Donald Coxe: Investment Recommendations (February 2010)

Tuesday, February 23rd, 2010

Don Coxe’s latest Basic Points here.

Tags: Basic Points, Don Coxe, Donald Coxe, Investment Recommendations
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Donald Coxe: Barron’s Interview

Sunday, November 9th, 2008

This week’s issue of Barron’s features an in depth interview with Don Coxe, Chief Investment Strategist, BMO Capital Markets. Mr. Coxe is best known for his highly read monthly newsletter, “Basic Points,” as well as his bi-weekly conference calls. His convictions that we are in the midst of a biggest long-term commodities bull market have been severely tested during the most recent months since this past summer, when he launched the Coxe Commodity Strategy Fund, but he remains convinced that the thematic fundamentals are in tact.

Here are a few excerpts from the must read interview, “Feed the World – and Boost Returns.”

How should investors approach today’s stock market?

If you aren’t deeply in the equity market, this is not a time to be committing large amounts of money. Stocks are cheap but they can get cheaper; we know that. We got back to the Dow having a multiple of 5.9 in December of ‘74, which was the foundation of Warren Buffett’s wealth because he started buying at that level. The Dow isn’t anywhere near 5.9 [its multiple last week was 11], but some of my favorite stocks are trading at lower P/Es than that. I can tell you they are the fertilizer, oil and agricultural companies.

…

Tell us some more about those industries.

The core investment concept of our time is that we are living through the greatest simultaneous effervescence of personal economic liberty in history. When people go from abject poverty to dwellings with indoor plumbing, electricity, basic appliances and access to motorized transportation, they have more economic liberty than 99% of humanity enjoys and we are adding 50 to 150 million people a year to that list. The gigantic investment returns are all going to be tied to companies that meet real human needs and do it better than other companies. What a great time to be an investor, because it is not just about the dwellings and the transportation, it is about the high-protein diet. When I came back from a trip two years ago, I said the biggest commodity story is going to be food, bigger than the other ones. It is high-protein food. The way to play that is through the fertilizer stocks, the genetically modified seed stocks and the farm-equipment stocks.

Which commodity groups do you like best?

Agriculture is first. We will need more fertilizer. There are only three farm-equipment companies of any size in the world. Terms of entry are difficult. You have to have dealerships. CNH Global [ticker: CNH] is one of the top three companies in the world in the field. It’s a subsidiary of Fiat and its stock has collapsed, but earnings haven’t collapsed. In May it sold for $45 a share. It’s $17 now. The next group has to be gold stocks. A period of massive reflation always leads to a good move in gold.

To read the entire interview click here.

Source: Barron’s, Feed the World — Boost Your Returns, November 10, 2008

Tags: Agriculture, Barron's, Basic Points, BMO, BMO Capital Markets, CNH, Collapse, Commodities, Commodity, Don Coxe, Donald Coxe, Earnings, electricity, Excerpts, fertilizer, fiat, Gold, gold stocks, interview, Markets, oil, P/E, Trading, Warren Buffett
Posted in Commodities, Gold, Markets, Oil and Gas | No Comments »

Short ETFs – Portfolio insurance

Tuesday, January 29th, 2008

Jan. 29, 2008 – Short and UltraShort Funds provide investors with highly liquid inverse exposure to the markets as represented by widely held benchmark indices.

Check out these charts for a couple of good examples. Most investors have difficulty grasping the idea of taking ’short’ positions or bets against the very markets that they are investing in. These new ’short’ ETFs do not require a great deal of sophistication or a margin account for the average investor to get some portfolio insurance.

iShares FTSE Xinhua 25 (FXI) vs. ProShares UltraShort FTSE Xinhua 25 (FXP)

iShares MSCI Emerging Markets (EEM) vs. ProShares Short MSCI Emerging Markets (EUM)

 ProShares Ultra Financials vs. Proshares UltraShort Financials (Dow Jones Financial Index(sm))

If you believe that there is more downside to come, then its still not too late to get some downside protection.

