BASIC POINTS (Donald Coxe) -- INVESTMENT RECOMMENDATIONS
1. Maintain overweightings in the oil, gas, coal, uranium and industrial metals stocks. The stock markets have, probably rightly, chosen not to value these companies based on the commodity price moves of recent weeks, but the excitement proves our thesis that the main threat to commodity price stability is from unexpectedly high prices, not from returning to the depressed levels of 2002.
2. Maintain overweightings in the precious metals stocks, but be cautious about adding to existing positions with gold above $600 or silver above $10.
3. Investors who choose to lighten up during periods of market frenzy should resist selling positions in the Alberta oil sands stocks. These remain unique investments and should be the core of any commodity portfolio. Emphasize the producing companies, and those whose expansions are nearing completion. Husky's announcement it would not proceed at this time with its planned upgrader because of extreme labor shortages doesn't mean the boom will bust, but it shows the problems for latecomers to the party.
4. The global liquidity gush could become a drought if Japan and China cease their currency partnership. Watch developments in that crucial relationship for liquidity changes in the dollar zone.
5. Chiraq's capitulation to the mobs is disheartening for friends of France and of Europe. Nevertheless, we reiterate last month's recommendation not to exit from the French and/or European stock markets. They remain good value.
6. The Iranian situation is unlikely to be resolved in the near term, because Europe lacks the resolve, and neither China nor Russia has the will to apply any discipline to Ahmadinejad and his fanatic followers. Who would have thought that someone even more paranoid and dangerous than Khomeini would take over?
7. Start building a bigger holding of long-term bonds and zeros as precaution against an economic slowdown induced by an overcautious Fed, overpriced oil, and a contraction in the supply of the Real, Effective Liquidity that has made the livin' so easy for so many for so long.
FP........................................................
