Posts Tagged ‘Basic Points’
Donald Coxe: Capitalism Faces its Greatest Challenge
Monday, November 17th, 2008
Donald Coxe
Donald Coxe, Chief Investment Strategist, BMO Capital Markets has just released his latest instalment of Basic Points, “Capitalism Faces its Greatest Challenge” for November, 2008.
Mr. Coxe is best known for his highly read monthly newsletter, “Basic Points,” as well as his bi-weekly conference calls. His convictions that we are in the midst of the biggest long-term commodities bull market have been severely tested during the most recent months since this past summer, when he launched the Coxe Commodity Strategy Fund, but he remains convinced that the thematic fundamentals are in tact.
Here, we summarize his November 14, 2008 recommendations:
- Its too late to sell losing stocks, and too soon to do more than nibble at bargains. This is a time for investors to be opportunistic about investing, and stocks are available at prices that will look incredibly cheap in a couple years’ time.
- When conditions resume for rebuilding equity positions, buy banks and diversified financial sector stocks.In a global recovery, these should perform well, considering the mostly new management teams.
- Buy commodity oriented stocks. They have been totally oversold beyond all expectations. When there is a global recovery, they will be the winning asset group.
- During the waiting period, start accumulating convertible bonds of quality corporations. A sharp contraction in the near-record yield spread between investment grade companies’ bonds and comparable treasuries, could trigger a major equity rally.
- Buy Emerging Market bonds from China, India, and Brazil, whose economies are fundamentally sound. Avoid Eastern European bonds.
- Business-oriented tech-stocks should also be included when once again accumulating stocks as these will participate in the global recovery. comparatively, consumer-oriented tech stocks may take quite a while.
- Railroad stocks benefit from lower energy costs and the savings may offset the reduction in top-line revenues during the recession. Upon exiting the recession, these should be core investments.
- Gold has been disappointing. Though it has outperformed stocks since the peak in the S&P 500, this has not yet been reason enough to own it. As deflation fears diminish, it will once again regain its lustre.
You can download the complete report here.
Source: Donald Coxe, BMO Capital Markets, Basic Points, “Capitalism Faces its Greatest Challenge,” November 14, 2008
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Tags: Amp, Banks, Basic Points, BMO, BMO Capital Markets, Brazil, capitalism, China, Commodities, Commodity, Donald Coxe, Eastern European, Economi, Emerging Market, energy, Euro, Financial Sector, Gold, India, Markets, Rally, Recession, risk, S&P 500
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Donald Coxe: Barron’s Interview
Sunday, November 9th, 2008
This week’s issue of Barron’s features an in depth interview with Don Coxe, Chief Investment Strategist, BMO Capital Markets. Mr. Coxe is best known for his highly read monthly newsletter, “Basic Points,” as well as his bi-weekly conference calls. His convictions that we are in the midst of a biggest long-term commodities bull market have been severely tested during the most recent months since this past summer, when he launched the Coxe Commodity Strategy Fund, but he remains convinced that the thematic fundamentals are in tact.
Here are a few excerpts from the must read interview, “Feed the World - and Boost Returns.”
How should investors approach today’s stock market?
If you aren’t deeply in the equity market, this is not a time to be committing large amounts of money. Stocks are cheap but they can get cheaper; we know that. We got back to the Dow having a multiple of 5.9 in December of ‘74, which was the foundation of Warren Buffett’s wealth because he started buying at that level. The Dow isn’t anywhere near 5.9 [its multiple last week was 11], but some of my favorite stocks are trading at lower P/Es than that. I can tell you they are the fertilizer, oil and agricultural companies.
…
Tell us some more about those industries.