Don Coxe, in his recommendations from Basic Points, January 2008, warns:

The financial crisis is not centered in stock markets. Its primary locus is in financial derivatives, and in their impact on the stock prices of leading banks. Until the downward drift of bank stocks and the upward drift of derivative debt yields are reversed, the stock market will continue to slide. Keep overall equity exposure to minimums, and emphasize quality.

Tags: Bank stocks, Banks, Basic Points, Chart, Derivatives, Don Coxe, Emerging Market, Emerging Markets, ETF, EUM, Financials, FTSE, FXP, Investment, Investment Strategy, Markets, Proshares, SKF, Stock Markets, Technical Analysis, ultrashort, upw, uyg
Posted in ETFs, Emerging Markets, US Stocks | No Comments »

More volatility coming and more ETF options

Friday, January 25th, 2008

Jan. 25, 2008 – Watch out below. There is sure to be more volatility to the downside in the coming weeks, as the carry trade and proprietary traders continue to unwind profitable trades.

Finding themselves unable to collect on credit default swaps vis-a-vis AMBAC, MBIA, ACA, large institutions (banks) and hedge funds are finding themselves under pressure from a substantial cash call.

An example of this danger came to light when a little-known firm called ACA Financial Guaranty caused some of Wall Street’s biggest banks to write down billions of dollars in holdings, restating their value on corporate balance sheets. ACA revealed last month that it had promised to cover $60 billion worth of mortgage and corporate debt, but had enough cash to cover only a fraction of that. Merrill Lynch, Citigroup and financial institutions in Canada and France, which had all sold swaps to ACA, set aside billions in case the firm collapsed.

Most of the strength that the market is witnessing is due to short covering and this will manifest itself over and over during the next two to four weeks.

Institutions are still unwinding their profitable trades to raise cash. The market goes down. Then short covering occurs, and you get what appears to be a bounce or recovery in stock prices. The problem is that as long as the cash call remains larger than the outstanding short positions the market will continue to trend lower.

Don Coxe, in January’s Basic Points, puts it in these terms:

Sadly, the central bankers have been forced into injections of all-time record amounts of liquidity. Jim Cramer and some other prominent apologists for Wall Street glitterati screamed, “The Fed doesn’t get it,” and demanded bailouts for their buddies who faced demotion from Croesus status to morally cretinous status. The biggest benefi ciaries from these bailouts were not overstressed homeowners, but the biggest, baddest, borrowers who had made the biggest, baddest, bets through use of complex derivatives.

Despite strong openings today, both the Dow and TSX look unable to hang on to gains. You also have to look at trading volume for clues about the weakness of the recovery. Volumes are down 20% at the NYSE and 15% at NASDAQ.

Assuming you agree with the idea that there is more downside in the market, there are some relatively new and interesting ways that you can take positions on the short side to reduce downside that do not involve derivatives or short positions. In particular there are a new breed of ETFs that provide short exposure to various sectors and country bets. These are aptly referred to as ’short’ and ’double-short’ ETFs.

ProShares has created ETF’s that trade inversely with the markets. These allow investors and traders to hedge against market downturns or that want to bet against the market. These ETFs are very liquid and actively traded and are designed to go up when indexes go down. As a reminder, the SHORT funds use no leverage, but the UltraShort funds employ leverage. Here is partial list by Fund (Ticker):

• UltraShort QQQ (AMEX: QID)
• UltraShort Dow30 (AMEX: DXD)
• UltraShort S&P500 (AMEX: SDS)
• UltraShort MidCap400 (AMEX: MZZ)
• UltraShort SmallCap600 (AMEX: SDD)
• UltraShort Russell2000 (AMEX: TWM)
• UltraShort MSCI EAFE (AMEX: EFU)
• UltraShort FTSE/Xinhua China 25 (AMEX: FXP)… short selling FTSE Xinhua 25 index (FXI).
• UltraShort Basic Materials (AMEX: SMN)
• UltraShort Consumer Goods (AMEX: SZK)
• UltraShort Consumer Services (AMEX: SCC)
• UltraShort Financials (AMEX: SKF)
• UltraShort Health Care (AMEX: RXD)
• UltraShort Industrials (AMEX: SIJ)
• UltraShort Oil & Gas (AMEX: DUG)
• UltraShort Real Estate (AMEX: SRS)
• UltraShort Semiconductors (AMEX: SSG)
• UltraShort Technology (AMEX: REW)
• UltraShort Utilities (AMEX: SDP)
• Short MSCI Emerging Markets (AMEX:EUM)
• Short MSCI EAFE (AMEX: EFZ)
• Short QQQ (AMEX: PSQ)
• Short Dow30 (AMEX: DOG)
• Short S&P500 (AMEX: SH)
• Short MidCap400 (AMEX: MYY)
• Short SmallCap600 (AMEX: SBB)
• Short Russell2000 (AMEX: RWM)

