Fund Manager
Norm Lamarche
After hitting a low point in early March 2009, the Canadian market has bounced and has not looked back, as mounting evidence suggests the worst is now behind us. Positive economic leading indicators, smaller job losses, stabilization in homebuilding and manufacturing, as well as greater stability in the credit markets, are driving investors off the sidelines and back into stocks.
The second quarter action in the Canadian market (up 19%) was led by the information technology and financial sectors. The basic materials also responded nicely, as commodity prices rallied in anticipation of the greater economic move. Oil prices (WTI) rallied over 40% during the period, helped along by OPEC’s move to curtail production to better manage inventories. Cash prices for most basic materials (Iron Ore, Coal, Copper, Nickel) have also rebounded markedly, as the increased growth in the Asian nations drives imports. China, in particular, has been very active in its pursuit to acquire commodities. Chinese state-run materials companies are not only acquiring inventories of materials, but are also aggressively bidding for resource companies.
We’ve been expecting a mergers and acquisitions cycle, and have not been disappointed in Q2, as companies continue to trade at a discount to the true inherent cost of doing business.
The extreme volatility experienced during the latter part of 2008/early 2009, presented tremendous opportunities. Valuations reflected an economic world that would spiral endlessly. Stocks not only traded below replacement values, many traded below their net cash positions, giving us a chance to acquire cash at a discount and to buy their business for free. In such a world, where there is no need for growth, the market valued growth companies down to very little.
With the unprecedented fiscal and monetary measures initiated by governments, and Central Banks worldwide targeting the banking/financial system, we believe the Banks will outgrow their problems and allow the economy to recover.
While there are significant inventories and excess capacity in the world today, we remain fixated on the PRIZE, as the world economy transitions toward normalcy and into eventual growth. We expect corporate valuations to move back up toward replacement values (the cost of building new production). That valuation gap is the prize worth waiting for. As our confidence in the financial system grew, we reduced our more defensive positions (golds) and redeployed them into the more cyclical energy, base metal opportunities and financials. While the energy sector remains a big weighting, we are largely invested in oil, as we believe more natural gas pains are looming, before a turn for the better. We remain fully invested.
Norm Lamarche
Norm Lamarche - Q2 2009 Commentary
Date Published
Related Fund(s)
Fund Manager
After hitting a low point in early March 2009, the Canadian market has bounced and has not looked back, as mounting evidence suggests the worst is now behind us. Positive economic leading indicators, smaller job losses, stabilization in homebuilding and manufacturing, as well as greater stability in the credit markets, are driving investors off the sidelines and back into stocks.
The second quarter action in the Canadian market (up 19%) was led by the information technology and financial sectors. The basic materials also responded nicely, as commodity prices rallied in anticipation of the greater economic move. Oil prices (WTI) rallied over 40% during the period, helped along by OPEC’s move to curtail production to better manage inventories. Cash prices for most basic materials (Iron Ore, Coal, Copper, Nickel) have also rebounded markedly, as the increased growth in the Asian nations drives imports. China, in particular, has been very active in its pursuit to acquire commodities. Chinese state-run materials companies are not only acquiring inventories of materials, but are also aggressively bidding for resource companies.
We’ve been expecting a mergers and acquisitions cycle, and have not been disappointed in Q2, as companies continue to trade at a discount to the true inherent cost of doing business.
The extreme volatility experienced during the latter part of 2008/early 2009, presented tremendous opportunities. Valuations reflected an economic world that would spiral endlessly. Stocks not only traded below replacement values, many traded below their net cash positions, giving us a chance to acquire cash at a discount and to buy their business for free. In such a world, where there is no need for growth, the market valued growth companies down to very little.
With the unprecedented fiscal and monetary measures initiated by governments, and Central Banks worldwide targeting the banking/financial system, we believe the Banks will outgrow their problems and allow the economy to recover.
While there are significant inventories and excess capacity in the world today, we remain fixated on the PRIZE, as the world economy transitions toward normalcy and into eventual growth. We expect corporate valuations to move back up toward replacement values (the cost of building new production). That valuation gap is the prize worth waiting for. As our confidence in the financial system grew, we reduced our more defensive positions (golds) and redeployed them into the more cyclical energy, base metal opportunities and financials. While the energy sector remains a big weighting, we are largely invested in oil, as we believe more natural gas pains are looming, before a turn for the better. We remain fully invested.
Norm Lamarche