September 4, 2012 Newsletter

Dear Friends,

Tangents:

I always feel odd on the day after Labor Day – remembering back to all those years when school began again.  Sort of feel like I should be going back to school too.  I loved school when I was a child; I loved school in college and university too… September is a sentimental time, remembering old school pals, inspiring teachers.

The old Dutch name for September was Herstmaand, “autumn month, and the Anglo Saxon name was Hoerfestmonath, “harvest month,” or after the introduction of Christianity Haligmonath, “holy month,” the nativity of the Virgin Mary being on the 8^th of September, the exaltation of the cross on the 14^th and Michaelmas, the feast of St. Michael the Archangel on the 29^th.  In the French Revolutionary calendar, the equivalent month was Fructidor or “fruit month,” corresponding to the period from August 19^th to September 22^nd.

September tries its best to have us forget summer.  –Bern Williams.

And on this day in…

1781 – City of Los Angeles founded.

1886 – Geronimo surrenders.

1931 – Mitzi Gaynor is born.
1945 – Japanese surrender on Wake Island.
1972 – Mark Spitz wins 7th Medal.
1988 – Mike Tyson crashes a silver BMW into a tree near Catskills NY.

photos of the day September 4, 2012

A worker empties her basket, containing bunches of white grapes, at the Chateau Haut Brion vineyard in Pessac, near Bordeaux, France, as the traditional harvest begins.

Regis Duvignau/Reuters

A dragonfly is reflected in water as it clings to a metal fence post hanging over a pond in Salina, Kan.

Tom Dorsey/Salina Journal/AP

Market Closes for September 4, 2012:

North American Markets

International Markets

Bonds

Currencies

Commodities

Market Commentary:

Canada

By Eric Lam

Sept. 4 (Bloomberg) — Canadian stocks slumped after a private report showed U.S. manufacturing contracted for a third month in August, overshadowing a rally in gold.

Teck Resources Ltd. declined 2.4 percent to its lowest price since September 2009. Canadian Natural Resources Ltd. lost 2.6 percent as crude slipped. Valeant Pharmaceuticals International Inc. soared 14 percent, its biggest gain since January 2011, a day after the company said it had agreed to purchase Medicis Pharmaceutical Corp. for $2.6 billion. Gold and silver prices climbed.

The Standard & Poor’s/TSX Composite Index fell 7.56 points, or 0.1 percent, to 11,941.70. The benchmark Canadian gauge dropped as much as 0.4 percent earlier. North American equity markets were closed yesterday for the Labor Day holiday.

“It’s hard for Canada to fight the downward trend of what’s going on in the U.S.,” Barry Schwartz, portfolio manager with Baskin Financial Services Inc., said in a phone interview from Toronto. His firm manages about C$450 million ($456 million). “We’re down in sympathy with the lousy numbers.”

The Institute for Supply Management’s U.S. factory index fell to 49.6 in August from 49.8 a month earlier, the Tempe, Arizona-based group said today. Economists in a Bloomberg survey projected an August reading of 50, which is the dividing line between expansion and contraction.

The three-month slide is the longest since the recession ended, and the August figure is the lowest since July 2009.

Measures of orders, production and employment were the weakest since 2009.

Teck Resources slumped 2.4 percent to C$26.58. Shares in Canada’s largest diversified miner have fallen for nine days, the longest losing streak since April 2011. Shares are down 26 percent this year as prices for coal used in steelmaking extended declines.

SouthGobi Resources Ltd. plunged 19 percent to C$2.19, its lowest in five years, after Aluminum Corp. of China Ltd. dropped its C$925 million offer to buy a 60 percent stake in the coal producer. The offer stalled in May after Mongolia passed a law restricting foreign state-owned companies from controlling key assets. SouthGobi halted mining there as of June 30, citing uncertainty created by the bid.

Canadian Natural Resources lost 2.6 percent to C$29.22, and Crescent Point Energy Corp. fell 1.9 percent to C$40.23. Oil for October delivery slipped 1.2 percent to settle at $95.30 a barrel on the New York Mercantile Exchange.

Colossus Minerals Inc. surged 7.5 percent to C$4.73, and Aurizon Mines jumped 7 percent to C$4.29 as the price of the gold topped $1,700 an ounce for the first time since March. Gold futures for December delivery added 0.5 percent to settle at $1,696 in New York, after jumping to $1,701.60 earlier.

