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
Posted in Markets | No Comments »

Donald Coxe: $1,100 Gold is a Warning Sign

Friday, November 13th, 2009

In his November 6, 2009 weekly conference call, Don Coxe of Coxe Advisors discussed gold, the economy and commodities.

Coxe says that there are a host of reasons for the recent outperformance of gold, the least of which is the crumbling dollar. As long as interest rates are at zero, the carry trade in the US dollar will continue to flush liquidity into the markets and into gold, and as that involves shorting the dollar the dollar will continue to slump.

It also means that all assets could blow off together should there be any reversal in monetary policy resulting in a rate hike. That may still be a while coming as central bankers have stated a willingness to wait until next summer to revisit rates.

On a supportive note for gold, India and Sri Lanka have bought much of the IMF’s 430-tonne overhang of gold inventory, and China is said to be buying the rest.

However, Coxe says, don’t be fooled by the fact that gold and equities are doing well at the same time. The rise and outperformance in gold is also due to the appetite of large investors betting on long term prospects for inflation, now.

Good economic news from around the world last week, as well as promising news from the US, is a serious threat to the economy, the market. We had very positive news, for example, coming from India and China that growth would be better than expected, and their commodity demand continues to be sustainable. In the US, while capacity utilization still remains slack, wage demands have remained stable. Unemployment in the 10% range may be understated by the BLS though because of the way they account for part-time employment, says Coxe. Do-over economists have stated that unemployment could be 16-20%. The BLS has quietly said that there could be inflation in food prices.

Coxe said, “Those of us who accept David Dodge’s view that this has been a rebound, and not yet a recovery; a rebound from a dramatically oversold territory where it looked liked the world was coming to an end, to some optimism that things were going to get better, and pricing in how good things would be, then what it does, is put enormous pressure on central banks not to feed inflationary fears.”

“What we learned from the 70s, is once the inflationary fears start to work into peoples decisions, then all sorts of non-economic decisions are made which makes the inflation forces develop a life of their own. Specifically, changes in inventory policies, such as people buying now, rather than later, because they expect the price to go up, those kinds of things.”

“One of the things central bankers learned is that they must move before the surveys of inflation expectations start to show a sustained rise. Its when people predict that there’s nowhere for inflation to go but up, and its going up, that then its very difficult to hold off the inflation that occurs. What you have to do then [central banks] is dramatically raise rates.”

“So, we’ve seen those go past 20% in the US before, and those inflation expectations got crushed, and in the process the economy got crushed too.”

Good economic news from around the world, and domestically is actually bad news for investors and for the economy, as it means that we could end up in a situation similar to the mid-1970s when we had high unemployment coupled with interest rate hikes. If interest rates remain zero for too long, then the problem may end up being bubble-like economic conditions artificially enhanced by zero interest dollars, and could cause a central bank move swiftly, then, to reign in overheated conditions.

$1,100 gold is a sign that this could be happening. Coxe says that if commodity demand continues to strengthen and wage demands prove to be stickier than expected, the combination could be very bad as it would intensify inflation, and cause policymakers to raise rates at a time when there is high unemployment. That will choke off the fragile recovery and it will choke off the easy money.

Either way, Coxe says that you want to be in gold. You’re better off in gold has it will hold its value better than other “risk” assets. $1,100 gold is a warning sign; not a sign of a really good bullish environment to be investing in. Coxe finishes by saying, “Its the outperformance of gold that should give investors pause.”

Coxe goes out of his way to make sure he’s understood that commodity ETFs that invest in commodity futures are not a effective way to partake in the commodity trade, because of contango/backwardation effects. One way to go, and he makes his disclosures, as advisors is to the way of Coxe Commodity Strategy Fund, and otherwise, via the stocks of the commodities producers as he has discussed on a regular basis in the past.

Coxe also discussed crops, saying that while the warmer November weather was good for farmers, and crop prices came off as a result, they still had not accounted for crop blight.

Tags: Bank Move, Bls, Capacity Utilization, Carry Trade, China, Commodities, Conference Call, David Dodge, Don Coxe, Donald Coxe, Economic Conditions, Economic News, Emerging Markets, ETF, Food prices, Gold, Imf, India, Interest Rate Hikes, liquidity, Mid 1970s, Monetary Policy, Outperformance, Overhang, Part Time Employment, Positive News, Rate Hike, Term Prospects, Wage Demands, Warning Sign
Posted in Emerging Markets, Gold, India, Markets | No Comments »

Video-Rama: Will Markets Bail You Out in ‘09?