On the TSX in Canada, Horizons BetaPro Funds have launched ‘double-short’ ETFs that trade inversely with the market (they also have corresponding ‘double-bull’ versions of these). Canadian investors and traders can use these to protect against downturns or simply bet against the market.

• Horizons BetaPro COMEX® Gold Bullion Bear Plus ETF (TSX: HBD)
• Horizons BetaPro S&P/TSX Global Mining® Bear Plus ETF (TSX: HMD)
• Horizons BetaPro DJ-AIGSM Agricultural Grains Bear Plus (TSX: ETF HAD)
• Horizons BetaPro S&P/TSX 60® Bear Plus ETF (TSX: HXD)
• Horizons BetaPro S&P/TSX Capped Financials® Bear Plus ETF (TSX: HFD)
• Horizons BetaPro S&P/TSX Capped Energy® Bear Plus ETF (TSX: HED)
• Horizons BetaPro S&P/TSX Global Gold® Bear Plus ETF (TSX: HGD)
• Horizons BetaPro NYMEX® Natural Gas Bear Plus ETF (TSX: HND)
• Horizons BetaPro NYMEX® Crude Oil Bear Plus ETF (TSX: HOD)
• Horizons BetaPro COMEX® Gold Bullion Bear Plus ETF (TSX: HBD)
• Horizons BetaPro S&P/TSX Global Mining® Bear Plus ETF (TSX: HMD)

Look at it this way; if you already have long positions that have appreciated, but you’ve got a longer term holding period in mind that is not determined by market conditions, this may a viable option to capture some of the potential downside.

Tags: Agricultural Grains, Apologists, Bailout, Banks, Basic Points, Bear Plus, Benefi, Biggest Banks, Bullion, Canada, Carry Trade, China, Citigroup, Collapse, Corporate Balance Sheets, Corporate Debt, Credit, Credit Default Swap, Credit Default Swaps, Crude Oil, Derivatives, DOG, Dollar, Don Coxe, DUG, DXD, EFZ, Emerging Market, Emerging Markets, energy, ETF, EUM, Fed, Fed Doesn, Financial Guaranty, Financial Institutions In Canada, Financials, France, FTSE, FXP, Glitterati, Gold, Gold Bullion, Grain, Hedge Fund, Hedge Funds, Horizons BetaPro, Investment, Jim Cramer, liquidity, Markets, Mbia, Merrill Lynch, Mining, Miscellaneous, Mortgage, MYY, MZZ, Natural Gas, Nymex, oil, Profitable Trades, Proprietary Traders, Proshares, PSQ, QID, Rally, Real Estate, REW, risk, RWM, RXD, SBB, SCC, SDD, SDP, SDS, Short Covering, Short Selling, SIJ, SKF, SMN, SRS, SSG, Stock Prices, Substantial Cash, SZK, Trading, TSX 60, TWM, ultrashort, Value, Wall Street
Posted in Canadian Stocks, Commodities, Credit Markets, ETFs, Emerging Markets, Gold, Markets, Oil and Gas, Outlook, US Stocks | No Comments »

Agricultural Commodities – still in the early stages

Saturday, January 12th, 2008

You really have to hand it to Chief Strategists Don Coxe (BMO), Byron Wien (Pequot), and Jeffrey Saut (Raymond James) for accurately calling agricultural commodities higher during the last year.
 
