Donald Coxe – Investment Recommendations (November 2008)

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Donald Coxe’s monthly investment report, entitled “Basic Points” (subtitled “Capitalism Faces Its Greatest Challenge” for the November 2008 edition), has just been published. He is Global Portfolio strategist of BMO Financial Group and widely followed for his “big picture” views.

Like many commentators, Donald was caught by surprise by the rapid financial meltdown and plunging commodity prices. He said: “… we certainly didn’t anticipate the sustained earthquakes and hurricanes we have experienced in recent months.” He argues that it will be a long time before complacency returns, but that the “era of fear” will probably end soon.

Donald’s latest investment recommendations are reported in the paragraphs below, but I do recommend you also read the full report (courtesy of Commodity News and Mining Stocks).

1. It is definitely too late to sell stocks, and it is still too early to do more than nibble at bargains. Investors should be opportunistic buyers, because today’s prices for quality stocks will look ridiculously cheap within two years – or less.

2. When the time comes to begin re-accumulating equities, buy banks and diversified financials. If there is going to be a global economic recovery, these former pariahs should perform well – under mostly new management.

3. At the same time, buy commodity-oriented stocks. They are oversold to depths we could not have imagined. When, not if, there is a global economic recovery, these stocks will once again be the winning asset class.

4. While you are waiting, you should be starting to accumulate the bonds – convertible and otherwise – of quality corporations. What could be the trigger for a major equity rally would be a sharp contraction in the near-record yield spread between investment-quality corporates and Treasuries.

5. Buy emerging-market bonds from the fundamentally sound economies, such as China, India, and Brazil. Avoid Eastern European debt.

6. Another group to be included when you are once again accumulating stocks is the leading business-oriented tech stocks. These companies will participate in a global recovery, whereas the consumer-oriented techs may have to wait quite a while.

7. This is also a good time to be looking at the railroad stocks. They benefit from lower energy costs, which may offset a significant percentage of the cutback in top-line revenues during the recession. Coming out the other side, they should be core investments.

8. Gold has been a disappointment. It has outperformed stocks since the S&P’s peaks, but not enough to be profitable. As deflation fears ebb, it will once again be lustrous.

Please click here for the full report.


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6 comments to Donald Coxe – Investment Recommendations (November 2008)

  • I appreciate the wisdom of Donald Coxe, especially the part about railroad stocks.

    In bad times, public transport makes more sense than private cars while in boom times, we have to contend with high gasoline price.

  • Eber Terastein

    This guy certainly has a nerve. He claims he saw the market peak in 2007 ! Absolutely no evidence of anything like that in his published ramblings.
    Interesting to observe also is his publication in January 2007. Had you followed those, by now you would be sitting on + 50% losses in commodities, bonds, etc.
    And, in spite of everyting, he is still an adviser ? ?

  • Commodity stocks would only be for those who are willing to roll the dice with the the lack of capital in the market. I play canadian small caps, and I realize there is more out beside can. juniors but if the comapnies you choose don’t have enough cash to withstand the drought then it won’t matter how undervalued they are. With speculation of a longer than expected recession I would be looking very closely at any commodities before getting back in.

  • boulder

    Today is Nov 20th and the BKX holding the double bottom is now history. We have a new low and a rapidly falling BKX. I wonder if this has altered his view that the end of Mama Bear is not far away?

  • Frank Wordick

    Donald Coxe is widely followed and thus mainstream. Consequently, he is a reflection of the market — more or less. Non-mainstream types like Johm Mauldin and Jim Stack figured it out long before anything started to happen. In particular, Mauldin was waving red flags in January 2007. If you have a look at history, you will see that the stock sector that takes the biggest beating in a contraction is rarely, if ever, the one to lead in the next expansion. Commodities are a dead issue. All of them have achieved parabolic peaks, and you know what that implies. Corporate bonds are a recipe for disaster. As this mess spreads from the financials into the general economy as it is now doing, you are going to see corporations failing to pay interest and in some cases outright bankrupcies. Emerging market bonds are about as risk free as US corporate bonds or maybe less so. I think most of us will agree that the fun days of Admiral Vanderbilt facing off against Jay Gould, Big Jim Fisk and Daniel Drew are long gone. Now finally to my main point. Who and why does anybody read Donald Coxe? Oh yah, on second thought I get it. Its the same bunch of adherents to orthodox investment theory that faithfully and blindly followed the market down from 14,000. It’s now nearly half price. Check and see! Good man, Eber! You did to your credit.

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