Saturday, December 27th, 2008

Only four more trading sessions remain before we close the door on 2008 – and none too soon, many investors would say. But moving from ’08 to ’09 will unfortunately not dim the lights on the nature of the investment debate. Come Thursday next week, investors will not only be hung over from 2008’s market rout (and possibly the previous night’s festivities), but also still be grappling with the ramifications of the credit crisis for the global economy and financial markets, and in particular with the question of where to invest during 2009.

And this seems to be the theme of the video clips that have attracted my attention during the past few days (between Yule-tide activities), making up this “Video-o-rama” compilation.

The selection includes items varying from Scott Pettersen lamenting “Where’s MY bailout?” (first one up) to the three versions of “Hallelujah” currently on the singles charts (at the end of compilation). But it is not all about song – the likes of Donald Coxe, Marc Faber, Mohamed El-Erian, Gary Schilling, Paul Krugman, Mark Mobius and Byron Wien give us substantial food for thought as we wave the old year goodbye.

YouTube: Where’s MY bailout?

Source: Scott Pettersen, YouTube, December 22, 2008.

BNN: Conversation with BMO’s strategist Don Coxe

Source: BNN, December 23, 2008.

CNBC: Dr Doom – find value in first half “disaster”

Click here for the article.

Source: CNBC, December 23, 2008.

CNBC: Pimco’s El-Erian – back to basics for investors in 2009

Click here for the article.

Source: CNBC, December 22, 2008.

Barron’s: Have we seen the worst of this bear market?
“Have we seen the worst of this bear market? Top strategists and chief investment officers comment on whether the market has hit bottom yet.”

Source: Barron’s, December 20, 2008.

Bloomberg: Mark Mobius sees “beginning of next bull phase” in 2009
“Mark Mobius, executive chairman of Templeton Asset Management, talks with Bloomberg’s Francine Lacqua about the outlook for emerging markets in 2009.”

Source: Bloomberg (via Blinkx.com), December 19, 2008.

Tech Ticker: Get ready to scrimp and save, says economist Shilling
“Hoping for a quick return to the consumer spending habits of past quarter-century, when ‘financial discipline’ meant remembering to withdraw enough home equity to get a new SUV every two years? Forget about it, says Gary Shilling.”

Source: Henry Blodget, Tech Ticker, December 19, 2008.

Big Think: Paul Krugman on the return of depression economics
First of a multi-part conversation with Paul Krugman, Nobel Prize winner, author, economist, and Princeton professor, who is probably best known for his op-ed columns in the New York Times.

Source: Big Think, December 17, 2008.

Bloomberg: Fischer says worst of “real” recession “yet to come”
“Bank of Israel Governor Stanley Fischer talks with Bloomberg in Tel Aviv about the recession in the US and the response of the Federal Reserve. Fischer, 65, former first deputy managing director of the International Monetary Fund, also talks about the outlook for the Israeli economy and the IMF’s role in resolving the global financial crisis.”

Source: Bloomberg (via YouTube), December 21, 2008.

Marketplace: Quantitative easing
“Now the Federal Reserve has effectively cut the target lending rate to zero, it only has one more weapon in its arsenal. Quantitative easing. Senior editor Paddy Hirsch explains what this ‘nuclear option’ is, and what the Fed hopes it’ll do.”

Source: Marketplace, December 2008.

CNBC: Byron Wien – falling oil prices
“Thoughts on energy prices, with Byron Wien, Pequot Capital chief investment strategist.”

Source: CNBC, December 23, 2008.

Reuters: “Hallelujah” tops Christmas chart
“The top two spots in the Christmas singles chart were taken by covers of Leonard Cohen’s 1984 song ‘Hallelujah’, with ‘X Factor’ talent show winner Alexandra Burke’s new version beating Jeff Buckley’s 1994 cover on Sunday.

“Burke won this year’s series of the pop talent show that is one of ITV’s biggest ratings successes, and she is the fourth successive ‘X Factor’ winner to take the Christmas singles title.

