Commentary

3 Oct 2012

In my view, the Quantitative Easing (“QE”)-inspired rallies are based on assumptions that may no longer hold true. Anecdotal evidence shows that low (zero?) interest rates and additional bond purchases by the Federal Reserve are not having their desired effects: M2 money supply velocity is low (and falling) while disposable, personal income growth
since the end of the “great recession” has been at a rate much lower than that of previous expansions during periods of quantitative easing.

3 Oct 2012

After a difficult first half of 2012, Canadian stocks had a much stronger showing in Q3. There are a number of reasons for the performance, but one stood out: there was a growing sense of containment coming from Europe, as European government institutions, notably, the European Central Bank (ECB), convinced capital markets that they "were prepared to do whatever it takes to help end this crisis".

30 Sep 2012

The completed quarter turned out to be much better than many had feared, a result of the gradual progress in Europe. Some of the dissipation of uncertainty was a result of assurances by policy makers in Europe to provide sufficient liquidity and statements that they will do whatever it takes to avert further erosion of confidence. Also during the quarter, other nations initiated further monetary stimuli to forestall additional economic weakness. The U.S. announced QE3, thus introducing open-ended support for the U.S.

30 Jun 2012

Global stock markets weakened substantially in Q2 with the world index (excluding the U.S.) down 7%. In resource-heavy Canada/Australia, markets dropped 6.4% and 5.6%, respectively, as commodities pulled back on worries about the European woes, and a slowing world economy. Oil prices (WTI) dropped 17.5%, copper 9%. Needless to say, resource stocks were down significantly. The smaller stocks were down more markedly, with the Canadian Venture Exchange down a whopping 24% in the quarter.

30 Jun 2012

“Everything we see hides another thing”

-René Magritte

30 Jun 2012

The quarter ended with continued economic uncertainty as the ever growing sovereign risk problems in Europe spread. After the Greek tragedy, Spain became the latest country asking for assistance, while concerns mount for Italy. We also saw both India and China experience a marked slowdown in activity. Pessimism and abject surrender has gripped the markets. As of this writing, German and French 1-year notes trade at a negative yield of nine basis points. The purchasers of these countries are willing to pay to own these treasuries.

30 Jun 2012

The S&P/TSX Total Return Index was down 5.67% in the quarter with commodities suffering significant declines. Oil and copper were down 17.5% and 9%, respectively. Small cap equities suffered the largest declines, with the S&P/TSX Venture Index down 24%. The U.S. ten-year treasury continued its rally with the yield moving from 2.21% in March to close at 1.65%, down 25%. The DEX Universe Bond Index was up 1.35% for the quarter.

30 Jun 2012

After a strong start to 2012, equity markets, and in particular resource stocks, fell sharply in the second quarter. Political and economic turmoil in a number of countries around the globe sent investors fleeing equities into the perceived safety of bonds and cash. Many resource companies suffered due to political interference, as numerous countries raised royalties and taxes, or in the case of Argentina, expropriated outright a major oil company. Investors also stood on the sidelines, waiting for a clear picture of the economic realities unfolding in China, Europe, and the U.S.

31 Mar 2012

Markets began the year where they left off at the end of 2011, performing well. Euphoria over continued improvement of the world's largest economy, as well as stability with the European debt markets, led investors to rotate more capital into stocks around the world. Stocks in the U.S. rallied nicely, led by the banking and technology sectors. In Europe, stocks bounced sharply from their woes of previous years.

31 Mar 2012

The markets continued their year-end rally into January and February only to hit a wall in Canada. While the S&P, The Dow, and especially the NASDAQ, continue to motor on, the S&P/TSX got not only a flat tire in March, it may need a tow truck to get back on the road.

31 Mar 2012

“I’ll give you a winter prediction: It’s gonna be cold,
it’s gonna be grey, and it’s gonna last you the rest of your life.”

-Groundhog Day

31 Mar 2012

One of the biggest surprises year to date has been the strength in the U.S. economy, and the performance of the S&P 500 index, up 12%. On a positive note, the recovery so far has not been on the back of the consumer, who has supported the U.S. economy for decades buying retail goods. Instead, some of the strongest performers were sectors hardest hit during the global financial crisis, including banks and financial services, as well as real estate and homebuilding.

31 Jan 2012

Fear and expectations drove equity markets in 2011, as investors fled in droves. Typically they withdrew from investing in smaller-to-intermediate growth stocks, and ran to larger dividend paying stocks, driving the valuations of many companies, such as utilities, to what we feel are excessive. These concerns were fuelled by the credit downgrades and potential debt defaults in European countries, such as Greece and Italy. The front pages of the newspapers also told us about the overthrowing of governments in the Middle East, as well as the “Occupy” protest around the world.

16 Jan 2012

Fund Performance

31 Dec 2011

The fourth quarter of 2011 finally gave equity investors a break from the double-digit losses of the third quarter. The Fund rose approximately 1.5% during the quarter, compared to a 3.1% return of the S&P/TSX Composite Index (TSX), while the loss for 2011 came to -3.2%, compared to -8.7% for the TSX.

31 Dec 2011

The year 2011 will forever be remembered as the year of protests. In the Middle East and North Africa, from Tunisia to Egypt, Libya and Yemen, the Arab frustrations took to the streets to protest decades-long autocratic rule. In the Western World, streets were filled with those voicing concern over austerity measures, frustrations over capital market excesses, as well as government inabilities (unwillingness) to do the right thing. Beyond the press headlines, the protests did succeed in overthrowing four governments, a number likely to grow higher.

31 Dec 2011

An Extremely Frustrating Year Comes To An End
2011 will go down as one where macro events trumped many fundamentals and the bifurcation was probably the most extreme since I have managed money. Let us highlight some of our observations and frustrations.

30 Sep 2011

Front Street Strategic Yield Fund posted a total return of 7.3% for the quarter ending September 30, 2011, compared to the S&P/TSX, S&P and DOW Jones, which were down 12%, 13.8%, and 11.5% respectively. Small cap indices suffered severe losses with the S&P/TSX Venture index down 23% for the quarter. Commodities also corrected with the CRB index (Thompson Reuters basket of commodities) down 12%, led by declines in oil and copper. Volatility, as measured by the VIX, has remained elevated and was up 160% for the quarter, with the index closing above 40 in September.

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