Despite a plethora of bad news, BMO Financial Group Global Portfolio Strategist, Don Coxe, recently urged investors to continue to maintain a positive attitude toward commodity stocks.
Because, during the 1970s, commodity stocks gave positive real returns at a time most other stocks were giving real negative returns, Coxe advised in his Basic Points: The Traders of the Lost Arc report.
Although China is experiencing its worst inflation pressures in more than 15 years, the 100 Year winter storms were devastating and the nation is enduring the aftermath of one of its most damaging earthquakes, Coxe said, we don't believe that China will collapse: it will continue to grow, albeit more slowly.
India is a more serious near term risk, according to Coxe. India is the biggest loser from the dramatic price changes in oil, gas and grains. Its terms of trade have shifted negatively, and the fragile ruling Parliamentary coalition may well be forced into bad economic policies because of the power the food crisis gives to the Community Party.
Coxe also forecast that many other Emerging Market economies will be struggling.
Nevertheless, Cox noted, Those oil revenues are piling up from Alberta to the Gulf, and the proceeds can't entirely be invested in skyscrapers and ski slopes. The ace in the hold [in the ground] for commodity stock investors is that the value of their unhedged reserves in the ground could rise dramatically if futures curves continue to switch from backwardation toward contangos amid fears of rising inflation.
The key to attracting sufficient capital investment to bring on the supplies needed for the next decade may be the high prices in contangos that convince governments and corporations that returns on capex will continue to grow, he added.
Among Coxe's investment recommendations are:
ü Gold and gold stocks become more attractive each week that global food and fuel costs rise along with writedowns on bank balance sheets.
ü Until the U.S. financial stocks stop declining, rallies in the S&P or NASDAQ are selling opportunities.
ü The dollar failed to rise significantly even as U.S. stocks were rallying and economic forecasters were declaring that the worst of the housing problems were over. If it goes to a new low, it will drive even more global investment funds into commodities and/or commodity stocks.
ü Build exposure to the leading agricultural stocks.
In his report, Coxe unveiled the creation and the offering of the Coxe Commodity Strategy Fund by more than a dozen Canadian investment banks to investors was completed. This Closed-End Fund blew through the Syndicate's cap of $250 million and reached the Syndicate's discretionary level, totaling $297.5 million, he said.
There have been better times to launch a commodity stock fund, Coxe admitted, but our view that this supercycle will last through the next decade remains unchanged. It is now trading on the TSX at COX.A.
A WELL-DESERVED THRASHING IN NOVEMBER
It took too long in coming, but Congressional Republicans should get a well-deserved thrashing in November, Coxe asserted.
At the Congressional level, it should be a Democrat landslide as angry voters ‘throw the bums out.' The early evidence of deep-rooted revulsion is impressive: Three Republican stronghold seats have fallen by special elections, he noted.
Apart from voters' willingness to punish Republicans for their betrayal of party principles, the GOP is blamed for the economy's great problems. Not only is consumer confidence low and falling, but for the first time in the history of such surveys, a majority of respondents predicated a decline in their incomes in the next 12 months.
Meanwhile, presumptive Republican presidential nominee John McCain is up against the greatest spellbinding Democratic Presidential orator since William Jennings Bryan, Coxe declared. Most importantly, this charismatic and utterly engaging young man is biracial, marking him a sort of a political Tiger Woods.
He is, at the minimum, the most attractive major party candidate since Reagan.
The nation is offered its best choice of attractive candidates in many years, Coxe asserted. An Obama win would be a feel-good result. A McCain win would be a feel-safe result. As Warren Buffet has said, whoever wins, American should be in good hands.