“Cohen’s original version of ‘Hallelujah’ entered the chart at number 36, while the success of Buckley’s version was partly due to a campaign on social networking website Facebook among music fans upset at what they saw as the manufactured nature of Burke’s career.

“Buckley drowned in 1997, and achieved only modest sales though significant critical acclaim during his lifetime.”

First up is Jeff Buckley.

Next, Alexandra Burke.

Lastly, Leonard Cohen:

Source: David Milliken, Reuters, December 21, 2008.

Tags: Article Source, Bull Phase, Chief Investment Officers, Cnbc, Credit Crisis, Dim The Lights, Don Coxe, Donald Coxe, Dr Doom, Gary Schilling, Marc Faber, Mark Mobius, Mohamed El Erian, O Rama, Paul Krugman, Singles Charts, Substantial Food, Templeton Asset Management, Trading Sessions, Youtube
Posted in Credit Markets, Economy, Emerging Markets, Markets, Oil and Gas, Outlook | 1 Comment »

Donald Coxe on BNN (12/12/2008)

Sunday, December 14th, 2008

Donald Coxe, BMO Capital’s Chief Investment Strategist, appeared on BNN, December 12, 2008.

Tags: Array, BMO, Bnn, Capital Investment, Chief Investment Strategist, Don Coxe, Donald Coxe, Img
Posted in Markets | No Comments »

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 »

Don Coxe: Food Prices and Investment Strategy

Friday, May 2nd, 2008

May 1, 2008 - Coutesy of BNN.ca - Don Coxe, the must-read and must-see, BMO Capital Markets Chief Investment Strategist, discusses food prices, shortages, and the appropriate investment strategy in the face of the recent food crisis;

click for video

courtesy of BNN

Source:

Market Morning

Global Portfolio Strategy [04-30-08 10:10 AM]

BNN, April 30, 2008

http://watch.bnn.ca/#clip49664

Tags: Agriculture, BMO, BMO Capital Markets, Canadian Stocks, Don Coxe, energy, Food prices, Investment Strategy, Markets, risk, Video
Posted in Markets | No Comments »

Stagflation Threat Requires Strategy

Wednesday, February 20th, 2008

Feb. 20, 2008 - Stagflation is a threat that is best defended against with commodities and Treasury Inflation Protected Securities or TIPS as they are commonly referred to.

A recent article by John Wasik, Bloomberg describes a few ways that investors protect against stagflation:

Several investments come to mind: commodities and Treasury inflation-protected securities, or TIPS.

 

…One refuge in inflationary times has been gold. Held in huge quantities by large banks and the favorite commodity of inflation speculators, it has been in demand over the past year.

 

You are better off buffering the ravages of inflation on your portfolio.

That means finding investments that combine income and price appreciation, and rise with inflation expectations.

Two investments come to mind: commodities and Treasury inflation-protected securities, or TIPS. A deft combination of TIPS and commodities can be found in the PIMCO Commodity Real Return Strategy Fund. It returned 23 percent last year. This is my portfolio’s key inflation buffer.

Whatever stagflation strategy you adopt, remember that overconcentrating in any of the inflation-fighting vehicles will add unnecessary risk to your portfolio.

 

Inflation is an often-unpredictable ogre that creeps up slowly. You will need a number of weapons to do the job.

 

Canadian investors seeking to invest in inflation protected securities and commodities may look at any of a number of Real Return Bond and diversified commodity products. Some of these include:

ETFs 

iShares Real Return Bond ETF (XRB)

 

Claymore Global Agriculture (COW)

 

Canadian Mutual Funds 

TD Real Return Bond Fund A (TDB755)

Investors Real Return Bond Fund (IGI491)

 

Don Coxe’s January 2008 recommendations include this particular paragraph:

Bond investors face two risks: inflation and credit. Nominal Treasury bond yields are far too low, and quality corporates are too rare – with 71% of corporate debt junk-rated. Buy inflation-hedged sovereign bonds – preferably in major foreign currencies. Simplicity is good: avoid complex products that are subject to drastic rating writedowns.

