In his latest Basic Points, “The Deficient Frontier,” dated September 16, 2011, Donald Coxe, Coxe Advisors LLP, makes the following recommendations, in the context of the full body of the issue. Here they are in summary, paraphrased:
1. Stay away from shares of European banks, if you can.
With a candor that is nothing less than commendable, Deutsche Bank's Josef Ackerman says that the state of the European banking system looks just like it did in 2008. Their total portfolio risks are high - and continuing to rise, as a result of the collapse of risk-free sovereign rate of return among so many EU Member countries.
2. Stay away from the shares of U.S. banks with questionable balance sheets, particular those which give senior executives substantial stock options, and are wasting the Fed's (read Bernanke's) supplied funds to buy back their own shares.
The performance of U.S. bank stocks has been deteriorating. In the meantime, tort lawyers have been given carte blanche to sue the large banks-possibly for triple the damages. Incidentally, after trade unions, tort lawyers (read 'raptors') are the second largest contributor to Democratic candidates.
3. Investors should continue to maintain their positions in Canadian Oil Sands shares, exercising caution however, about adding to these commitments.
The Keystone XL Pipeline, which is destined to carry Alberta Oil Sands oil to Oklahoma and Texas, will be decided upon this year by the Obama Administration. It remains to be seen if he will prevail over enviro-fanatics, and although he has been disappointing them of late, the possibility exists that he might let them have this 'big' one. On the other hand, there are 100,000 jobs at stake, which may override his political concern, leading to a green-lighting of the project.
Its astonishing that the world's second or third largest oil reserves, held by America's long-time friend and ally, could actually be a political hot potato.
4. Continue overweight (read 'heavy' weight) in precious metals, with a bias towards miners (gold stocks).
For ten years, they have been good, and should continue being so.
5. Continue overweight (read 'heavy' weight) in shares of agricultural companies.
Although they possess surprisingly high betas (to us, that is), the endogenous risk in the earnings of these companies is substantially better than those of many cyclical stocks, whether you're considering commodity stocks or otherwise.
6. Keep holding a strong exposure to U.S. oil producers, particularly those operating on land.
West Texas and Brent Oil spreads have stayed at levels that must anger European governments. That goes for the spread between North American Natural Gas and European prices for the same. For the time being, this is the greatest economic advantage the U.S. has going for it, and on another note, it is the most reviled sector, as far as the Left goes.
7. Copper and Iron Ore prices indicate, or rather, appear to negate concerns of a slowdown in the global economy. Natural disasters and labour strikes have kept metals prices stable, however, only demand will be able to keep them there in time. Because we can't see that in the near future, underweight base metals.
8. It has become necessary for bond investors to make sure the yields on their positions are in line with the risks they have been seemingly forced to assume, particularly in this time of unbelievable low (read'surreal') interest rates.
Why are government bonds - for example, those of countries responsible for delivering the worst investment shocks - allowed to get away with paying investors, record-low interest rates (i.e. ten year yield at 60-100-year lows)?
What is the point of lending money to poorly managed governments who pay laughable rates?
It would better to count on income from great companies via their dividends.
9. The Canadian Dollar appears to have weakened.
Except for the fact that the Canadian economy has stuttered as a result of a slowdown in exports to the U.S., Canada still is, as far as we're concerned, a haven nation for global investors.
Canadian banks continue to be substantially more attractive than their U.S. or European conterparts - even if that's merely on a relative basis, which might not be saying much.
Canadian Government Bonds offer slightly higher yields, though they are higher quality than U.S. Treasurys.
American corporate bonds pay higher yields and are more attractive than Treasurys - and some even have higher ratings.
10. For Income-Oriented investors, High-quality (read 'bullet-proof) dividend paying stocks should be the core investment class in investors asset allocation, for as long as interest rates continue to be forced down by central banks, and for as long as the 'Deficient Frontier' is relevant.
In a somewhat stagflationary world, earnings growth forecasts are less important a market consideration. For the time being, take the money (dividends) and try not to get caught up in the day-to-day price performance of your holdings.