The core investment concept of our time is that we are living through the greatest simultaneous effervescence of personal economic liberty in history. When people go from abject poverty to dwellings with indoor plumbing, electricity, basic appliances and access to motorized transportation, they have more economic liberty than 99% of humanity enjoys and we are adding 50 to 150 million people a year to that list. The gigantic investment returns are all going to be tied to companies that meet real human needs and do it better than other companies. What a great time to be an investor, because it is not just about the dwellings and the transportation, it is about the high-protein diet. When I came back from a trip two years ago, I said the biggest commodity story is going to be food, bigger than the other ones. It is high-protein food. The way to play that is through the fertilizer stocks, the genetically modified seed stocks and the farm-equipment stocks.
Which commodity groups do you like best?
Agriculture is first. We will need more fertilizer. There are only three farm-equipment companies of any size in the world. Terms of entry are difficult. You have to have dealerships. CNH Global [ticker: CNH] is one of the top three companies in the world in the field. It’s a subsidiary of Fiat and its stock has collapsed, but earnings haven’t collapsed. In May it sold for $45 a share. It’s $17 now. The next group has to be gold stocks. A period of massive reflation always leads to a good move in gold.
To read the entire interview click here.
Source: Barron’s, Feed the World — Boost Your Returns, November 10, 2008
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Tags: Agriculture, Amp, Barron's, Basic Points, BMO, BMO Capital Markets, CNH, Collapse, Commodities, Commodity, Don Coxe, Donald Coxe, Earnings, Economi, electricity, Excerpts, fertilizer, fiat, Gold, gold stocks, interview, Markets, oil, P/E, Trading, Warren Buffett
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Donald Coxe: Homeicide: The Crime of the Century
Monday, October 13th, 2008
Donald Coxe, Chief Investment Strategist, BMO Capital Markets, has published his latest issue (October 8) of Basic Points, titled “Homeicide: The Crime of the Century.” Given the release date of this issue, its interesting to see how timely his calls to action are.
Particularly, we would highlight Coxe’s call to reduce general equity exposure further, prior to what was one of the worst weeks ever (last week), and to not wait too long to buy agricultural stocks.
Columbus Day 2008 will go down in the history books as the single-biggest one day rally since 1933, the Dow rising 936 pts (its biggest one day point closing ever, and fifth largest %-age closing) . This rally followed the US government’s announcement that it would take an equity stake in the banking sector, by injecting $250-billion into the sector.
Its still early though, and as Coxe says, this is likely a “Mama Bear.” Question is, is this a Mini-Mama Bear (like late1980’s or late 1990’s) or a Big Mama (like 1930’s). In the full text of Basic Points, a must read, Mr. Coxe explains himself fully.
Here, we summarize his recommendations:
- Recommended exposure to equities is 46% depending on investor’s overall portfolio and risk tolerance, and close to absolute minimum equity exposure of 40%. Cash is currently at 20%, the maximum. (nice call considering the following week was one of the worst weeks ever in the market)
- Long term investors should not wait too long to choose among the heavily battered commodity stocks. Specifically, the best companies the world has to offer, relative to the world economy, competitiveness, management, cash flows, and balance sheets. Many may now be bought at a discount to their reserves in the ground, without taking into account balance sheet assets.
- Agricultural stocks have been savaged. All it would take is one “medium-sized crop failure” to mark the return of the global food crisis. A handful of very important companies have the means and ability to make the difference of assisting in the fulfillment of the protein demands of a billion people escaping the rice bowl and bread diet.
- For the time being, their lower stock prices prevents them from over-expanding or over-producing, which means their profits will end up being even higher in the super-cycle.
- Interest rates are sharply lower, thanks to short covering in the dollar, and collapse of stock prices, which has forced asset reallocation. This will soften the blow to the mortgagees facing potential foreclosure and not be so ghastly, as predicted by gloomy forecasters.
- Commodity prices fall during recession, but the real value of them does not. Small under-capitalized producers will be devastated in a recession, making them easy pickings for the larger ones when clarity returns in the market.
