Don Coxe – Monthly Investment Recommendations
The July’s edition of Donald Coxe’s Basic Points research report (subtitled “Existential Financial Risks”) was published a few days ago. His investment recommendations, as summarized in this document, are listed 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. Emphasize high-quality corporate bonds in debt portfolios.
Most major global equity indices will have trouble reaching recovery highs because of problems for banking and financial stocks from sovereign risk value impairments. Government is no longer—if it ever was—the solution. It is now the problem for many OECD economies—and for many institutional investment portfolios. The risk-free rate of return risks becoming the Cheshire cat for portfolio theory-based investment programs—slowly fading away, with no robust theory to replace it.
2. Continue to invest in high-quality Canadian assets, including banks and bonds.
The fundamentals for the Canadian dollar remain favorable. The fundamentals for the American dollar remain bleak. Resist the urge to join the Chinese and overindebted Canadians in buying residential real estate in overheated markets.
3. Retain above-average exposure to gold and gold stocks.
The scale of economic and financial risks continues to grow faster than any economy.
4. Remain overweighted in global agricultural stocks, particularly the fertilizer and machinery companies.
Farm incomes are outpacing economic growth in North America and in some South American countries.
5. Brazil has been the investors’ favorite BRIC for several years. Apart from the economic overheating and the sky-high interest rates, its political situation has taken a turn for the worse since Lula retired. We think equity investors should resist the urge to take advantage of the Bovespa’s pullback. Brazil has a long record of blowing its great advantages with political folly. History shouldn’t repeat itself this time, but it might be prudent to wait and see.
6. Within the energy group, oil and coal remain favorable.
BHP’s purchase of a shale gas producer at a huge premium shows that long-term investors could be considering tip-toeing into leading natgas companies with long-duration reserves.
7. Base metal stocks are cheap—particularly the majors with long-duration reserves.
They will probably get cheaper in the next 12 months. Continue to underweight the base metal stocks.
8. The falling dollar should continue to boost reported earnings for US multinational stocks.
Although such earnings may be illusory and unrelated to corporate excellence, US investors can savor them at a time when domestic earnings gains will become harder to achieve.
9. Overweight Japan. Japanese stocks have completed their Triple Waterfall Crash, and are showing signs of a renaissance.
Source: Scribd, August 10, 2011.
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