Commentary

Norm Lamarche

2 Oct 2016

Energy Overview

Stocks continued to climb during the third quarter of 2016, posting solid results. The U.K. vote to exit the European Union (“Brexit”), weak global economic data, a tightening in the U.S. presidential race along with growing tensions between Russian-American relations reinforced the likelihood that interest rates would stay “lower for longer”. The low ( to negative) interest rates globally continue to provide fuel for asset prices.

1 Jul 2016

Energy Overview

Just when you thought that the investing world could not get any more interesting, along came “Brexit”, the U.K.’s vote to exit the European Union. “Unusual”, “unorthodox”, “confusing” and “unconventional” are just a few of the words used to describe the current state of capital markets – and this by the long-time, seasoned veterans of the game. It's a capital market where approximately one-third of global government bonds are trading at negative interest rates (that's right: where the investor pays the government to own their bonds!). Will the U.S. Federal Reserve raise or lower interest rates?

1 Apr 2016

Energy Overview

Had Rip Van Winkle gone to sleep on December 31, 2015 only to wake up on April 1, 2016 and read his stock quotes, he might have walked away thinking that the first quarter of 2016 had brought back some normalcy!

31 Dec 2015

Energy Overview

The month of December capped what was a miserable year for the energy sector, and for the entire resource sector as a whole. The collapse of oil prices that began in the summer of 2014, continued in the fourth quarter of 2015.

15 Oct 2015

Energy Overview

Investor sentiment was extremely bearish in the third quarter of 2015 as energy prices fell sharply. The price of a barrel of West Texas oil fell -24%, and natural gas was down -11% during this period. It was a little over a year ago, when oil was trading over $100 per barrel (USD), that OPEC decided not protect the price of oil. Saudi Arabia, OPEC’s largest and most powerful member, was trying to accomplish its objectives while protecting its market share of the oil business. First, they wanted to slow down rapid production growth from a few key areas around the world, such as U.S. shale. Second, they wanted to economically impact a few of their political rivals, such as Iran and Russia

1 Jul 2015

Energy Overview

North American stocks traded lower during the second quarter. In the U.S., the S&P 500 Index was down -0.2%, led by the interest rate sensitive utilities group, which dropped -6.7%, and the energy sector, down -2.6%. It was a similar story in Canada, as the S&P/TSX Composite Index gave up -2.3%, with weakness led by the industrials (-9.8%), utilities (-8.7%), and energy (-5.2%) sectors.

While capital markets continued to discount some of the weather-related weak economic numbers reported during the period, markets did begin to incorporate the probabilities of U.S. Federal Reserve interest rate hikes. And while some U.S. economic statistics were somewhat subdued, employment growth and—importantly—wage gains began supporting the higher interest rate views, adding volatility to the fixed income and interest-sensitive stock groups.

1 Apr 2015

Energy Overview

The drubbing of the Energy Sector in the latter half of 2014 that witnessed oil prices drop a staggering $40/bbl led many to wish for a fresh start in 2015. Action in the commodity and related equities in the first quarter of 2015 reminded us of an old saying: “Be careful of what you wish for!” After registering one of the sharpest declines over a 3 month period in Q4 last year, WTI action began the New Year where it had left off—lower.

Oil dropped a further 11% in Q1 2015, closing the quarter at U.S. $47.60/bbl.

The energy industry’s response to lower prices shifted from aggressive to harsh. Rig utilization in North America has declined well over 50% from their levels last summer.

1 Jan 2015

Energy Overview

The energy price weakness that began in Q3 of last year continued on in the fourth quarter, but with greater intensity. The West Texas Intermediate price gave up a whopping $45 / barrel in the quarter, registering one of the sharpest declines over a three-month period on record. The collapse in energy prices has left much carnage in its wake. Share prices of energy companies worldwide fell precipitously. Bond prices of energy issuers also felt the pain, particularly of the heavily indebted companies. The carnage extended well beyond the energy companies, to the energy nations that are heavily reliant on the energy sector to fund their budgets.

10 Nov 2014

By Norm Lamarche

Share prices for energy stocks are down about as much as we’ve ever seen them over such a short, three-month period, largely because of uncertainty on how low and how sustainable falling oil prices may become.

15 Oct 2014

By Norm Lamarche & Craig Porter

Energy Overview

A number of factors led to the weakness in the energy group, as well as in the broader resources sectors. The geopolitically-charged year finally caught up with the world’s economies.