Back in October, in his investment letter, Jeffrey Saut called for continued strength in the agricultural commodities due to the demand from China. 

Unsurprisingly, China is importing nearly 13% of all the soybeans grown in the U.S. to feed its livestock and continues to “throw” cash at its farmers in an effort to produce more meat for Chinese consumption. And that cash flow has caused the U.S. Agriculture Department to estimate that net farm incomes in this country will soar by nearly 50% this year with an attendant increase in demand for farm equipment, irrigation equipment, fertilizer, seeds, etc. Ladies and gentlemen, this theme should have long legs as 3 billion new entrants (read: people) join the world’s economy and per capita incomes rise. While some of the “easy money” for investors has already been made from our recommendations, we think there is still room for additional investment returns. Clearly, there are numerous individual agricultural stocks for participants’ consideration (see recommendations from our previous missives and/or our research correspondents), but a broader-based approach for most investors is likely the best strategy. To this point, we embrace investment vehicles like MK Vectors Agribusiness ETF (MOO), as well as other open-end and closed-end investment funds.  

During the early Summer, following his sabbatical trip to India, Don Coxe also made a powerful case for agricultural commodities (Basic Points, June 07) as a result of his call for food inflation due to the 600-million strong middle-class demand from India and China, and emerging markets in general.
 

…What happened with meat, eggs and milk was what had happened with oil— the assumption that those billions of people in China and India don’t really matter much to us, except in terms of giving us cheap goods and services. That they could be raising our cost of living by driving up the cost of what we eat, and how we heat—that’s a bizarre idea…
…What BHP’s Chip Goodyear calls the supercycle for energy and metals has been joined by a supercycle in grains…
…So we weren’t surprised when the same savants (1) failed to predict soaring grain prices, and then, (2) blamed them on ethanol…
…We now know that when a major Midwest crop failure occurs, it will be the global food equivalent of an Al Qaeda bomb strike that shuts down Saudi Arabian oil production for months.
Coming at a time of a worldwide shortage of feed grains and wheat, it will send food infl ation to peaks not seen since 1974. The force of those shock waves would trigger food riots across the world and topple some precarious Third World governments. It will send food infl ation to peaks not seen since 1974…

From June 15, 2007 Investment Recommendations:

3. The most attractive stock group now is companies which benefi t from food price infl ation—such as meat packers and supermarkets—and those who help farmers to boost outputs, including the feed and seed companies, and the farm machinery manufacturers. The least attractive in the food sector is the ethanol producers. Being permanently short corn is being under permanent stress.

Recently quoted in Rob Carrick’s Globe article, down on the farm is where market growth is heading Don Coxe says,
 
 

“This is not a situation that has been overhyped. Quite the contrary, and it’s still in the early stages.”
 
Mr. Coxe said the agricultural story at its simplest level can be explained as another 600 million people, minimum, being added over the next 10 years to the list of those who have a diet something like what we in the West enjoy. Companies that help satisfy this demand for food have already benefited, and will continue to do so. “This isn’t like saying you should buy this company because they have a really hot product that is going to be a big fad for the next two or three years.”

Byron Wien called agricultural commodities higher in his 2007 predictions, back in 2006.
 
 

Rob Carrick writes:
Increases in demand for food are outpacing supply, which in turn has resulted in high levels of food inflation. A U.S. government inflation report issued last month showed that the rate of increase in food prices had more than doubled over the previous 12 months and reached a 25-year high. Wheat and soybean prices rose close to 80 per cent last year, and corn hit an 11-year high.
 
If you’re heavily invested in commodities of any kind, the question you have to ask yourself is how much more upside there is. Prices for base metals like copper and zinc have been in a down trend for the past several months as expectations of a global economic slowdown grow. Oil prices would also be affected if economic activity slackens, but there’s a geopolitical component to energy prices that makes forecasting difficult.
 
This brings us to agricultural commodities, which are more immune to economic cycles because of basic supply-and-demand factors like global population growth and declines in the amount of cultivated land. It’s true that agricultural stocks are like food commodity prices in that they’ve soared in the past year, but one expert in the field says retail investors should not be scared to jump in.

