Fund Manager
Frank Mersch
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.
We feel global equities have now made their recessionary lows. It is evident that due to the debt bubble (U.S. housing) industrialized nations have suffered more than the emerging industrializing world. Europe, Japan and the U.S. faired much worse than China, India and even Canada. In fact, China is experiencing a growth recession, while India has recorded a sharper slowdown. Russia and Brazil have had more pronounced declines, yet with resource commodities stabilizing, these two BRIC economies will likely return to growth this year.
Australia and Canada have experienced serious economic contractions, but much lower than Europe, Japan and the U.S. Better Federal balance sheets, a sounder banking system, and sharp drops in their currencies, have cushioned the impact of falling commodity prices.
Although the world economy in general is still weakening, we see the speed of economic contraction easing, and will continue to ease going forward. That said, the problems in the U.S. banking sector remain daunting, and it will be years before the financial system is fully rehabilitated. Furthermore, we must be vigilant that the Democrats do not become too regressive with onerous taxes once the recovery takes hold.
Performance Review
Year-to-date our funds have registered a 5.6% return versus the Dow -13.3% and the
S&P/TSX -2.97%. However, even though we are outperforming the indices, this month we have underperformed. Where we did a poor job was our lack of financials and base metals. Where we did a good job was our fertilizers and large cap oils. We also had a surplus of cash, but we eventually deployed it to a point where we were down to 7% cash.
As we believe this is a cyclical rally within a bear market, we intend to go back to a larger cash position at some point. Also, with earnings season upon us, volatility may be heightened. Caution may be a better course, until this very ugly earnings season is behind us.
Frank Mersch - Q1 2009 Commentary
Date Published
Related Fund(s)
Fund Manager
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.
We feel global equities have now made their recessionary lows. It is evident that due to the debt bubble (U.S. housing) industrialized nations have suffered more than the emerging industrializing world. Europe, Japan and the U.S. faired much worse than China, India and even Canada. In fact, China is experiencing a growth recession, while India has recorded a sharper slowdown. Russia and Brazil have had more pronounced declines, yet with resource commodities stabilizing, these two BRIC economies will likely return to growth this year.
Australia and Canada have experienced serious economic contractions, but much lower than Europe, Japan and the U.S. Better Federal balance sheets, a sounder banking system, and sharp drops in their currencies, have cushioned the impact of falling commodity prices.
Although the world economy in general is still weakening, we see the speed of economic contraction easing, and will continue to ease going forward. That said, the problems in the U.S. banking sector remain daunting, and it will be years before the financial system is fully rehabilitated. Furthermore, we must be vigilant that the Democrats do not become too regressive with onerous taxes once the recovery takes hold.
Performance Review
Year-to-date our funds have registered a 5.6% return versus the Dow -13.3% and the
S&P/TSX -2.97%. However, even though we are outperforming the indices, this month we have underperformed. Where we did a poor job was our lack of financials and base metals. Where we did a good job was our fertilizers and large cap oils. We also had a surplus of cash, but we eventually deployed it to a point where we were down to 7% cash.
As we believe this is a cyclical rally within a bear market, we intend to go back to a larger cash position at some point. Also, with earnings season upon us, volatility may be heightened. Caution may be a better course, until this very ugly earnings season is behind us.