In his latest Basic Points, “It's the Economy Banks, Stupid!,” dated November 18, 2011, Donald Coxe, Coxe Advisors LLP, makes the following recommendations, in the context of the full body of the issue. Here they are, Don Coxe's investment strategy recommendations, in summary, paraphrased:
2. Investors in European bonds should scale back their exposure to euro-denominated bonds, and companies should try to raise money and/or borrow in euros. The euro is on its way down to much lower levels.
3. Trim positions in non-Canadian bank stocks to minimiums. 'B5' bank stocks seem to be cheap, when they may indeed be greatly overvalued. Dexia's troubles are not exclusive - Remember the 'cockroach' principle.
4. Build positions in high-quality "bullet-proof" dividend-paying stocks. We don't mean utilities, which represent some of the more obvious high yielding stocks - though owning these as part of a overall equity portfolio strategy is appropriate. By bullet-proof, we mean the high quality dividend-paying equities of financially strong, well-managed companies focused on delivering total return to shareholders by providing dividend growth in the context of sustainably rising profits.
5. Recession risk is not the important ball to keep an eye on, when considering endogenous risk to major equity indices; banking/bank risks are. The next recession is more likely to be mild compared to that of 2008, on account of interest rates remaining near zero percent.
6. Most central banks have lost pride in their own currency. As a group, they are competing with each other, in the 'race to the bottom,' the goal being to see whose is the most competitive. Outside of the global Depression, this course of events is without precedent, and inflation risks are escalating.
7. Replace overvalued government bonds with high-quality corporate bonds, in bond portfolios. Ignore the Capital Asset Pricing Model.
8. If the eurozone takes tough and dramatic policy changes to end the terminal struggling and/or sinking of bank stocks, there may be a buying opportunity for non-financial equities 'surprisingly' soon. Keep some cash available, be prepared, and be on the lookout for a opening in the market, in the midst of a flurry of sea changes in Europe. Soaring bank stocks too would be a sign.
9. The chance of an attack on Iran's nuclear facility is unlikely, however, global, critical, pressure on Israel may make those in its government to move forward on its own accord, in spite of those countries who have never had a true relationship with Israel. Most of the great oil companies' shares are cheap anyway, so you get the insurance against a raid for free. Keep good exposure to to oil stocks, but don't speculate on an airstrike.
10. We continue to recommend that its better to invest in oil producing companies as compared to investing in shale gas companies. It remains to be seen what the political outcome/risk - though still remote - over this development will be.
11. Our favourites continue to be the Canadian oil sands stocks, since they have achieved our two most important criteria: they are long duration reserves, and they're location is low risk, politically speaking. Political (activist) enemies of the U.S. will go to great lengths to constrain their output, and have a President who seems to be more concerned about pleasing them, rather than the oil industry - whom is his main 'whipping boy,' as he idealistically promotes 'Green Energy.'
Canada needs to realize that the folks in Washington D.C.'s inner circle do not feel the same way about its friendship with the U.S., and to take on new initiatives regarding pipelines and other export strategies. Until then, institutional investors who have holdings in oils sands stocks can expect to continue to be unfairly roughed up in discussions with their green clients.
Source: Donald Coxe, Basic Points, November 18, 2011
