Fund Manager
Norm Lamarche
Stock price performance has been very robust for the three month period ending December 2009, as investors increasingly became constructive about the state of the economic union.
From ‘the depths of despair’ valuation levels of March/09, the markets have added monthly gains as the economic statistics steadily, and increasingly, pointed to an economic recovery in the industrial world. The loose monetary policies of the Western world’s central banks provided, not only an ability for the financial system to “lick its wounds”, but also provided a great capital markets backdrop of near-zero interest alternatives for the investor with cash. The Emerging Nations of China, India and Brazil demonstrated economic resilience over the period, and a helpful economic offset to the developed world. Chinese manufacturing, for example, was just reported to have grown at the fastest pace in 5 years, for their month of December. It’s no surprise that commodity prices have taken their queue from the world’s third largest economy and the world’s largest consumer of most materials.
While most major stock groups moved higher during the three month period, the Energy and Materials groups provided the leadership. We have had success chasing oil in Columbia (Pacific Rubiales) and developing oil fields in Albania (Bankers), and developing Copper/Gold and Coal assets in Mongolia (Ivanhoe and South Gobi).
In its early stages, the economic evidence of recovery was characterized as GREEN SHOOTS, these proverbial blades of grass that represented growth. The landscape today is largely covered with grass, it is by no means entirely complete, nor green. The voided spots or the brown shoots continue to need help. The good news is that our governments are very adept at spreading fertilizers! In fact, many lawn care pundits worry about fertilizer over usage!
With much excess capacity in the developed world, in the form of high unemployment rates and low operating manufacturing capacity rates, monetary policy should remain quite accommodative for the time being, as inflation should remain subdued.
Elsewhere in the world, particularly in the emerging world, a more traditional V-shaped recovery looks to be taking hold. This has particularly relevant considerations for Canada and its investment universe.
As we all know, the Canadian stock market is not a particularly good indicator of economic activity in the country as much of its economic activity is not reflected into the index. It does however provide investors with a unique window on a resource rich (energy and base metals) investment theme with a supporting cast of world class financial institutions comprising over 75% of the S&P/TSX index. As we have stated many times, this is a unique index in the world and it should be a Canadian advantage as we enter this next decade.
With essentially zero returns forecast for cash and bond yields at historic lows (and interest rates nowhere to go but up) equities remain as our preferred asset class and our key themes for investing remain intact. Global economic recovery argues in favor of the cyclical sectors in the market (energy, materials, industrials) over defensive sectors (staples, health care and utilities).
Our themes for 2010 can be summarized in this fashion:
- Global recovery remains intact continuing to benefit commodities, benefitting Canada
- On the energy front we prefer oil to natural gas
- Base metal stocks should continue to benefit both from a lack of supply growth as well as a pickup in demand primarily from emerging markets
- Inflation and interest rates should remain at benign levels, benefitting stocks in general
The increasing economic importance of the emerging nations has also increased the level of governments' role in the economy and in our lives, generally, reversing the last fifty years of "less government is best government". We now have a growing representation of centrally-planned economies in today's economic landscape and these governments are behaving very differently. The Russians for example, have attempted to use their new economic wealth to ensure the success of creating dominant oligarchs. China, having observed the Japanese and American experience, is aggressively using all of its financial resources, to secure both domestic and international policy success. They are aggressively acquiring commodity assets worldwide as they deem them to be strategic and of national interest. Make no mistake, the Chinese government is intent on reducing the cost of basic materials worldwide. They can only do that by investing and acquiring heavily in the sector over many yrs to come. They want to become the marginal seller of commodities, as opposed to being the marginal buyer of commodities who pushes up commodity prices.
We are paying attention. Part of our strategy is to own the type of things that they deem to be of significance and of strategic value.
Norm Lamarche - Q4 2009 Commentary
Date Published
Related Fund(s)
Fund Manager
Stock price performance has been very robust for the three month period ending December 2009, as investors increasingly became constructive about the state of the economic union.
From ‘the depths of despair’ valuation levels of March/09, the markets have added monthly gains as the economic statistics steadily, and increasingly, pointed to an economic recovery in the industrial world. The loose monetary policies of the Western world’s central banks provided, not only an ability for the financial system to “lick its wounds”, but also provided a great capital markets backdrop of near-zero interest alternatives for the investor with cash. The Emerging Nations of China, India and Brazil demonstrated economic resilience over the period, and a helpful economic offset to the developed world. Chinese manufacturing, for example, was just reported to have grown at the fastest pace in 5 years, for their month of December. It’s no surprise that commodity prices have taken their queue from the world’s third largest economy and the world’s largest consumer of most materials.
While most major stock groups moved higher during the three month period, the Energy and Materials groups provided the leadership. We have had success chasing oil in Columbia (Pacific Rubiales) and developing oil fields in Albania (Bankers), and developing Copper/Gold and Coal assets in Mongolia (Ivanhoe and South Gobi).
In its early stages, the economic evidence of recovery was characterized as GREEN SHOOTS, these proverbial blades of grass that represented growth. The landscape today is largely covered with grass, it is by no means entirely complete, nor green. The voided spots or the brown shoots continue to need help. The good news is that our governments are very adept at spreading fertilizers! In fact, many lawn care pundits worry about fertilizer over usage!
With much excess capacity in the developed world, in the form of high unemployment rates and low operating manufacturing capacity rates, monetary policy should remain quite accommodative for the time being, as inflation should remain subdued.
Elsewhere in the world, particularly in the emerging world, a more traditional V-shaped recovery looks to be taking hold. This has particularly relevant considerations for Canada and its investment universe.
As we all know, the Canadian stock market is not a particularly good indicator of economic activity in the country as much of its economic activity is not reflected into the index. It does however provide investors with a unique window on a resource rich (energy and base metals) investment theme with a supporting cast of world class financial institutions comprising over 75% of the S&P/TSX index. As we have stated many times, this is a unique index in the world and it should be a Canadian advantage as we enter this next decade.
With essentially zero returns forecast for cash and bond yields at historic lows (and interest rates nowhere to go but up) equities remain as our preferred asset class and our key themes for investing remain intact. Global economic recovery argues in favor of the cyclical sectors in the market (energy, materials, industrials) over defensive sectors (staples, health care and utilities).
Our themes for 2010 can be summarized in this fashion:
- Global recovery remains intact continuing to benefit commodities, benefitting Canada
- On the energy front we prefer oil to natural gas
- Base metal stocks should continue to benefit both from a lack of supply growth as well as a pickup in demand primarily from emerging markets
- Inflation and interest rates should remain at benign levels, benefitting stocks in general
The increasing economic importance of the emerging nations has also increased the level of governments' role in the economy and in our lives, generally, reversing the last fifty years of "less government is best government". We now have a growing representation of centrally-planned economies in today's economic landscape and these governments are behaving very differently. The Russians for example, have attempted to use their new economic wealth to ensure the success of creating dominant oligarchs. China, having observed the Japanese and American experience, is aggressively using all of its financial resources, to secure both domestic and international policy success. They are aggressively acquiring commodity assets worldwide as they deem them to be strategic and of national interest. Make no mistake, the Chinese government is intent on reducing the cost of basic materials worldwide. They can only do that by investing and acquiring heavily in the sector over many yrs to come. They want to become the marginal seller of commodities, as opposed to being the marginal buyer of commodities who pushes up commodity prices.
We are paying attention. Part of our strategy is to own the type of things that they deem to be of significance and of strategic value.