Don Coxe – Investment recommendations (June 2010)

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The June edition of Donald Coxe’s Basic Points research report (subtitled “Summer’s Storms and Norms”) 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. (Also note that Don’s weekly webcasts can be accessed from the sidebar of the Investment Postcards site.)

1.  Canadian bonds, equities and bank deposits are excellent investments for investors based in other currencies. Canadians should take advantage of the Loonie’s current weakness to borrow in greenbacks and otherwise hedge any risks they have to the outcome of a new global love affair with the Loon.

2. Resist the urge to buy the Macondo well-related stocks now that BP has somewhat capped the well. US trial lawyers cannot believe their luck: they will be able to sue, for treble damages, everybody involved in the well in the infamous “hellhole” courts of Louisiana and Alabama, where the judges’ electioneering costs are paid by plaintiffs’ lawyers. BP’s $20 billion payment will prove to be just a down payment. This is, for these predators, the equivalent of getting advance advice of the winning numbers

in a multi-billion-dollar lottery.

3. The oil sands producers don’t benefit as much as the US trial lawyers from the BP  disaster, but there are two ways their stockholders benefit: firstly, by reminding the public that the large-scale alternatives to oil sands petroleum involve much greater environmental risks, they will take some heat off the beleaguered companies; secondly, an offshore oil boom that might have followed from Obama’s cautious reopening of offshore drilling has become a bust. That frees up investor capital allocated toward oil stocks to buy oil sands producers’ shares as the least-costly way to acquire multibillion-barrel North American exposures.

4. Remain heavily overweight oil compared with natgas. Gas prices have climbed because of the cutoff of expected production from the Gulf, but this should be only a temporary price boost. As Macondo has tragically demonstrated, finding big oil deposits is a high-cost, high-risk business. Finding gigantic natgas deposits is a low-cost, low-risk business. Natgas risks becoming the hydrocarbon equivalent of political hot air: cheap, never-ending and ubiquitous.

5. Gold is more than the Bad News Bear’s New Favorite. It is the completely inverse investment to paper money and complex financial derivatives, making it the multi-millennial belief system to which modern investors can return from the financial system’s current excesses, misrepresentations, and bad politics. In a bull market for gold, the well-managed mines will outperform the bullion. A recommended alternative is the royalty companies.

6. Barring some war in the Korean Peninsula or the Mideast, or the collapse of some major European banks, this stock market pullback should continue to be a correction, not the first chapter in a new horror story. A new crash at a time of zero rates remains an unlikely outcome − but not as unlikely as it seemed two months ago before we found out about where all those trichinositic eurobonds were stashed.

7. Remain invested in companies that produce what China and India need. No matter what happens in the OECD, these economies will continue to grow faster than the US or Europe. Their public employees aren’t paid more than their private sector earns, and they don’t retire young. Their governments are not laden with debts that can only be serviced with economic growth at unachievable levels. In other words, they are doing the big things right − and the OECD collectively is doing them wrong. There is no reasonable doubt about which economies will grow most rapidly, with the lowest recession risk.

The full report follows below. (Click on “Fullscreen” for readable version.)

Don Coxe, Basic Points – June Reflections: Summer’s Storms and Norms 061710

Source: Scribd, June 2010.

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