Carrick mentions these picks of the agriculture segment:
 

By the way, Mr. Coxe recommends being overweight, even going as far as to ”hoard” agriculture related stocks. Take another look at his recommendations in the most recent Basic Points.
 
 
Download Basic Points, December 19, 2007 - The recommendations are on pg. 34.

Tags: Agricultural commodities, Agriculture, Basic Points, Blog, BMO, China, CNH, Commodities, Commodity, Consumption, Don Coxe, Economic Activity, Economy, Emerging Market, Emerging Markets, energy, ETF, fertilizer, Food prices, Grain, Grain prices, India, inflation, Investment, jeffrey saut, Markets, Metals, Miscellaneous, oil, Oil Prices, pst, risk, Slowdown
Posted in Commodities, ETFs, Emerging Markets, Oil and Gas, US Stocks | No Comments »

Gold ETFs

Sunday, January 6th, 2008

Don Coxe recommends being overweight gold, pg 34 in the December 2007 Basic Points.

4. Remain heavily overweight gold—both stocks and the ETF. Gold is almost as good a protection against banking problems as SKF—the UltraShort Financials ETF—a security which may not be a suitable investment in some portfolios.   

If you’re looking for effective exposure to gold, look into streetTracks Gold Shares (GLD). Wall Street Journal’s Jan. 5, 2008 article, provides more detail:

 

  

The biggest is the streetTracks Gold Shares ETF, sponsored by the World Gold Council, a mining-industry group. Its holdings are valued at more than $16.8 billion, more than the valuation of General Motors Corp.

Each share in GLD is backed by about 1/10 of an ounce of metal held in vaults in London by HSBC Bank USA, a unit of HSBC Holdings PLC. The streetTracks ETF issues more shares as brokers see more demand in the market, and brokers receive shares for the metal they buy and transfer to the fund.

The fund sat on about 628 metric tons of gold last month, according to the World Gold Council, more than the 600 or so metric tons in Chinese central bank reserves and 604 metric tons with the European Central Bank.

 

 

In all, the eight ETFs held 834 metric tons of gold through November, according to the World Gold Council. 

For Canadians looking for Canadian dollar or US dollar denominated exposure, Millenium Bullion Fund offers open-ended funds for pure bullion play in both currencies. 

Email Broadcast – January 2, 2008

Wednesday, January 2nd, 2008

GreenLightAdvisor.com Newsletter
Issue: Vol. 1, No. 3
January 2, 2008

In This Issue
12 Ways to Make Your Kids Financially Savvy
Crazy for China – Forbes interviews the legendary Jim Rogers
Oil: Key Players and Movement
Gold bullion – a belated Christmas gift
Don Coxe’s Investment Outlook and Recommendations for 2008
Ted Seides’ The Next Dominos: Junk Bond and Counterparty Risks
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Happy New Year!
We wish you and your family a healthy, joyful, peaceful, and prosperous 2008.
  

 

God, give us grace to accept with serenity the things that cannot be changed, courage to change the things which should be changed, and the wisdom to distinguish the one from the other.
-Reinhold Niebuhr, The Serenity Prayer (1934)
 

