Don Coxe – Investment Recommendations (March 2012)
The March 2012 edition of Donald Coxe’s Basic Points research report (subtitled “All Clear”) has just been published. 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. Income investing is here to stay in a deleveraging, slow-or-no growth world. Collapse of the CAPM means bond investors should run—not walk—away from government bonds and seek quality corporates—and find new equity-based income vehicles.
2. Emerging Markets stocks and bonds look relatively attractive. The vast oversupply of debt means economic growth in the industrial world will be, at best, modest. The relative scarcity of debt in the Emerging Economies means their growth rates relative to the First World will improve.
3. Go with growth—buy commodity stocks. Emerging Markets citizens spend more of their earnings on commodities than we do, and their demography is more favorable for economic growth than ours. A world in which EMs’ share of growth continues to increase is a world in which commodity prices will be strong relative to other prices.
4. Within the industrial commodity stock groups emphasize oil stocks over gas stocks, and emphasize copper stocks over aluminum stocks. As the Freeport McMoRan debacle shows, miners in Third World countries sometimes face worse risks than commodity price risks.
5. Record-low Treasury yields and record-high real fiscal deficits have combined to produce 2% economic growth. Those stimuli are unsustainable but they should sustain the Obama Presidency. He will have to deal with the problems in his second term, and that will mean much higher taxes—if not higher interest rates. US economic growth will be closer to Continental growth rates next year. Invest for dividends—not growth.
6. Gold’s yield is now roughly the same as T-Bills’. It was an excellent investment when T-Bills yielded 5%. Its relative value continues to improve, as economies struggle and governmental finances deteriorate. It belongs in all portfolios—either as bullion or stocks. Bullion has been better for a surprisingly long time. The next time gold is nearing $2,000, investors will take the stocks more seriously. Those with virtually no political risks are astonishingly cheap.
7. The really oily Canadian and US stocks are excellent value, particularly the oil sands companies. Oil stocks haven’t kept up with oil prices, mostly because of the drag from collapsing gas prices. Obama is losing big with voters on Keystone, and he may need to disappoint his deep-pocketed environmentalist backers who invest in government-backed windmills that slaughter birds and bats, and in government-backed, money-losing solar panels, and cars that catch fire. Naturally, they hate profitable pipelines that supply low-cost, reliable energy with near-zero impact on animal populations.
8. Grain prices remain strong, despite mostly good crops worldwide and a mild winter in the US corn belt. The agricultural sector has the best blend of profitability and economic variability in an uncertain world. It is also the sector that has the greatest offering of great global companies at modest cost. (The risk of crop disappointments due to Colony Collapse Disorder in apiaries continues—as does the absence of certainty about the cause of the annual destruction of at least one-third of the honeybee population.)
9. An Israeli attack on Iran need not lead to strangulation of Gulf oil flows—as long as Iran’s oil production facilities and the mullahs’ cash flows are left largely intact. The surprise could be that Israel launches a surgical strike, and Iran’s Hezbollah minions launch hundreds of rockets from Lebanon and Gaza, and oil prices spike—then fall back. In other words, investment programs should not, perhaps, be held hostage to Armageddon fears.
Source: Scribd, March 2012.
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