Fund Manager
Frank Mersch
A satisfactory quarter for the markets and the economy, despite all the doomsayers.
In fact, economic activity is picking up, particularly in North America, with the continued stabilization of the housing market, an improving stock market, and rising consumer confidence. Looking at the components of the Purchasing Managers Index (PMI), which represents a close snapshot of intentions and activity in the industrial sectors, we see good visibility ahead, and that momentum is clearly on the upswing, a positive contributor to the recovery.
While governments ballooned their balance sheets, corporate America continued to strengthen theirs. Cash as a percentage of assets is currently 12.8%, which is way above historical norms. This should lead to dividend increases, buybacks and heightened merger and acquisition activity.
With China and overseas activity, with the exception of the PIGS (Portugal, Italy, Greece & Spain), on the rise, and a weak U.S. dollar, we expect manufacturing to continue to perform nicely. China’s recent trade deficit is pointing toward great domestic consumption. Although this may be a short-term anomaly, it is further proof that the country is experiencing consumerism like never before. Just as the auto industry post the Second World War exploded in the U.S., so too it appears that demand is insatiable in China. GM, that dog of the recession, is expected to sell two million units in the coming year, and expects to be quite profitable.
Back in the U.S., health care reform and Obama’s landmark bill passed the legislature and is now law. Although the bill will bring tax increases for individuals and corporations, it clearly allows America to get back to creating the eight million jobs that were lost. The inaccessibility of affordable coverage stood in the way of small business and their formation. It is small business that has and will create jobs. Over the last three economic recoveries, companies comprised of 20 or fewer employees created 3.6 million new jobs, while big companies eliminated over a half million jobs.
Having spent the better part of a year and a half dealing with the negatives, the market has weathered the storm. Like any storm, there is lingering inclement weather. Europe and its PIGS (Portugal, Italy, Greece & Spain) are still issues that cause indigestion. We do believe that it will be resolved, but these countries will continue to cause volatility. It is good that we still can worry about these things, as well as U.S. treasuries -- the doomsayers do need to be preoccupied while the rest of us get on with our lives.
Equity Markets
Although January was bad, markets rose steadily past the first week of February and ended the quarter comfortably in the black. The S&P/TSX was up 2.48%, the Dow, up 4.11%, and the S&P, up 4.87% - all posting positive returns. European markets trailed North American counterparts due to the troubles in the Eurozone. Greece’s issues also allowed the U.S. dollar to appreciate 4% for the quarter. In fact, since its November low, the U.S. dollar has appreciated 9% against a trade-weighted basket of currencies. Back home, the Canadian dollar has marched to parity.
The market strength continues to be in financials, metals, and a rebound in intermediate golds. Energy has been a laggard, but recently led all groups, as oil moved through $85.00 a barrel. In the U.S., technology continues to be the bell weather to recovery.
As we enter the second quarter, the markets have started to drift sideways. Though interest rates are likely to rise and provide some headwinds, earnings are expected to sustain this bull market. Remember, corporate cash is at very high levels.
Frank Mersch - Q1 2010 Commentary
Date Published
Related Fund(s)
Fund Manager
A satisfactory quarter for the markets and the economy, despite all the doomsayers.
In fact, economic activity is picking up, particularly in North America, with the continued stabilization of the housing market, an improving stock market, and rising consumer confidence. Looking at the components of the Purchasing Managers Index (PMI), which represents a close snapshot of intentions and activity in the industrial sectors, we see good visibility ahead, and that momentum is clearly on the upswing, a positive contributor to the recovery.
While governments ballooned their balance sheets, corporate America continued to strengthen theirs. Cash as a percentage of assets is currently 12.8%, which is way above historical norms. This should lead to dividend increases, buybacks and heightened merger and acquisition activity.
With China and overseas activity, with the exception of the PIGS (Portugal, Italy, Greece & Spain), on the rise, and a weak U.S. dollar, we expect manufacturing to continue to perform nicely. China’s recent trade deficit is pointing toward great domestic consumption. Although this may be a short-term anomaly, it is further proof that the country is experiencing consumerism like never before. Just as the auto industry post the Second World War exploded in the U.S., so too it appears that demand is insatiable in China. GM, that dog of the recession, is expected to sell two million units in the coming year, and expects to be quite profitable.
Back in the U.S., health care reform and Obama’s landmark bill passed the legislature and is now law. Although the bill will bring tax increases for individuals and corporations, it clearly allows America to get back to creating the eight million jobs that were lost. The inaccessibility of affordable coverage stood in the way of small business and their formation. It is small business that has and will create jobs. Over the last three economic recoveries, companies comprised of 20 or fewer employees created 3.6 million new jobs, while big companies eliminated over a half million jobs.
Having spent the better part of a year and a half dealing with the negatives, the market has weathered the storm. Like any storm, there is lingering inclement weather. Europe and its PIGS (Portugal, Italy, Greece & Spain) are still issues that cause indigestion. We do believe that it will be resolved, but these countries will continue to cause volatility. It is good that we still can worry about these things, as well as U.S. treasuries -- the doomsayers do need to be preoccupied while the rest of us get on with our lives.
Equity Markets
Although January was bad, markets rose steadily past the first week of February and ended the quarter comfortably in the black. The S&P/TSX was up 2.48%, the Dow, up 4.11%, and the S&P, up 4.87% - all posting positive returns. European markets trailed North American counterparts due to the troubles in the Eurozone. Greece’s issues also allowed the U.S. dollar to appreciate 4% for the quarter. In fact, since its November low, the U.S. dollar has appreciated 9% against a trade-weighted basket of currencies. Back home, the Canadian dollar has marched to parity.
The market strength continues to be in financials, metals, and a rebound in intermediate golds. Energy has been a laggard, but recently led all groups, as oil moved through $85.00 a barrel. In the U.S., technology continues to be the bell weather to recovery.
As we enter the second quarter, the markets have started to drift sideways. Though interest rates are likely to rise and provide some headwinds, earnings are expected to sustain this bull market. Remember, corporate cash is at very high levels.