- Gold and Gold-mining shares remain an effective way to reduce “endogenous” risk in an equity portfolio. Although inflation will recede for a short while, the sheer size of the economic stimulus (so-called printed money) means gold could move to new highs.
- The downward movement of commodity prices has been far more severe than we expected. We should have warned clients to the rapid deterioration in the fundamentals in the last Basic Points. On Sep. 19 conference call, we advised a significant reduction in equity exposure to energy and base metals, in favour of the precious metals. These rebalancings should be of some consolation to investors in the volatile period ahead.
- The size and complexity of the credit market created in the final days of the bank mania, and the scale of deleveraging has made measuring overall risk unknowable. The Lehman failure means huge losses and years of litigation. Those assets were either sold or still overhang the market. Never before have so many colluded to behave so badly. Our doubts remain their malefactions have created a really big bear market, but we’ll probably know within weeks.
Thank you Mr. Coxe.
The complete report is available here.
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Tags: Basic Points, Bear Market, BMO, BMO Capital Markets, Collapse, Commodity, Credit, Credit Market, DOG, Dollar, Donald Coxe, Economi, Economy, energy, Gold, inflation, interest rates, Markets, Metals, Mining, Mortgage, precious metals, Rally, Recession, risk, Us Government, Value
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Donald Coxe’s Investment Recommendations, September 2008
Saturday, September 13th, 2008
We are big fans of Donald Coxe, Chief Strategist, BMO Capital Markets, whose track record on calling the “macro” market conditions and opportunities has, more often than not, been reliable. In this period, where it appears the market has no direction, his views are especially welcome.
Here, we provide a summary of his recommendations from Basic Points, September 2008, for your review.
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The current commodity bear market will turnaround when financials rollover.
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The “Frannie” bailout is Act II in a play whose plot will thicken
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When financials roll over, gold and gold stocks will recover
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Inflation remains above central bank targets
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Oil will fall further. OPEC production cut not impressive enough to support prices.
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Any civil strife in Nigeria could put upward pressure on oil
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We expect oil to trade between $80 -130/bbl next year (though not a reliable forecast)
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We are more confident in predicting $150/bbl in three years
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The corn crop will be a “barn buster.” Corn in “modest” contango for next two years. Translation: Fertilizer, seed and equipment stocks are relatively cheaper now, than in the past four years.
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The sharp drop in oil prices and “dramatic” bank bailouts should have been a catalyst for market
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S&P needs to break 1310 to “take away the bearish condition of market.”
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Real yield on 10-yr Treasuries is -145 bps. Treasuries are overvalued
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Biggest near-term surprise could come from recovery in Natural Gas, barring sunspot activity, and/or historic correlations of oil/gas reassert themselves.
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C$ under pressure from falling commodity prices, but Canada’s fiscal health makes C$ a strong alternative to the greenback
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US election campaign could be a risky period geo-politically as “foreign adventurers” may try to take advantage of the distraction. Rogues should remember that Bush is still president for another 4 months
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We have no idea how long it will be until we can say, “Wow, I wish I’d loaded up then!” on commodity stocks. “We remain certain that day is coming.”
The complete text can be read here.
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Tags: Amp, Bailout, Basic Points, Bear Market, BMO, BMO Capital Markets, Canada, Commodity, contango, Correlation, Donald Coxe, energy, fertilizer, Financials, Gold, gold stocks, inflation, Markets, Natural Gas, oil, Oil Prices, risk, upw, Value
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Donald Coxe’s Investment Recommendations (August 2008)
Friday, August 8th, 2008
August 8, 2008 - (Courtesy: Investment Postcards) Donald Coxe, Global Portfolio Strategist of BMO Financial Group, has established a great “big picture” track record and built a large following over the years. His eloquently phrased investment recommendations are particularly insightful and are repeated in this post in an attempt to make sense of the troubled times encountered by financial markets.