21 Jul 2014

By Norm Lamarche & Craig Porter

Energy Overview

Readers of our commentaries over the past five years have come to appreciate that North American energy has not only been a large theme at Front Street Capital, but also for very non-conventional reasons.

15 Apr 2014

By Norm Lamarche

Global equity markets were challenged in the first 3 months of 2014 in what proved to be a headline-driven quarter. In the world’s largest economy, for example, economic activity was disrupted by the harsh ‘polar vortex’ weather. The world’s second largest economy, China, showed continued deceleration—beyond the Chinese government’s stated economic targets—leaving analysts to reset their growth expectations lower. The first quarter was also geopolitically charged, with tensions in Russia at the fore.

15 Apr 2014

By Norm Lamarche

Global equity markets were challenged in the first 3 months of 2014 in what proved to be a headline-driven quarter. In the world’s largest economy, for example, economic activity was disrupted by the harsh ‘polar vortex’ weather. The world’s second largest economy, China, showed continued deceleration—beyond the Chinese government’s stated economic targets—leaving analysts to reset their growth expectations lower. The first quarter was also geopolitically charged, with tensions in Russia at the fore.

15 Apr 2014

By Norm Lamarche

Global equity markets were challenged in the first 3 months of 2014 in what proved to be a headline-driven quarter. In the world’s largest economy, for example, economic activity was disrupted by the harsh ‘polar vortex’ weather. The world’s second largest economy, China, showed continued deceleration—beyond the Chinese government’s stated economic targets—leaving analysts to reset their growth expectations lower. The first quarter was also geopolitically charged, with tensions in Russia at the fore.

24 Jan 2014

Special Opportunities Class

Stock markets climbed the proverbial ‘wall-of-worry’ in 2013, and many worries were the same as they have been since the credit crisis of 2007-2008.

2013 began with a European economy in flux, a U.S. economy seemingly improving, but plagued with a Congress and Senate that were unable to deal with day-to-day issues, sending markets into frenzies with budgetary or debt ceiling issues. China and the rest of the emerging-market world economies were still decelerating, without a bottom in sight.

15 Oct 2013

Front Street Special Opportunities Class

We have contended recently that we live in two worlds (we’ve loosely named them): the real world and the capital markets world.

10 Sep 2013

Our markets have been feeling better of late. The Energy sector in particular has been generating good results. The oil commodity has benefitted from a number of things: First, the mid-East tensions in Syria have put the spotlight on potential disturbances out of the MENA (Middle Eastern/North African) world. Second, global economic news seems to be supporting a broadening recovery worldwide. Europe has now been showing some evidence of positive “greenshoots” of growth (and stability). Third, the news out of China is supportive of a re-accelerating picture of growth. We shall see.

15 Jul 2013

Front Street Special Opportunities Class:

The Front Street Special Opportunities Class Fund was caught up in the Basic Materials carnage during the month of June. It gave up 8.5% in the month and lost 13.8% for the quarter.

As many of our readers know, the Special Opportunities Class is a bottom-up Fund. It looks to invest in exciting growth companies, underpinned by a great management team, or, great assets, game-changing technologies, or the companies could be catalyst targets (M&A).

29 Apr 2013

We’ve been fielding a number of questions about the gold and precious metals sector recently, more specifically, why we are not buyers on gold? Let’s start there. The price of gold bullion has been exceptionally volatile recently, dropping $250/ounce over a two-day period in mid-April. Bullion has now given up $500/ounce from its highs in September, and is now, technically, in a bear market. Gold equity shares are down 40% year-to-date alone. So what’s up (or down) with gold lately? Gold bullion and precious metal shares have been in profit taking mode for much of 2012 and early 2013.

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The opinions expressed herein reflect those of the individual portfolio manager. These opinions are subject to change at any time based on market or other conditions, and Front Street Capital disclaims any responsibility to update such views. These opinions may differ from those of other portfolio managers or of Front Street Capital as a whole.

These views are for informational purposes only and are not intended to be a forecast of future events, a guarantee of future results or investment advice. All data referenced herein are from sources deemed to be reliable but cannot be guaranteed.

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If specific securities are referenced, they have been selected by the portfolio manager on an objective basis to illustrate the views expressed herein. Such references do not include all material information about such securities, including risks, and are not intended to be recommendations to take any action with respect to such securities. Referenced securities may not be representative of the portfolio manager's current or future investments and are subject to change at any time.