Nothing endures but change.
-Heraclitus
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12 Ways to Make Your Kids Financially Savvy
By JONATHAN CLEMENTS – Wall Street Journal
December 17, 2007; Page R1
   …I am not claiming to have the road map for every parent. We all have different values, different incomes and strong ideas about how best to raise children — and you will likely scoff at some of the things I’ve done. With that caveat, here are a dozen ways I have endeavored to help my kids financially….[Here are a few of  the headings]
1. Waiting until later
2. Asking themselves
3. Talking the talk
4. Scoffing at wealth
   Complete Story
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Crazy For China
Michael Maiello, Forbes Magazine, 12.13.07, 1:05 PM ET
An interview with Jim Rogers author of A Bull in China: Investing Profitably in the World’s Greatest Market ($27, Random House, 2007).
 With George Soros, Jim Rogers is co-founder of the Quantum Fund and one of the most successful Global Macro investors in history. He tells Forbes.com why he’s so bullish on China, sour on America and will raise his family in Singapore. 
 Forbes.com: Are you a dollar bear or China bull?
 Jim Rogers: I’m terribly pessimistic about the state of the U.S. dollar. But there are so many pessimists out there right now that we’re bound to have a rally. I doubt you can find anybody except (U.S. Treasury Secretary Hank) Paulson who is bullish on the U.S. dollars. If that rally comes, I would use that rally to sell the rest of my dollars. I’ve never seen so much pessimism in my life. So I’m a dollar bear looking for a big rally. So I can sell.
The U.S. dollar is not an asset I want to hold over the next 10, 15, 20 years. We have an idiot running the central bank right now who knows nothing about currency, history or the markets…[…]
China Markets, News, and Analysis
Complete Story
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Oil: Key Players and Movement
Courtesy of FT.com
  In these times of near-$100-per-barrel oil, this interactive world map of oil’s key players and movement is very interesting…
Interactive World Map – Oil: Key Players and Movement
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  …a top knotch analysis of gold bullion published by Prieur du Plessis, Plexus Asset Management, Cape Town, South Africa
 Gold bullion – a belated Christmas gift
Prieur du Plessis, Plexus Asset Management, South Africa – December 27, 2007 09:25 AM CST
 

True to form, just as traders were bargaining on a quiet Christmas period, gold again startled with a $15 jump, taking the price well clear of the $800-level.
 

Interestingly, gold has never in its history recorded a month-end price above $800. It would seem that gold bulls may very well have reason to toast bullion next week, saying goodbye to 2007 having achieved the $800 month-end milestone.
Complete Story
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A Must Read…
Don Coxe’s Investment Recommendations 2008
Basic Points – December 19, 2007
  In the latest issue of Basic Points, Double Double, Greed and Trouble, CDOs and the Housing Bubble, Donald Coxe wraps up the year, shares his outlook, and makes his investment recommendations for the 2008 and onwards -
1. Remain heavily underweight banks, particularly investment banks that…
2. Remain overweight Emerging Markets, emphasizing those…
3. We have been ardently endorsing India since we returned from…
4. Remain heavily overweight gold-both stocks and the ETF…
5.
  Download the complete issue here
(Go to pg. 34 of the PDF for the recommendations)
The whole issue (as usual, eloquent) however, is very interesting and we urge you to read it.
  Do not miss reading this one!
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This article from “John Mauldin’s Outside the Box,” features Ted Seides’ November
2007 paper  highlighting counterparty and junk bond credit risks, which are starting to get a serious amount of attention now in the mainstream media.
Make sure you read it.
 The Next Dominos: Junk Bond And Counterparty Risk
Monday, November 26, 2007
 The subprime problem, we were told, would not spread to other markets. It would be “contained.” And it has, according to Jim Grant. He quipped last week that it  has been contained on planet Earth. The risks coming from rising defaults in the US (now above 600,000 and rising from just 200,000 a few years ago) are clearly spreading to markets far beyond the subprime world.
   This week’s Outside the Box talks about the next two dominoes that could fall: junk bonds and counterparty risk in the various credit default swap markets. Ted Seides is the Director of Investments at Protégé Partners, LLC, a hybrid fund of funds that invests in and seeds small, specialized hedge funds. He writes this week’s piece in Peter Bernstein’s Economic and Portfolio Strategy, one of the most respected of market analysis letters. You can learn more about the letter at www.peterlbernsteininc.com.
   This piece is a little longer than most letters, but it is one of the more important editions of Outside the Box this year. This is a must read…[…]
 

 Complete Story
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 Your feedback is valued. Please forward any comments or ideas you may have using the feedback tool at the bottom of the homepage or email us at info@greenlightadvisor.com [mailto:info@greenlightadvisor.com]. If you have any questions about any of the topics covered at GreenLightAdvisor.com or in this newsletter please do not hesitate to contact us.
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The GreenLight Advisor Team
GreenLightAdvisor.com
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