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A View From Here June 2012

June 29, 2012 • Print This Article

Commodities & Financials: Where Endless Money Went To Die

During the past decade we had been in a rising market for financial and commodity based investments. Prior to 2008, these investments made up most of the global profits as emerging economies such as India and particularly China created demand for natural resources and its derivative business's to build their countries. From early 2000 onward, things worked well as the demand increased prices of things like oil, copper and timber which in turn fuelled higher profits and henceforth increased share prices of the company's that produced these 'things'. As is the case during these periods, higher prices lead to more marginal producers coming on stream and as the machine continued to roll, demand for higher returns for foreign capital (ironically most of it from China) was satisfied by a stable of new mortgage and bond offerings.

These two trends converged when the collapse of 2008 ripped through all aspects of business valuations because at the time, no matter what business you were in, there was no apparent future for it...we were quite possibly on the cusp (and some might argue, still are) of the collapse of capitalism as we knew it.

Four years later and the benefit of hindsight, the disaster was averted, and as things began to execute on a more orderly basis, people could once again think about taking vacations or going out for dinner. Thoughts of bartering the family dog for two chickens seem to be buried in an episode of The Little House on the Prairie.

Yet, following that period, so many investment managers went back and purchased the same type of assets they held prior to the financial collapse and it hasn't really worked out too well. In fact it has been downright nasty. What we might be witnessing is the 2nd or 4th inning of this great unwinding as funds begin to move capital elsewhere. It is for this reason, that we do not own theme based investments, but rather look for companies in the absence of them...and it has worked. The performance of your investment and retirement accounts remains stellar. The attraction to what we see as yesterday's viewpoint has lured many a respected investment manager into exactly what they should be avoiding. It should not sound too surprising, because it happens all the time. This is not an industry for the lazy and hope doesn't really work as an investment strategy. Hope is what is getting challenged now in the markets. Hope that prices for commodities will at least stabilize and hope that many will be able to recoup their losses.

We may have been lucky to this point to have achieved double-digit returns as the first half of the year comes to a close, but our long-term track suggests that we remain on the right path.

This is perhaps the most challenging environment the financial services business has ever been in and investors cannot be happy with their results.

Please feel free to pass along our name to those who will not believe that positive returns actually exist as we are living proof that it does.

Have a great weekend and as always,

All Good Things,


Filed under: Uncategorized

The opinions, estimates and projections contained herein are those of the author as of the date hereof and are subject to change without notice and may not reflect those of Mackie Research Capital Corporation ("MRCC"). The information and opinions contained herein have been compiled and derived from sources believed to be reliable, but no representation or warranty, expressed or implied, is made as to their accuracy or completeness. Neither the author nor MRCC accepts liability whatsoever for any loss arising from any use of this report or its contents. Information may be available to MRCC which is not reflected herein. This report is not to be construed as an offer to sell or a solicitation for an offer to buy any securities. Member-Canadian Investor Protection Fund / member-fonds canadien de protection des ├ępargnants.

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