Commentary

31 Dec 2010

Review
A strong December capped off a solid 2010 for North American stocks. Despite all the negative prognostications, equities outperformed fixed-income markets for the year and will continue to do so as the global economies begin to recover. The signs point to better economic growth and low real interest rates in the medium term.

30 Sep 2010

Stock markets around the world rebounded nicely in the third quarter after the selloff we witnessed earlier this spring. Resource-based economies such as Canada did very well, with the TSX ending the quarter up 9.5%, led by the materials sector, which closed 18% higher. Strong demand for commodities came from a recovering global Gross Domestic Product (GDP), which the International Monetary Fund (IMF) now predicts will come in at 4.8% growth this year, and 4.2% next year.

30 Sep 2010

The quarterly returns on the S&P/TSX and S&P 500 were 9.5% and 10.7% respectively. The advance in the S&P/TSX was led by golds, base metals and banks. Commodities such as copper and gold rallied significantly during the quarter, ending up 22.8% and 4.8%, respectively. Oil traded sideways between $70 and $80 per barrel for much of the quarter. Volatility in the quarter was quite high, with the S&P 500 returning 6.8%, -4.7%, and 8.8% in the months July, August, and September, respectively.

30 Sep 2010

There’s a parable from Warren Buffett that describes asset markets as a hypothetical business partner named Mr. Market, who is prone to bouts of euphoria and despair, alternately offering to buy your share of the business or sell you his. The third quarter was one in which Mr. Market was an eager buyer, reversing the despair he felt during the second quarter. The bond market was little different, with short-term treasury yields in the U.S. touching some all-time lows, while longer-term yields also came down. Corporate spreads remained tight, and new issues continued at a robust pace.

30 Sep 2010

The best month since 1939 and it occurred in the most unlikely month of the year. Historically, the month of September exhibits more downs than up and, although most attribute October as the worst month, that is not true. In any case, the market finally broke out of its mid-cycle slowdown. This is not unusual, and economically, we may see some further weakness, but the markets seem to want to look beyond near-term data.

7 Sep 2010

Much has been said recently about Japan’s lost decades. The chatter is in reference not only to its economy's stagnation and its stock-market weakness, but, more importantly, to the analogy used to characterize where the United States is heading. Japan's equity markets, as measured by the Nikkei index, reached a peak of 39,000 twenty years ago.

30 Jun 2010

The second quarter proved difficult for many investment strategies across several asset classes. Worries about a double-dip recession impacted both developed and emerging markets; concerns stemmed from fears about sovereign debt risk and the likely fiscal contractions that will be necessary to manage sovereign debt levels. Developed nations cannot avoid slower growth as higher taxation, lower government spending, and a growing retiree population pressures GDP. Spikes in volatility in May and June impacted equities, currencies and, in a positive fashion, treasuries.

30 Jun 2010

After a strong start to 2010, equity markets in North America sold off in the second quarter with the TSX off 6% and the S&P 500 down by 12%. Fears of a slowing global economy or a double-dip recession sent investors to the sidelines. A number of issues were fueling these fears during the quarter. A handful of European countries, led by Greece, saw their debt downgraded, raising fears that the Euro and the European Union may be on the verge of collapse.

30 Jun 2010

It was a brutal quarter, despite the fact that the Fund held well over 20% cash. What happened? First, we did not have much of a gold weighting, as we liquidated much of our holdings in the first quarter. Second, our small-cap, non-resource stocks have been hit hard as liquidity and activity dried up. Third, we started to buy metal stocks too early, despite an already 30% drop. Finally, we found that holding cash really provides an opportunity rather than a defensive strategy. As such, for the quarter the fund was (11.75%) versus the S&P/TSX (6.17%) and the Dow (9.97%).

Overview

31 Mar 2010

Stock markets in North America continued to show the strength they exhibited last year in the first quarter of 2010. Gains were bolstered by a stabilizing housing market, stronger employment numbers and increasing consumer confidence. For 2010, the IMF is now predicting global growth of 3.9%, with China approaching 10%. This growth has led many commodities to continue their upward climb from last year. Although interest rate hikes are expected later this year off historic lows, it is typically rate increases much further into an economic cycle that cool down the resource sector.

31 Dec 2009

After a scary 2008 and early part of 2009, the markets got off to the strongest start of any postwar cycle. 2009 saw risky assets outperform safer ones. Itʼs all about leverage. As financial and individuals de-leveraged, governments stepped into the abyss with massive government stimulus programs. Fiscal stimulus programs in the U.S. are about $800 billion and an equal amount or greater in the other economic zones. About an eighth to a quarter has filtered into the economy as of yet. Government balance sheets have expanded at an unprecedented rate.

31 Dec 2009

Equity markets rose again this quarter, capping an end to 2009 that saw asset values climb significantly, prodded forward by accommodative monetary policy and a host of other government measures intended to stave off a depression. In a year where 20 and 30 per cent returns were not uncommon, we note how sentiment has changed significantly in 12 months.

31 Dec 2009

Stock price performance has been very robust for the three month period ending December 2009, as investors increasingly became constructive about the state of the economic union.

30 Jun 2009

Global equity markets, corporate bond markets, and commodities continued the rally begun late in Q1 2009 as “less bad” economic reports coupled with improved credit markets and a belief that the world economy was not plunging into an abyss.

The positive return of the TSX this quarter marks the first positive quarterly return in a year. Over the quarter, the Fund gained 5.9 per cent.

30 Jun 2009

A strong quarter, but the month of June shows some potential cracks developing.

31 Mar 2009

The year started off the same way that 2008 ended, as job losses continued to pile up and with daily announcements of bleak economic news. Global equity markets dropped a further 15-20%, adding to the losses of the previous year. In the auto sector, Chrysler and Ford were given deadlines to slash cost and sort out their balance sheets issues before they are forced into bankruptcy protection. Fears of the tens of thousands of jobs that could be lost sent investors running for the exits. Then as we entered March a more optimistic tone took over the market.

31 Mar 2009

Finally, an up month.

After enduring month after month of bad news, the great recession of 2008 is probably passing its point of maximum strength, and a return to some form of economic stability appears to be in the cards for the second half of the year. We need the reflation trade to work. The biggest challenge going forward is whether policy makers can continue to foster growth with collective stimuli that will stem price deflation and maintain financial stability.

31 Dec 2008

As a money manager who has seen many different markets I must say that last year simply humbled me. Like many of my counterparts, we took a beating. The speed and viciousness was alarming, as it seemed the entire world woke up one day and decided to “rollover and not get up”.

30 Nov 2008

Stocks fell to new lows in November as investors rushed to the cash-sidelines on the mounting evidence of weak economic conditions. After the major sell-offs during the months of September and October, investors took November to cycle lows, with the Material groups leading the way. The Golds were the lone bright spot during the recent month, as investors began to worry about the world post-reflation. Canadian markets sold off 5.0% during the month, with the Materials subgroup up 9.4% (Golds) while the Energy sector dropped 4.3%.

30 Nov 2008

Stocks fell to new lows in November as investors rushed to the cash-sidelines on the mounting evidence of weak economic conditions. After the major sell-offs during the months of September and October, investors took November to cycle lows, with the Material groups leading the way. The Golds were the lone bright spot during the recent month, as investors began to worry about the world post-reflation. Canadian markets sold off 5.0% during the month, with the Materials subgroup up 9.4% (Golds) while the Energy sector dropped 4.3%.

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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.