Click Below for Donald Coxe’s, Basic Points - The Devils and the Deep Blue Sea
Donald Coxe’s Investment Recommendations (August 2008)
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Tags: Basic Points, BMO, Donald Coxe, Investment Postcards, Markets
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Don Coxe’s Recommendations, Basic Points (05/30/2008)
Tuesday, June 3rd, 2008
June 3, 2008 – Here we feature the recommendations of Don Coxe, BMO Capital’s Chief Investment Strategist.
As usual, his paragraphs are eloquent and provide significant guidance. Don Coxe’s Investment Recommendations, excerpted from Basic Points, Traders of the Lost Arc, May 30, 2008.
1. Assume that the leading US forecasters on the US economy will be cutting back on their economic and earnings forecasts. You could be pleasantly surprised, but you’ll more likely feel the other kind of pleasure—the sensation of being right.
2. Assume that the leading global forecasters will be cutting back on their economic and earnings forecasts. The actual outcomes will doubtless vary widely, but enough to challenge the performances of global stock indices.
3. Until the US financial stocks stop declining, rallies in the S&P or Nasdaq are selling opportunities. If the US banks still have problems when they can pledge their otherwise-unmarketable merchandise to borrow T-Bills, then those problems aren’t going away in a hurry. If the BKX index breaks 75, assume that the bad news is about to become much worse.
4. Gold and gold stocks become more attractive each week that global food and fuel costs rise along with writedowns on bank balance sheets.
5. Natural gas prices have benefited from the unusually cold winter in the Northern Hemisphere. They could be hurt if the cooling continues through July—when air conditioning demand peaks. Nevertheless, we believe the natural-gas-oriented stocks are fundamentally attractive.
6. The dollar failed to rise significantly even as US stocks were rallying and economic forecasters were declaring that the worst of the housing problems were over. If it goes to a new low, it will drive even more global investment funds into commodities and/or commodity stocks.
7. Wheat is the only grain to have experienced a dramatic rise and fall—a short squeeze rally, followed by a collapse—amid evidence of a huge winter wheat crop. Otherwise, the grains and oilseeds have been wellbehaved, within strong uptrends. Build exposure to the leading agricultural stocks.
8. The risks to global economic growth from stagflationary food and fuel conditions continue to increase. The commodity class whose outlook is most negatively affected by such perceptions is the base metal and steel group. We believe those stocks are the only truly vulnerable commodity sector for the balance of this year—barring a sudden, Black Swan-style, reversal in oil.
9. We didn’t expect to see spot oil at $133. Nor did we expect the oil futures curve to move—albeit briefly—into contango. As this is written, oil for delivery in 2016 trades slightly above spot crude. If this move toward contango accelerates, expect response from the Fed and the ECB. Within the oil group, emphasize producers with long-lived reserves, and underweight the Big Oil companies that are failing to replace their production.
10. The only thing more bearish for nominal bond portfolios than a central bank that doesn’t fight inflation is a central bank that suddenly discovers it must stop inflation in its tracks. That’s what happened when Paul Volcker took charge after the ghastly mistakes of his predecessors. We shall become interested in nominal long-term bonds again when Bernanke & Co. Drive short rates strongly higher. In the meantime, investors should emphasize real return bonds.
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Tags: Amp, Banks, Basic Points, Bernanke, Black Swan, BMO, Collapse, Commodities, Commodity, contango, Crude Oil, Dollar, Don Coxe, Earnings, ECB, Economi, Economy, energy, Fed, financial stocks, Food prices, Gold, Gold Bullion, gold stocks, Grain, inflation, interest rates, Markets, Natural Gas, oil, Paul Volcker, Rally, risk, Short squeeze, stagflation, Term Bond, Traders of the Lost Arc, US Banks, US Stocks
Posted in CPI, Canadian Stocks, Commodities, Credit Markets, Crude Oil, Economy, Emerging Markets, Financials, Gold, International Markets, Markets, Oil and Gas, Strategy, US Stocks, contango, inflation, wisdom | 1 Comment »
Don Coxe’s Recommendations (Basic Points, 04/29/2008)
Monday, May 5th, 2008
May 5, 2008 – Here we feature the recommendations of Don Coxe, BMO Capital’s Chief Investment Strategist. As usual, his paragraphs are eloquent and provide significant guidance.
