Commentary

1 Feb 2013

After recent market performance, investors are questioning resource stocks, and the long-term prospects of equity investing, in general, while positioned in cash, or lowpaying, fixed-income products. We believe there is an opportunity to get back into equities, much like we saw in early 2009. At that time, extreme pessimism, similar to today, ruled the markets. However, as global economic growth returned, investors gained confidence, redeployed cash, and resource markets thrived as a result.

1 Feb 2013

As we enter 2013, it appears as though the world economy is transitioning from deceleration to acceleration. The U.S. economy is the leader. U.S. growth has been very resilient, despite its own political, fiscal-cliff issues. U.S. economic growth is becoming qualitatively better, as it continues to broaden into other sectors of its economy, such as housing/construction, and consumption.

21 Jan 2013

On the economic front, it is becoming evident to everyone that the United States is leading the charge out of the global economic slump. Industrial growth and manufacturing activity is also spreading to other sectors, such as real estate, construction, etc. This has been going on notwithstanding all the discussions (noise) about fiscal cliff and debt ceiling.

18 Jan 2013

Estragon: I can’t go on like this.

Vladimir: That’s what you think.

-Samuel Beckett, Waiting for Godot

18 Jan 2013

Extraordinarily low real-yields dominate the asset price structure as 2013 begins. As has been the case for several years, real fundamentals and market outcomes may continue to rest heavily on political decisions made in Washington, Brussels and Beijing. Although our core scenario calls for a still-challenging macro backdrop, we advocate overweights
in high-yield securities, securitized products, selected sovereign-debt and equities, with an underweight in safe sovereign-debt and cash.

22 Oct 2012

Help me out on this one! Canada has 3% of the world’s capital in the energy universe,
but sits on 20% of the world’s natural gas reserves. (I’ve made these numbers up, but
the direction is correct). Canada has so much natural gas that it sits largely
Underdeveloped and unproduced.

19 Oct 2012

After a rough start to 2012, equity and resource markets rebounded quite sharply in the third quarter. Many of the economic issues that caused investors concern, while not completely solved, had solutions devised to deal with the problems. Although it has yet to be fully implemented, Europe has devised a plan to buy bonds to support its weaker members. The ECB’s president stated that they would do whatever is necessary to preserve the Euro currency, and the European Union. We also had economic data out of the U.S.

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".

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.

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

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.

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.

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 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.

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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.