Powerful Strengths, Pathetic Weaknesses, and What Donald Coxe Recommends 9 comments
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Of all the market commentators I regularly quote on this blog, Donald Coxe, Global Portfolio strategist of BMO Financial Group, has turned out to be one of the most popular. And rightly so, as Donald has been on the right side of the “big picture” investment outlook more often than most over the years.
His weekly webcast appears in the sidebar of my site, and has turned out to be a big hit as a result of its insightful and entertaining analysis of financial markets. (To hear the commentary, simply go to “Donald Coxe’s Weekly Webcast” and click on the photograph.)
Donald’s monthly investment report, entitled “Basic Points” (subtitled “Can’t anybody here play the game” for the September 2008 edition) has just been published and I deemed it opportune to share some of his words of wisdom with you in the paragraphs below (courtesy of Commodity News and Mining Stocks).
1. The two most important forces in equity markets since July 13th have been powerful strength in financial stocks and pathetic weakness in commodity stocks. Since they have been inversely correlated for more than a year, investors should assume that the commodity stock bear market will continue until the financials roll over. The F&F bailout is merely the second act in a tragedy that has an unknowable number of acts to come.
2. When the financials do roll over, gold and gold mining stocks should move swiftly back into favor. Inflation remains above central bank target levels in the US – and in many other countries across the world. And any return to pronounced weakness among the bank stocks will be strongly bullish for gold.
3. With OPEC’s token production cut failing to impress the markets, oil prices will fall further. It won’t take more than a few days of even 750,000 b/d of production above consumption to drive oil prices down. Conversely, any outbreak of civil strife in Nigeria that affects offshore production could have a sudden upward price impact. We expect oil to trade in a range of roughly $80 a barrel to roughly $130 a barrel next year, but we have no great confidence in that forecast. We are more confident in predicting $150 oil within the next three years, as the next global economic recovery unfolds.
4. Barring an early killing frost, this year’s US corn group will be a barn-buster. What next? Corn is in modest contango for the next two years’ crops. Because contangos are so unusual these days, and because grains have such high producer/consumer participation across the curve, this is to us a sign that farmers and users are believers that high corn prices are here to stay. That means the fertilizer, seed and equipment stocks are cheaper now, relative to forward corn prices, than at almost any time in the past four years.
5. The pullback in oil prices and the dramatic bank rescues should have been enough to send the S&P back into bullish mode. It needs to break 1310 on the upside to take away its bearish condition.
6. The real yield on the Treasury 10-year is now a negative 145 bp. On a two-year hold, this means there could be more endogenous risk in nominal bonds than in most blue-chip non-financial stocks. The rush out of TIPs into Treasurys is doubtless driven by the unwinding of F&F exposures, but the long Treasurys are now seriously overvalued.
7. The biggest near-term upward surprise in commodity prices could be natural gas if (1) the sunspots don’t reappear, and (2) the historic correlations of gas to oil reassert themselves.
8. The Canadian dollar is being hit by the commodity price plunges, deterioration in the trade account, the worsening economic outlook in Central Canada, and the uncertain outlook in the October election. Whether Tories or Liberals win in Ottawa, Canada’s fiscal situation will continue to be superb compared to the US, particularly if Obama wins. We remain very positive on the loonie as an alternative to the greenback.
9. US election campaigns can be excuses for bold acts by foreign adventurers. Although President Bush was a non-person at the Republicans’ Convention after he gave his brief speech by satellite, he’s going to be President for four more months. The world should hope that rogue states think about that before deciding that Washington will be too distracted by the election to do anything about a surprise attack or invasion.
10. We have no clear idea how long it will be before we can look back to today’s prices for commodity stocks and say, “Wow! I wish I’d loaded up then!” We remain certain that day is coming.
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This article has 9 comments:
elainemeinelsupkis.typ...
At my story, 'PPT Rescues Are IDENTICAL to PPT Rescues In 1931'
I found a 1931 Time Magazine article that discusses all the rescues pulled by Herbert Hoover.
They are, down the line, exactly the very same rescues launched this last year by Bernanke and Paulson! There is nothing new under the sun.
The fundamentals of the crashing banking system have not changed. These are very unbalanced global trade with the US empire being the main destination of most exports while being able to pay for this with only fiat currency creation and of course the fake interest rates being foisted on us by central bankers.
Japan has inflation of over 2% a year and still lends at sub-1% rates. This is pure insanity. The US simply lies about inflation and it is far, far higher than the official rate of 4%. And the Fed is lending banks money far below this fake interest rate.
And on top of all this, all the G7 nation's governments are overspending and thus, borrowing money. This is massive money creation at work since borrowing=money creation out of thin air. We have too much credit being given to too many who are too deep in debt. Just like with the Great Depression.
the evidence of this downward spiral began with bear stearns. we can quibble about the great depression being leverage or credit induced - but i too worry about the similarities. i believe the fed is making the right moves, but the government is not. it all may be academic as the game is in play may not be alterable by any of our economic acts of desperation.
i would not think of buying anything right now until the future is clearer. i will not be sorry if i miss a bottom, or a sector has taken off and i missed it. i know how the depression destroyed the lives of my parents and grandparents, and i do not want to make the same mistakes.
The scary thing right now is that with all of this deleveraging and the housing crash we are destroying money at a ferocious rate. This is part of what the dollar is going up. What the Fed is doing is not nearly enough to counter this trend.
We are on a knife edge right now. Step the one direction too far and it is hyperinflation. The other way and it a deflationary depression. The only plan that is safe is to diversify.
We are headed for a worldwide depression. Credit is being recinded and collapsed at an alarming rate. This is no "crunch" folks, it's a credit train wreck. Cash is king and that means you don't float loans, and CERTAINLY not at a paltry 6%!!! Real interest rates will have to be 12+% before it becomes worth the risk to lend money because there will be lots more defaulting as the deflationary crash wears on.
Ben Bernanke was specifically chosen as fed chief because he studied the great depression. He agreed with Milt Friedman that the fed back then blew it and that's why it all crashed. Of course he was not going to say "ummm, they simply lent out too much money to deadbeats". No, Ben knows the score. In short, there is no fixing it. Ben just needs to put on a Herculean dog and pony show so that nobody blames the real culprits for all this: Fiat money, the federal reserve, and the fractional (fictional) reserve banking system. Ben is on record saying he will throw money from helicopters if need be. Well, the need will soon be and he will NOT do this. The reason? He knows that too much monetary inflation will cause the world to run away from the dollar. They will stop using it as the world's reserve currency and the US federal reserve will thus lose the right to export our inflation to the world going forward. That will be a BIG hit to US prosperity because we have been printing money from thin air to pay the bills for a long time and any holder of USD would take the hit for that while we got all the benefit.
Everyone will say they did not see this coming but indeed they did. In fact, I think there is significant evidence which could show that Greenspan did it on purpose for his illuminati masters who want a one world gov't and thus need to wipe out the middle class so that we are all begging the gov't for help. Of course, the gov't will require us to give up more of our constitutional rights in order to comply with our requests and people will actually do it. They will accept the new serfdom.
It's amazing how we are being gamed here yet we will vote for an inexperienced democrate or a war monger republican simply because Ron Paul doesn't look presidential enough and is not charismatic enough. I also believe that many people are looking for the free hand out that will not be there with a Ron Paul gov't. The US is going to get the gov't that it deserves with obama or mccain.