Don Coxe’s Investment Recommendations, excerpted from Basic Points, The Hinge of History II, April 29, 2008
1. In long-only equity portfolios, continue to underweight Wall Street banks and others that have been reporting high exposure to perfumed products of indeterminable value, including those which last year revealed—under duress— high exposure to SIVs. Within the financials, emphasize those whose loan losses are of the traditional, cyclical variety—not in derivatives or in untraditional banking businesses. Good banks that have stuck to their knitting—and whose CEOs compensation has suffered along with their stock prices—should be retained.
2. In long/short portfolios, be long commodity stocks and short bank stocks that make headlines for untraditional losses. That trade hasn’t been working lately, but it remains an overall portfolio risk-reducer. The list of banks that have shown great skill and profitability by going heavily into new kinds of products and new kinds of accounting is roughly as long as the list of major copper, oil and gas producers that profited by selling heavily forward.
3. A financial-led bear market within a financial-led recession can be particularly perilous if central banks run out of ways to reflate the system—and surprisingly benign if the central banks’ rescues remain timely. To date, the central banks have been up to the job—if propping up a badly-behaving financial sector is a key component of their job descriptions. Result: the overall stock market has outperformed our expectations. We still don’t like the risk/reward ratio.
4. Dividends become more attractive as central banks cut rates. The problem for investors is that many of “The Great Dividend-Paying Stocks” are financials that have been reporting ghastly blunders. In many cases, their payout ratios have climbed far above the 50% threshold that has made these stocks better investments than bonds. Opportunities remain—and dividends may be the only positive return most US stocks will deliver this year.
5. Although North American consumers have yet to see the cost pass-through in major foodstuffs of $6 corn and $8 wheat, it will come sooner or later. Based on past periods of food inflation, one of the first consumer cutbacks is on eating out. Restaurant stocks are especially unappetizing when food costs soar out of control.
6. Gold has pulled back from its high because the dollar stopped falling and the bank bailouts seem to be working. Remain overweight gold as a clear-cut hedge against further bad news on both those fronts.
7. The Canadian dollar decoupled from the euro, failing to rally to new peaks—which makes little sense to us. US clients should continue to use Canadian government bonds and Canadian short-term investments as alternatives to Treasuries and US cash.
8. Within the commodity group, continue to accumulate the leading agricultural stocks. Given the spectacular performance of the fertilizer stocks, the best bargains currently on offer are in the farm machinery companies. The global food crisis will almost surely cripple the opposition to GM seeds, which means the seed stocks have great upside room.
9. Within debt portfolios, continue to emphasize inflation hedge bonds—preferably in strong currencies. Treasuries remain overvalued, despite the recent strong run-up in yields from barely-observable levels.
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Posted in Agriculture, Banks, Commodities, Credit Markets, Crude Oil, Economy, Financials, Fixed Income, India, Markets, contango, energy, gold stocks, inflation | 1 Comment »
Don Coxe: Remain Heavily Overweight Commodity Stocks
Friday, March 14th, 2008
Mar. 14, 2008 - There are few who can rival Donald Coxe, BMO Financial’s Chief Investment Strategist, when it comes to providing what has historically been an accurate macro outlook on financial markets. Below, are Mr. Coxe’s paragraphed recommendations from February’s edition of Basic Points (courtesy of J’s Global Analysis). In a time of great uncertainty, this kind of clarity and direction is invaluable.
1. Long-term investors should remain heavily overweight commodity stocks, including the base-metal stocks. As the bear market grinds on, use days of stock market weakness to add to commodity stock exposure. They not only remain the asset class with the best earnings outlook, but also the asset class that is least understood by conventional asset allocators, who still see them as cyclicals dependent on OECD growth.
