Don Coxe Recommendations from November "Basic Points"
*If any of you wish to get the full "Basic Points" newsletter just send me a PM with your email address and I will be happy to put you on the list. Kipp
INVESTMENT RECOMMENDATIONS
1. Remain overweight commodity stocks within equity portfolios.
2. Use our recommended weightings to allocate investments across the sectors—energy, agriculture, precious metals and base metals. The major international oil companies are not the best—or even second-best—way to invest in oil and gas. They face becoming yesterday’s story, because they are not replacing their production from politically-secure regions and they are competing with the state-owned and controlled companies worldwide. Those who still believe Big Oil controls world oil and gasoline prices can be included with those who claim to have seen flying saucers.
3. Gold (the ETF) and precious metals shares should be your primary emphasis on new money investments in commodity stocks. Gold’s price is ultimately headed for quadruple-digits in dollar terms. Remember the rule: buy stocks on the basis of unhedged reserves in the ground in politically-secure areas of the world. Use any earnings-related pullbacks in shares of companies meeting that criterion to increase your exposure.
4. Review your investments in Alberta in the light of the change in the political climate there. Institutions considering investing in Calgary office towers should reconsider their plans. Downtown Calgary, with its open pits, looks to be in a building boom that will end badly. It is a high-cost city, and it is no longer located in a politically-pristine province. Saskatchewan could be a reasonable alternative. The NDP government there has a reputation for sound, sensible government and for keeping its word. Two of Canada’s greatest companies—Cameco and Potash—are headquartered there. And the oil sands extend into Saskatchewan. Newfoundland and Labrador has moved ahead of Alberta for mining and oil investing security.
5. The current stock market rally is skating on thin ice: apart from the splendid performance of commodity stocks, the market lacks credible leadership. Nasdaq, carried by the “Four Horsemen”—RIMM, GOOG, AAPL and MSFT—has been outperforming the Dow; banks and other financials have been underperforming for months, and the Transports have failed to confirm the Dow’s new highs.
6. The dollar’s decline has been quickening lately. In particular, the Canadian dollar has been on a tear. It is showing signs of becoming primarily a financial—not an economic—currency. That could prove problematic for many Canadian industrial, retail and forest companies. We had for three years predicted parity for loonie, and raised that forecast to $1.10 last month. Those Midwest industrial companies that, by ingenuity, persistence, and heavy investment in technology somehow managed to survive the years of an overvalued greenback, have become very attractive investments. Their leading Quebec and Ontario competitors are about to face tougher competitive times. Canadian companies should consider using their new wealth to buy US competitors.
7. The problems of the financial system haven’t vanished because of two rate cuts. An aged, emphysematous hiker accustomed to smoking two packs of cigarettes a day may start breathing more easily after descending from an ill-considered trip up a mountain, but that doesn’t mean he’s a candidate for a $1 million term life insurance policy without a medical. Those big bank SIVs are leaking badly, and Asset-Backed Commercial Paper still suffers from a rare condition of the financial climate: Global Freezing. Remain greatly underweight the banks and mortgage lenders.
8. Agricultural stocks have been the brightest stock market stars this year. They are no longer cheap. But what they do is absolutely necessary for the global economy to generate sufficient growth in agricultural output to avert 1970s-style food inflation. They are core investments under any stock market conditions.
9. Oil nearing $100 and the subprime crisis are obvious constraints on economic growth. Commodity stock investors should review their base metal exposure—the most cyclical commodity group.
AI