George Soros discusses the circumstances under which the Fed might be rendered impotent at macroeconomic control:

Credit expansion must now be followed by a period of contraction, because some of the new credit instruments and practices are unsound and unsustainable. The ability of the financial authorities to stimulate the economy is constrained by the unwillingness of the rest of the world to accumulate additional dollar reserves. Until recently, investors were hoping that the US Federal Reserve would do whatever it takes to avoid a recession, because that is what it did on previous occasions. Now they will have to realise that the Fed may no longer be in a position to do so. With oil, food and other commodities firm, and the renminbi appreciating somewhat faster, the Fed also has to worry about inflation. If federal funds were lowered beyond a certain point, the dollar would come under renewed pressure and long-term bonds would actually go up in yield. Where that point is, is impossible to determine. When it is reached, the ability of the Fed to stimulate the economy comes to an end.

Caution: One thing to remember is that TIPS or Real Return Bonds in a mutual fund do not provide investors with the same degree of risk management where date-driven spending plans are concerned. The maturity date of any bond is a guarantee the face value will be paid at an exact time in the future. Bond mutual funds, unlike the underlying security, do not provide any fixed maturity date or guranteed sum. Ideally, if you can get your hands on the bonds, then do so. 

…leaves you wondering just how far the Fed may or will have to go with rate cutting in order to get the economy going again, and in the process, provide enormous [inflationary] stimulus to the rest of the world. This is truly a mixed blessing.

Tags: Agriculture, Banks, Blog, Bloomberg, Canada, Commodities, Commodity, Credit, Credit Market, Desc, Dollar, Don Coxe, Economy, ETF, Fed, Federal Reserve, FT.com, Gold, inflation, Investment, Investment Strategy, Markets, Mutual Funds, oil, PIMCO, Recession, stagflation, Term Bond, Value
Posted in Bonds, Commodities, Gold, Markets, Oil and Gas | No Comments »

Eastern Promises - Opportunity in Agricultural Commodities

Saturday, February 16th, 2008

Feb. 15, 2008 - Joe Friesen and Marcus Gee of the Globe and Mail published an excellent article Eastern Promises on how demand for all things agricultural commodities are being driven by growth from Emerging Markets. The piece features commentary by Don Coxe, Chief Investment Strategist, BMO Capital Markets, on food and the agricultural boom. This piece features lots of anecdotal and empirical information.

Here are some excerpts:

India’s consumption of pulses — yellow peas, lentils, chick peas, green peas — has doubled in a year. In a country where millions are strict vegetarians, pulses are an essential protein source that go into the preparation of dal, which is cooked every day in millions of homes. India’s struggling, still backward farm industry can’t keep up with the demand.

 

“It’s not our part of the world that changed things, it’s the millions of people over there that are no longer content to get along with a bowl of rice and a few loaves of bread. They’re adding meat and dairy to their diet and we aren’t producing enough feed grains, enough vegetable proteins, to supply their need,” said Donald Coxe, global portfolio strategist for Bank of Montreal.

“Milk is the new oil. Milk demand worldwide is rising faster than oil demand. That’s because of the new Asian middle class.”

“Western Canadian farmers, unless they have an all-out crop failure, are going to have the biggest year in their history,” Mr. Coxe said.

Mr. Coxe said the rise in living standards in India, China and other parts of the developing world, as well as the sudden explosion in demand for corn to make ethanol for gasoline in the U.S., have put a squeeze on markets that’s making all cereal crops and vegetable proteins more expensive.

“So the way I sum it up,” Mr. Coxe said, “is the world is roughly in the position of a family that gave their son who was going to Las Vegas all the money they had and told him to put it on the dice table. He has rolled four consecutive sevens. He has left all the money on the table and now he’s rolling the dice again.”

“We are facing the real possibility of the worst global food crisis for which we have records.

“When people ask me what’s the biggest threat facing China — it’s food price inflation. The consumer price index in China (6.5 per cent) is now the highest rate in many, many years. If you take the food inflation out of it, their inflation rate is closer to 1 per cent.”

Tags: Agricultural commodities, Agriculture, Asia, BMO, Canada, China, Commodities, Consumption, Don Coxe, Donald Coxe, Emerging Market, Emerging Markets, Excerpts, Food prices, Grain, India, inflation, Information, Investment, Investment Wisdom, Markets, Middle Class, oil, risk
Posted in Commodities, Emerging Markets, 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.

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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. 

 

You can see that the Canadian version has had quite a different kind of performance due to the strength of the C$ against the Greenback.

Both the ETFs and the funds are a way for investors to get effective exposure to the yellow metal.

 

 

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