Valeant, Canada’s largest publicly traded drugmaker, soared 14 percent to C$57.58, its highest share price since September 2003. The deal to acquire U.S.-based Medicis is the biggest for Valeant since it was created in 2010, and will help the company expand its lineup of wrinkle and skin-care products.

Fortuna Silver Mines Inc. advanced 6.7 percent to C$4.96, and Silvercorp Metals Inc. rallied 4.8 percent to C$6.08 as silver prices rose.

US

By Lu Wang

Sept. 4 (Bloomberg) — The Standard & Poor’s 500 Index fell, after trimming steeper declines, as speculation European leaders will announce new steps to tame the debt crisis tempered concern the economic recovery is slowing.

Apple Inc. climbed 1.5 percent amid speculation the company is close to introducing a new iPhone with a larger screen and thinner body. Morgan Stanley added 3.4 percent after the shares were upgraded at CLSA Ltd. Netflix Inc. slumped 6.4 percent as Amazon.com Inc. reached a deal with pay-television channel Epix.

Facebook Inc. fell 1.8 percent to a record low after Morgan Stanley cut its price forecast on the company’s shares.

The S&P 500 lost 0.1 percent to 1,404.94 at 4 p.m. New York time, trimming a drop of as much as 0.7 percent. The Dow Jones Industrial Average retreated 54.90 points, or 0.4 percent, to 13,035.94. Volume for exchange-listed stocks in the U.S. was 5.6 billion shares, or 7.3 percent below the three-month average.

The European Central Bank’s plans “to stabilize Europe takes the big-event risk off the table,” Frank Ingarra, who helps manage $1.4 billion at Greenwich, Connecticut-based NorthCoast Asset Management LLC, said in a telephone interview.

“Everyone is kind of digesting and getting back to the game today,” he said. As speculation about Europe swirls, he said, “people are happier that it’s happening now and willing to go long equities.”

ECB President Mario Draghi said the bank’s primary mandate compels it to intervene in bond markets to wrest back control of interest rates and ensure the euro’s survival. Draghi “appears willing to write two- to three-year ‘checks’” to debt-strapped euro-bloc nations in a reflationary move, Bill Gross, co-chief investment officer and founder of Pacific Investment Management Co., said in a Twitter post.

Draghi is due to distribute his bond-purchasing plan to national banks after he was said to tell officials he would be comfortable buying three-year government bonds to lower borrowing costs.

Equities fell earlier as the Institute for Supply Management’s U.S. factory index showed U.S. manufacturing shrank for a third month in August in the longest decline since the recession ended in 2009. A report over the weekend showed China’s manufacturing contracted at the fastest pace since March 2009.

“Economic data continues to be soft all over the world and that’s just the basic reality,” John Kattar, chief investment officer at Eastern Bank Wealth Management in Boston, which manages $1.7 billion, said in a telephone interview. “But more important than that is speculation on what the ECB is going to do this week and what the Fed is going to do next week,” he said, referring to policy meetings by the ECB and the Federal Reserve.

The S&P 500 rose 2 percent in August, capping its longest monthly rally since March, amid expectations global central banks would stimulate the economy. Fed Chairman Ben S. Bernanke said on Aug. 31 at an annual forum in Jackson Hole, Wyoming, that he wouldn’t rule out steps to lower a jobless rate he described as a “grave concern.” Payrolls probably grew at a slower pace in August and unemployment exceeded 8 percent for a 43rd month, economists said before a report this week. The Federal Open Market Committee meets Sept. 12-13.

Apple climbed 1.5 percent to $674.97 today. The world’s most valuable company sent out invitations to a Sept. 12 product event in San Francisco, where it’s expected to unveil a redesigned iPhone. “It’s almost here,” Apple said in the invitation, whose image includes a ‘5’ in shadow, possibly in reference to the new product’s name.

Morgan Stanley added 3.4 percent to $15.51. The stock’s rating was boosted to buy from outperform at CLSA by equity analyst Michael Mayo. The 12-month share-price estimate is $23.

GameStop Corp. advanced 7 percent, the most in the S&P 500, to $20.41. The electronic game and software company was raised to buy from neutral at Goldman Sachs Group Inc.

