The resource markets have seen a dramatic correction in July and into early August. Oil has dropped $30 per barrel in the last month while gold has fallen over $100 per ounce in the last 10 sessions alone. Liquidity issues in the credit markets have spilled over into equities with small caps being sold rather aggressively. Many less liquid names have seen their share prices drop more than 10% on repeated days. The market is treating the resources sector as though the world is heading into a global recession, which we do not believe to be the case.
The second quarter was a humbling time for global stock exchanges with dramatic pullbacks including China, which was down over 40% in the first half. The U.S. economy has struggled as the impact of high energy prices, the burden of financing the war in Iraq, and a collapsing housing market have weighed on the economy. We are also experiencing a global financial crisis as bank after bank announces write-downs of bad loans brought upon them by their own risky lending practices.
The sub-prime crisis in the United States and the related tightening in the debt markets came to a head in the first quarter. We saw the near collapse and subsequent takeovers of Countrywide Financial and Bear Stearns due to a failing housing market and a lack of investor confidence. The consequences of the collapse of Bear Stearns on the entire financial market were deemed so great that the U.S. Federal Reserve took the unprecedented measure to aid JP Morgan in the takeover of the rival brokerage.
Stock markets, and commodity based ones in particular, went on a literal roller coaster ride during the quarter. Many global stock markets hit record peak levels in October. However, fears of a global recession sparked by the U.S. housing slump and its sub-prime crisis drove markets significantly lower in November, only to see markets recover most of their losses towards year end. We feel that these fears of a global recession sparked by the U.S. are overblown. If you look over the last five years, the impact of US growth has been minimal on overall global growth.
Over the past few years we have noticed an interesting trend developing in the natural resource sector which will limit future capital spending by corporations. It also is further proof of our thesis that it is getting very difficult and time consuming to bring on new production. Governments around the world are changing the terms of contracts they have agreed to with resource companies. Not surprisingly, the higher commodity prices rise, the greater interference we are starting to see.
Over this quarter, two significant markets shocks have led investors to question the strength of this long bull market. Both the Shanghai market correction and worries surrounding the US sub-prime real estate market have led many to concur that the economy is softening and that it is time to exit the once profitable resource space. Under normal circumstances, we would usually concur. It has long been an adage of Canadian political economy that if the US catches a cold, Canada gets pneumonia.
Front Street Resource Peformance Fund - Manager Commentary
The resource markets have seen a dramatic correction in July and into early August. Oil has dropped $30 per barrel in the last month while gold has fallen over $100 per ounce in the last 10 sessions alone. Liquidity issues in the credit markets have spilled over into equities with small caps being sold rather aggressively. Many less liquid names have seen their share prices drop more than 10% on repeated days. The market is treating the resources sector as though the world is heading into a global recession, which we do not believe to be the case.
CRAIG PORTER - Q2 2008 COMMENTARY
The second quarter was a humbling time for global stock exchanges with dramatic pullbacks including China, which was down over 40% in the first half. The U.S. economy has struggled as the impact of high energy prices, the burden of financing the war in Iraq, and a collapsing housing market have weighed on the economy. We are also experiencing a global financial crisis as bank after bank announces write-downs of bad loans brought upon them by their own risky lending practices.
Craig Porter - Q1 2008 Commentary
The sub-prime crisis in the United States and the related tightening in the debt markets came to a head in the first quarter. We saw the near collapse and subsequent takeovers of Countrywide Financial and Bear Stearns due to a failing housing market and a lack of investor confidence. The consequences of the collapse of Bear Stearns on the entire financial market were deemed so great that the U.S. Federal Reserve took the unprecedented measure to aid JP Morgan in the takeover of the rival brokerage.
Craig Porter - Q4 2007 Commentary
Stock markets, and commodity based ones in particular, went on a literal roller coaster ride during the quarter. Many global stock markets hit record peak levels in October. However, fears of a global recession sparked by the U.S. housing slump and its sub-prime crisis drove markets significantly lower in November, only to see markets recover most of their losses towards year end. We feel that these fears of a global recession sparked by the U.S. are overblown. If you look over the last five years, the impact of US growth has been minimal on overall global growth.
Craig Porter - Q3 2007 Commentary
Over the past few years we have noticed an interesting trend developing in the natural resource sector which will limit future capital spending by corporations. It also is further proof of our thesis that it is getting very difficult and time consuming to bring on new production. Governments around the world are changing the terms of contracts they have agreed to with resource companies. Not surprisingly, the higher commodity prices rise, the greater interference we are starting to see.
Craig Porter - Q1 2007 Commentary
Over this quarter, two significant markets shocks have led investors to question the strength of this long bull market. Both the Shanghai market correction and worries surrounding the US sub-prime real estate market have led many to concur that the economy is softening and that it is time to exit the once profitable resource space. Under normal circumstances, we would usually concur. It has long been an adage of Canadian political economy that if the US catches a cold, Canada gets pneumonia.