Donald Coxe – Investment Recommendations (March 2009)

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Since investment strategist Donald Coxe’s departure from BMO towards the end of last year, I have been inundated with enquiries about whether his much-revered “Basic Points” research reports would still be published. The good news is that Donald has resumed writing these reports and a new issue (subtitled “The ObamaMama Bear Market for the March 2009 edition) has just been published.

Donald’s latest investment recommendations are reported in the paragraphs below, but I do recommend you also read the full report at the bottom of the post. (Also note that Donald’s weekly webcasts can be accessed from the sidebar of the Investment Postcards site.)

1. If you haven’t sold your US equities in the face of all the talk about a Depression, then you shouldn’t let anyone convince you now, although you may want to take advantage of this rally to lighten up on stocks that worried you most.

2. There will not be a new bull market without leadership – at least in its early stages – from the financial stocks. This is a time for stock-pickers to select survivors. There will doubtless be more nail-biting moments before anything like an “All Clear” is sounded, but commercial banks with strong deposit bases and small business franchises that haven’t tried to strut like Wall Street Ramblers will surely prove worthwhile.

3. Gold has generally been strong despite all the talk of Depression and deflation, and despite the rally in the dollar. It serves two investment needs – on a day-to-day basis it provides a hedge against financial implosions and broad stock market sell-offs, and on a longer-term basis it provides a hedge against the inflation that seems inevitable once the US economy begins to crawl out of the pit. It got overdone when the pessimism about runaway US government spending and excessive Fed stimulus reached peaks. It remains a core holding in times when economic and financial risks remain both huge – and unknowable.

4. Since “The Midnight Massacre” of July 13, the dollar, the yen and the Swiss franc have outperformed other currencies as the currencies in which debt was denominated. Deleveraging meant that banks and other speculators were forced to sell other currencies and other kinds of assets to repay debts denominated in those currencies. The dollar now stands alone as the last currency winner from debt unwinding. The yen has now succumbed to the moribund Japanese economy. Even the mighty Swiss franc has fallen, as the Swiss Central Bank seeks to reduce the franc’s value to protect watchmakers and other Swiss industries. We believe the Canadian and Australian dollars are deeply undervalued.

5. Watch the websites that update the sunspot story. If the spots don’t return by mid-June, there might well be great rallies in the grains. Buy the fertilizer, seed and farm equipment stocks.

6. The publicly-traded debt of most quality companies should outperform the stocks until the crisis is resolved and/or the economy revives. Which bonds to choose? In general, if you like the company, you should be kindly disposed towards the debt. Back in our debt-management days, we learned, from some painful experience, that if you don’t like the management much and won’t buy the stock, you shouldn’t touch the debt, regardless of what the ratings services say.

7. If the S&P breaks down heavily anew, then you may finally get the kind of buying opportunity that will later prove to have been quite wondrous. For now, continue to hold substantial cash and mid-term bonds.

Source: Scribd

 

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9 comments to Donald Coxe – Investment Recommendations (March 2009)

  • Eber Terastein

    For some reason, there is no link to the full article.
    Thanks
    eb

  • Alan L

    There’s a mistake in point 4. Actually the dollar and yen and Swiss frank rallied because debts were denominated in these currencies, not the other way around. This was a classic carry trade unwind. The carry trade starts by funding in a low yielding currency, say JPY or USD, and converting into a higher yielding currency(say AUD, NZD, GBP, etc.). But remember that you need to buy back JPY or USD because your debt is denominated in that currency. This forced buying to repay USD, JPY, and CHF debt was the “risk aversion carry trade reversal” which made those currencies rally.

  • Daniel Mueller

    Great advice!
    I don’t agree with point 2 though. I can’t imagine the financials leading the market out of this. My guess is that those quality companies that don’t depend on cheap financing will lead the upturn.

  • Eber: Click on “Scribd” in the top left-hand corner of the image, then click on “Download”. Opening the document as an Adobe attachment is one of the options.

  • Frank W

    There are other mistakes as well, Alan! That’s exactly right, Daniel. History teaches us that there will be a rotation into a different sector. The other thing is that banks were very profitable all thru the Depression, but didn’t do any leading out. They are also profitable now — even B of A and Citi. The trouble is the latter two along with many others are insolvent. I can’t for the life of me figure out why so many people regard this dude as a guru. Dude “yes”, guru “no”.

  • [...] Faber“, “Stock market performance round-up: Signs of recovery” and “Donald Coxe: Investment Recommendations (March 2009)“. (And do make a point of listening to Donald Coxe’s webcast of April 3, which can be [...]

  • Happy Sunday! good job :P. Enjoyed “” although maybe not everyone did. Thanks for the good times reading your blog. Added to my feed.

  • Reinhard

    The Don Coxe audio is from March 13th !?

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