makers send mixed signals on the timing of the central bank’s next move. Fed Bank of St. Louis President James Bullard said Sept. 20 that tapering could start in October. William Dudley, head of the New York Fed, said yesterday any cut would depend on the economy’s performance.

“There has been some push and pull on whether this is just a temporary waiting for the taper to actually start, or whether lower for longer is the new reality,” Diane Jaffee, the New York-based group managing director for U.S. equities who oversees about $6.4 billion in assets at TCW Group Inc., said in a phone interview.

The S&P 500 has rallied 5.7 percent in the third quarter while Treasuries retreated 0.1 percent through yesterday, according to data compiled by Bloomberg and Bank of America Corp. The divergence will cause some funds to sell stocks and buy bonds to rebalance asset allocations. UBS AG strategist Boris Rjavinski projects “significant” outflows from U.S. equities into Treasuries, with as much as $41 billion in stocks being sold and up to $22 billion of fixed-income investments purchased.

The Chicago Board Options Exchange Volatility Index, the gauge of S&P 500 options prices known as the VIX, lost 0.5 percent to 14.01. The measure has fallen 22 percent this year.

Eight of 10 S&P 500 main industries fell as consumer- staples and health-care stocks dropped at least 0.7 percent.

Wal-Mart lost 1.5 percent to $74.65, the steepest drop in the Dow. Last week, an ordering manager at the company’s Bentonville, Arkansas, headquarters described the pullback in orders in an e-mail to a supplier, who said others got similar messages.

Merchandise has been piling up because consumers have been spending less freely than Wal-Mart projected, and the company has forfeited some sales because it doesn’t have enough workers in stores to keep shelves adequately stocked.

“We’ve seen a little bit of weakening in the strength of the consumer recently and Wal-Mart could be a good example of that, where people are starting to pull back on marginal purchases,” James W. Gaul, a fund manager at Boston Advisors LLC, which oversees about $2.3 billion from Boston, said by phone.

J.C. Penney sank 15 percent to $10.12, the lowest since December 2000. The stock has tumbled 49 percent in 2013.

“Weak fundamentals, inventory rebuilding, and an underperforming home department will likely challenge J.C. Penney’s liquidity levels in the third quarter,” Kristen McDuffy, at New York-based analyst for Goldman, wrote yesterday in a note to clients.

Stryker fell 2.9 percent to $68.79. The second-largest seller of orthopedic devices agreed to buy Mako for $30 a share to add technology for robot-assisted surgeries. Mako surged 82 percent to $29.46.

Carnival Corp. lost 5.3 percent to $32.70, extending a 7.7 percent drop yesterday to put the stock at its lowest since June. The world’s largest cruise-ship operator forecast an unexpected loss for the fourth quarter, and Morgan Stanley cut its recommendation to underweight, similar to a sell rating, from equal weight. Bank of America Corp. lowered its rating to neutral from buy.

JPMorgan Chase & Co. rallied 2.7 percent, the most in the Dow, to $51.70, snapping a two-day losing streak that pushed the stock down 4.7 percent.

The lender resumed settlement talks with the U.S. after authorities prepared to sue the bank yesterday in California federal court alleging it misrepresented the quality of mortgage-backed securities it sold from 2005 to 2007, a person familiar with the matter said.

A settlement may include $7 billion in cash and $4 billion for consumer relief, the Associated Press reported, citing an official familiar with ongoing negotiations among federal and state officials.

Noble advanced 1.8 percent to $38.60. The contractor said the planned spinoff will let it focus on higher-priced rigs working in deeper waters. An initial public offering of as much as 20 percent of the new company’s shares may precede a tax-free distribution of the new stock to existing Noble investors.

Facebook Inc. rallied 2.1 percent to $49.46, the stock’s sixth gain in the past seven sessions, with each advance setting a fresh record. Canaccord Financial Inc. initiated coverage of the social media company with a buy rating. Facebook is “very early in generating revenue from its enormous user base,” Michael Graham wrote in a note, giving the stock a price target of $60.

U.S. stocks are delivering the best risk-adjusted returns among the world’s biggest developed markets as a third straight year of earnings growth produces steadier gains. The S&P 500 has risen 1.9 percent in 2013 when adjusted for price swings, the top advance among 24 of the largest developed nations, according to the data compiled by Bloomberg. The performance exceeds Japan, where prices have surged almost twice as much this year, as a measure of U.S. volatility reached a six-year low.

U.S. equities have provided more stable returns as China’s economy expands at the slowest pace in at least two decades and Europe faces record joblessness, prompting investors to seek safety in American companies. The Fed’s unprecedented bond purchases and five years of S&P 500 profit growth have helped rebuild investor confidence after the financial crisis and reduce price swings.

“The U.S. continues to be the most resilient economy across the world and its markets have reflected that with the least amount of volatility,” Joseph Tanious, global market strategist for J.P. Morgan Asset Management, said in a phone interview from New York. His firm oversees about $1.5 trillion.

“Earnings growth has continued to hit record highs. There is less skepticism about the long-term potential in U.S. markets.”

Have a wonderful evening everyone.

Be magnificent!

Death is extraordinarily like life,

when we know how to live.

You cannot live without dying.

You cannot live if you do not die

psychologically every minute.

Krishnamurti, 1895-1986

As ever,

Carolann

Reason only discovers the shortest way: it does not

discover the destination.

-George Bernard Shaw, 1856-1950

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