2. In the near term, the golds will continue to outperform stock markets and to act as a form of hedge against two kinds of shocks – financial panics and inflation shocks.
3. Remain heavily underweight bank stocks, and financials tied to “Jurassic Park Avenue” excesses. Within the financial group, overweight high-quality fire and casualty companies, life insurers, and asset management organizations.
4 Retain above-average cash positions, preferably in strong currencies.
5. Where possible, borrow in dollars and invest in assets denominated in strong currencies.
6. The Canadian dollar remains the Western currency with the best fundamentals. Canada’s problems arise because the Great Lakes are an insufficient barrier to the flow of bad economic and financial trends from the South.
7. Within the commodity groups, continue to emphasize investment in companies with long-duration unhedged reserves in the ground in politically secure regions.
8. The growth of sovereign control of energy assets means that the supply-side response to record-high oil prices will probably be inadequate to meet relentlessly growing global demand. Too many Third World governments with rich oil reserves have too many other demands for cash to reinvest heavily for the long term in new production. Retain exposure to the shares of producing Alberta Oil Sands companies with reserves that could outlast this century.
9. Long-term-oriented investors should use any temporary pullback in base metal producers to build their portfolios for the Final Movement of the Sonata – which will be the longest and loveliest performance of metal music in history.
10. The Treasury yield curve is now in recession mode – low yielding and upward sloping. It is of investment merit only for those who expect a long, deep recession. The Ten-Year note, with a negative real yield of 50 basis points, should appeal only to those who believe the recession will be accompanied by deep deflation. Oddly enough, credit spreads, though they have widened from their record-low levels, do not discount any recession at all.
We think bond investors should go for short- and medium-term high-quality non-Treasury paper – preferably in currencies other than greenbacks.
11. Defence stocks remain attractive, even if Democrats win it all in November. The next president may well choose to speak more softly than the incumbent, but if he or she doesn’t carry a big stick, the jihadists won’t listen.
Also, click here for Donald’s most recent webcast, dealing with the case for commodities and resources stocks.
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Tags: Agriculture, asset class, Bank stocks, Basic Points, Basis Points, Bear Market, Blog, BMO, BRICs, Canada, Commodities, Commodity, Credit, Currency, Dollar, Don Coxe, Donald Coxe, Earnings, Economi, energy, Financials, Fixed Income, Gold, inflation, Investment, Investment Strategy, Investment Wisdom, Markets, oil, Oil Prices, Recession, risk, spreads, Stock Markets, upw, Yield Curve
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Short ETFs - Portfolio insurance
Tuesday, January 29th, 2008
Jan. 29, 2008 - Short and UltraShort Funds provide investors with highly liquid inverse exposure to the markets as represented by widely held benchmark indices.
Check out these charts for a couple of good examples. Most investors have difficulty grasping the idea of taking ’short’ positions or bets against the very markets that they are investing in. These new ’short’ ETFs do not require a great deal of sophistication or a margin account for the average investor to get some portfolio insurance.
iShares FTSE Xinhua 25 (FXI) vs. ProShares UltraShort FTSE Xinhua 25 (FXP)
iShares MSCI Emerging Markets (EEM) vs. ProShares Short MSCI Emerging Markets (EUM)
ProShares Ultra Financials vs. Proshares UltraShort Financials (Dow Jones Financial Index(sm))
If you believe that there is more downside to come, then its still not too late to get some downside protection.
Don Coxe, in his recommendations from Basic Points, January 2008, warns:
The financial crisis is not centered in stock markets. Its primary locus is in financial derivatives, and in their impact on the stock prices of leading banks. Until the downward drift of bank stocks and the upward drift of derivative debt yields are reversed, the stock market will continue to slide. Keep overall equity exposure to minimums, and emphasize quality.