Below is the latest basic points from the commodity expert, Don Coxe of BMO. We highlights his conclusions from his May ‘Basic points’ letter, and embedded the full document in scribd:
1. We renew our recommendation to hold a close-to-normal exposure to
equities relative to fixed income, emphasizing dividend and commodity
stocks, with a special allocation to gold and gold stocks. This week’s
admission by Germany that some higher rate of inflation is warranted
means that money-printing will eventually return in force.
2. Within the bond component, maintain an exposure to Quality High-Yield
bonds to protect overall portfolio income. In general, bonds other than
TIPS are unattractive at today’s record-low yields.
3. The Fed has a license to print money that all other central bankers can
only envy, and the Bank of Canada doesn’t really need one. So North
America will not be driven into recession even if the euro plunges into
the Mediterranean.
Overweight North American stocks and bonds relative to Eurozone
securities.
4. The shares of the US Main Street banks, whose business models are based
on serving consumers and small and medium-sized businesses, have been
on a tear for six months. Wall Street banks have massive exposure to the
euro. They claim they have it under control, an assurance they have given
before every disaster.
When investing in US bank stocks, investors should buy shares only in
the banks they know and respect. That kind of caution obviously doesn’t
apply to investing in Canadian bank stocks.
5. Continue to invest in companies oriented toward China.
China is gradually morphing into a normal, consumer-oriented economy.
Soon China will even begin to resemble us demographically: BCA Research
predicts that the demographic peak for the working population is only
three years away and China’s demographic profile will deteriorate rapidly
thereafter. However, because China’s banks are government-controlled,
rather than, like big US banks, government-financed, when they bungle
badly, there should be no banking crisis in China such as we have
experienced in the US and Europe. Another important difference: under
Obama, the national debt is up $4 trillion, whereas in China, the foreign
exchange reserves have risen $2.5 trillion in this century. China’s economy
will continue to outperform all the other large economies of the world.
Almost none of the people who would have had you believe Chinese banks
were going broke warned you about American banks that did go broke.
6. Even if you reject our counsel to invest in quality gold mining stocks, don’t
divest yourself of your gold. The central bankers are not only printing the
reasons to buy gold, but they are buying lots for themselves. You cannot
imitate the printing presses, but you can imitate their asset purchases.
7. Commodity stocks: We believe the worldwide campaigns of self-styled
do-gooding tax-exempts and over-rich people against mining and oil
companies are major contributors to their low stock market valuations.
There is not going to be a global depression—and people will still need
foods and fuels—and even some base metals. Invest according to the
behavior and consumption patterns of billions of people, not according
to the predilections of a few thousand rich parlor pinks.
8. We continue to believe that agriculture is currently, on a risk-adjusted basis,
the best sector for commodity stock investors. Yes, the US may be about
to produce its biggest harvests of corn and winter wheat in the nation’s
history, but there will ultimately be buyers for every bushel at prices
profitable for the overwhelming majority of North American farmers.
9. BHP and Exxon were among the mighty companies to buy big into
natural gas too soon. What was once the preserve of colorful speculators
like Chesapeake’s Aubrey McClendon is about to be rationalized because
drilling to produce $2 gas is an act of charity for the economy—and one
of the biggest contributors to US economic growth—and to the low level
of US inflation. We have probably seen the low price for natgas, but any
sign that it is headed toward profitable territory will mean that already identified prospects will be drilled. It’s too late to sell natgas stocks, but
too early to buy the pure plays.
10. The Canadian oil sands stocks hold reserves on majestic scale. Only some
of the potash mines of Saskatchewan have such lengthy durations. They
are currently in the gunsights of politicians and environmentalists who
want to prove they can, by working together, abort the birth of the new
Saudi Arabia. Unless the world has gone mad, the oil sands companies
will be allowed to prosper, from now until long after most of the world’s
currently known oilfields have been exhausted. Any serious long-term
investor should have significant exposure to these companies.
Don Coxe Basic Points May 2012 (1)
