Fund Manager
Norm Lamarche
While investors and traders were happily looking forward to the end of 2007’s volatility, the beginning of 2008 has reminded them of a popular favorite: “Be careful what you wish for!”. The extreme volatility to capital markets in January saw most Western based markets down 15-20% at their throughs in mid January, as the credit crisis continued to take more prisoners.
The actions of a rogue trader at Society Generale of France also played a role in sending markets in Europe crashing down to their single biggest one-day falls in many years.
Fearing a more broader based financial problem along with the dreaded potential R word (recession), the U.S. Federal Reserve cavalry came to the rescue with emergency interest rate cuts.
As a result of the inherent volatility, the month of January continued to be large-capitalization dominated as investors maintained a shorter term view of the world. Most pundits are revising their economic outlooks lower, impacting the pure cyclicals more directly.
Powered by the Golds, the materials group bucked-the-trend in January. In Canada, the S&P/TSX Materials sector rose 4.4%. Within the group, the Golds were up 18.5%. The base metals however, sold off with the market, as the prospects of an economic slowdown grew.
For the month, the Front Street Resource Fund dropped 0.93%. The Fund’s Precious Metals’ holdings added 186 basis points of return for the month, while the Uraniums, Coals and base metals loss 183, 1 and 95 beeps respectively. The Base Metal commodities have largely continued to trend downwards since the July levels, taking share prices lower with them. Commodity prices have recovered since the beginning of the year. Share prices, however, have languished in the tough January capital markets. We attribute much of the strength to the commodity metal prices to the effects of the commodity index fund rebalancing that took place in early January, and the recent weather-related issues in China & power issues in South Africa.
In the copper pits, the forward curve (up to four years) is now looking pretty flattish at or above the $3/lb level, as commodity players anticipate a high for longer environment. Share prices however, are reflecting a recession, leaving us with a dichotomy of sorts. We tend to agree with the commodity pits as rising costs for newbuilds and unfriendly hosting governments (higher taxes, royalties) are prompting the super majors to acquire vs. build. Even the hunted has become hunted, with Xstrata up for grabs!
The Precious Metals group continues to power forward, largely off the weaker U.S. currency. While we remain hesitant to stand in the way of this momentum, we do think a greater investment opportunity is developing in the base metals group. As the greater capital markets volatility subsides, time horizons will lengthen again!
We have been adding to the economic cyclicals in this weakness, largely the base metals. The Uranium segment is also attracting some of our capital as the spot price of Uranium continues to sell off of very little volumes.
Norm Lamarche
Portfolio Manager
Front Street Capital
Front Street Resource Hedge Fund Ltd.
Date Published
Fund Manager
While investors and traders were happily looking forward to the end of 2007’s volatility, the beginning of 2008 has reminded them of a popular favorite: “Be careful what you wish for!”. The extreme volatility to capital markets in January saw most Western based markets down 15-20% at their throughs in mid January, as the credit crisis continued to take more prisoners.
The actions of a rogue trader at Society Generale of France also played a role in sending markets in Europe crashing down to their single biggest one-day falls in many years.
Fearing a more broader based financial problem along with the dreaded potential R word (recession), the U.S. Federal Reserve cavalry came to the rescue with emergency interest rate cuts.
As a result of the inherent volatility, the month of January continued to be large-capitalization dominated as investors maintained a shorter term view of the world. Most pundits are revising their economic outlooks lower, impacting the pure cyclicals more directly.
Powered by the Golds, the materials group bucked-the-trend in January. In Canada, the S&P/TSX Materials sector rose 4.4%. Within the group, the Golds were up 18.5%. The base metals however, sold off with the market, as the prospects of an economic slowdown grew.
For the month, the Front Street Resource Fund dropped 0.93%. The Fund’s Precious Metals’ holdings added 186 basis points of return for the month, while the Uraniums, Coals and base metals loss 183, 1 and 95 beeps respectively. The Base Metal commodities have largely continued to trend downwards since the July levels, taking share prices lower with them. Commodity prices have recovered since the beginning of the year. Share prices, however, have languished in the tough January capital markets. We attribute much of the strength to the commodity metal prices to the effects of the commodity index fund rebalancing that took place in early January, and the recent weather-related issues in China & power issues in South Africa.
In the copper pits, the forward curve (up to four years) is now looking pretty flattish at or above the $3/lb level, as commodity players anticipate a high for longer environment. Share prices however, are reflecting a recession, leaving us with a dichotomy of sorts. We tend to agree with the commodity pits as rising costs for newbuilds and unfriendly hosting governments (higher taxes, royalties) are prompting the super majors to acquire vs. build. Even the hunted has become hunted, with Xstrata up for grabs!
The Precious Metals group continues to power forward, largely off the weaker U.S. currency. While we remain hesitant to stand in the way of this momentum, we do think a greater investment opportunity is developing in the base metals group. As the greater capital markets volatility subsides, time horizons will lengthen again!
We have been adding to the economic cyclicals in this weakness, largely the base metals. The Uranium segment is also attracting some of our capital as the spot price of Uranium continues to sell off of very little volumes.
Norm Lamarche
Portfolio Manager
Front Street Capital