March "Basic Points" Coxe's Recs:
INVESTMENT RECOMMENDATIONS
1. This is a bear market on most of the world’s leading stock exchanges.
Clients should therefore be wary. Ursine conditions will remain until the
bank stocks stop underperforming the market and the Fed can go back to
being something resembling a staid central banker. As long as the forest
service bombers are frequently dumping water on flaming woodlands,
campers should be cautious.
2. JP Morgan’s stock market performance shows that within the bank
group, investors should emphasize those that have shown superior risk
management skills. Banks that were blowing billions in diverse ways before
the subprime problems reached global crisis levels should be avoided—or
sold short. Those which, like Bear Stearns, bragged about their prudent
risk management and then proceeded to announce egregious losses are
particularly risky in an environment that is likely to become increasingly
hostile. Flying on airlines that have above-average crash rates should be
an activity confined to reality TV contestants, not frequent flyers.
3. Gold reacted violently to its failure to hold $1,000. It will doubtless
take some time to consolidate, but it remains a recommended portfolio
overweight, both in the bullion ETF and in the companies whose
production and reserve profiles are of above-average quality.
4. The US is in a financial recession and may be in an economic recession.
Several Eurozone countries, such as Italy, are in similar straits. Although we
remain of the view that this is not likely to be a severe economic recession
in the US, it will look increasingly like a Depression on Wall Street. In
particular, members of the Credit Cartel are likely to find that the hinge
of history will impale some of them on a spike-filled swinging door.
5. Above-average snowfall and rain across much of the US have improved
the outlook for winter wheat and improved the water tables for the rest
of the grain complex. Reports from Russia, Ukraine and Australia offer
similar optimism. The risk of a full-scale global food crisis this year is
falling. Nevertheless, the only certitude comes from harvested crops on
hand, and they remain at critical levels, particularly for rice. The agricultural
stocks remain, with the golds, the most attractive commodity candidates
for performance this year.
6. US real bond yields are deeply negative across the curve. Not only does
this put a limit on how much more water the Fed can pour on financial
fires, but it should alert investors to the risks in bonds. In the early 1970s,
bond yields went modestly negative, but most asset allocators continued
to allocate mindlessly to bonds, which turned out to be one of financial
history’s horror stories. Emphasize cash or inflation-hedged bonds,
preferably in strong currencies.
7. While US real estate prices plummet, Canadian real estate prices continue
to climb. Apart from the special attractions of Saskatoon and some other
Prairie communities, we wonder whether such hot spots as Vancouver and
Toronto can stay torrid for much longer.
8. China is experiencing its worst inflation since Tiananmen Square times.
The regime is tightening steadily, and the stock market has joined the
rest of the world in bearish mode. In addition, Tibetans have suddenly
begun to demonstrate actively against Beijing rule, pricking consciences
around the world. We do not believe that these events will trigger a severe
slowdown of the Chinese economy that would turn total global economic
growth negative. That means the agricultural, iron ore and coal stocks—in
particular—remain very attractive.
AI