Valeant Pharmaceuticals International Inc. rallied 15 percent to $58.78 after agreeing to buy Medicis Pharmaceutical Corp. for $2.6 billion. Canada’s largest publicly traded drugmaker said yesterday it will pay $44 in cash for each share of Scottsdale, Arizona-based Medicis. Medicis surged 38 percent to $43.65.

ConAgra Foods Inc. rose 2.2 percent to 25.65, leading consumer staples in the S&P 500 to a 0.4 percent increase. The maker of Hebrew National hot dogs and Orville Redenbacher’s popcorn was raised to overweight, the equivalent of buy, from neutral at JPMorgan Chase & Co.

Commodities and industrial companies fell the most among the 10 S&P 500 groups. Caterpillar Inc., the world’s largest maker of construction and mining machines, dropped 3.1 percent to $82.66 for the biggest retreat in the Dow. Cliffs Natural Resources Inc., the largest U.S. iron-ore producer, slipped 6 percent to $33.68.

Alpha Natural Resources Inc. fell 6.9 percent to $5.53 while Peabody Energy Corp. dropped 3.4 percent to $20.90. The companies were cut to hold from buy at Dahlman Rose, which lowered its outlook for metallurgical coal used in steelmaking.

Netflix Inc. slumped 6.4 percent to $55.93. Amazon.com reached a deal with Epix to add movies such as “The Hunger Games” to the roster of films available through Amazon Prime Instant Video, ratcheting up competition with Netflix.

Nvidia Corp. slid 6.4 percent to $13.28. The maker of graphics processors was cut to neutral from positive at Susquehanna Financial Group LLP.

Facebook Inc. fell 1.8 percent to a record low of $17.73. Morgan Stanley, a lead underwriter of the company’s initial public offering, cut its price forecast on concern that the social network is struggling to reach mobile users with ads.

Scott Devitt, an analyst at Morgan Stanley in New York, expects Facebook shares to reach $32 in the next 12 months, down from his previous projection of $38. Facebook has lost more than half its value since its May IPO.

Jonathan Golub, chief U.S. equity strategist of UBS AG, lowered his estimates for S&P 500 profits in 2012 and next year, citing a weaker outlook for the world’s largest economy, slower growth overseas, a strengthening dollar and difficult operating environment for financial companies. His projection for combined earnings by companies in the benchmark equity index this year is now $102.50 a share, down from $103.50. He cut his estimate for profit in 2013 to $107 from $110.

Profits are moving U.S. equity prices more than any time since the bull market began 3 1/2 years ago, rewarding investors for picking stocks based on company data instead of following the herd rocked by Europe’s crisis and the slowing U.S. economy.

Companies in the S&P 500 rose or fell an average of 4.4 percent the day after releasing results since July, according to data compiled by Bloomberg. The last time they moved more was in the second quarter of 2009. Daily swings in the benchmark gauge narrowed to 0.4 percent last month from 2.2 percent a year ago, as economic and policy changes battered investors. More than 475 S&P 500 stocks moved in the same direction in six of the first nine days of August 2011, with all 500 down on Aug. 8.

Bulls say lockstep moves are diminishing because investors are changing their behavior, making choices based on corporate results at a time when analysts estimate profits for companies in the S&P 500 will rise almost 10 percent a year through 2014.

Bears say the focus on earnings won’t bring back individuals who have drained more than $420 billion from U.S. equity mutual funds over the past four years even as stocks rallied 108 percent since March 2009 and net income was unchanged in the second quarter.

“I’m not saying it’s an easy job to be a stock picker in this environment, but it’s certainly easier,” Sandy Lincoln, the Chicago-based chief market strategist with BMO Global Asset Management, which oversees about $100 billion, said in an Aug. 28 interview. “Stock selection does have the opportunity here to finally show a face with a smile.”

Have a wonderful evening everyone.

Be magnificent!

We ask ourselves

is it possible to break through this heavy conditioning of centuries immediately

and not enter into another conditioning – to be free,

so that the mind can be altogether new, sensitive,

alive, aware, intense, capable?

-Krishnamurti, 1895-1986

As ever,

Carolann

As we acquire knowledge, things do not

become more comprehensible,

but more mysterious.

-Albert Schweitzer, 1875-1965

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