Don Coxe Call for BMO’s Institutional Investors - 10.8.10

· Usually doesn’t touch on same topics two weeks in a row but given what’s going on with currencies the concern of what’s happening with all the paper currencies is worth considering.

· Job numbers were disappointing so the interest rates are not factoring any increase until 2012. IF this happens there is no comparison in history for this long term low rate interest model. That leaves folks with questioning where they can put some money for some earnings. Puts then the focus on commodities, gold, and emerging markets.

· Since last week there’s been a huge move in gold. Thinks it is primarily being driven by what’s happening to the dollar. Gold is a bet against government’s ability to deliver value. Trillions of derivatives is making paper assets questionable.

· QE 2 most likely coming from the Fed.

· Astounding what’s happening to US government. …paralysis. Can’t even pass a budget.

· Huge tax rate increase coming in the US with expiration of Bush’s tax relief. Lame duck session brings up the question of what all those Democrats will do when they get back after the break.

· Now we have the foreclosure crisis which came out of nowhere – hundreds of thousands of foreclosures are now being held up. This means that home buyers will not be willing to take a chance on these homes which is now a great overhang on the housing market.

· All this says that the big systems in the US is failing us. So money is moving outside of the US into the emerging markets who are now having big big moves.

· Risk of global cooperation is freezing up with most countries unhappy with what’s happening to their currency.

· Even natural gas is going up today with the commodity story becoming more dramatic especially with the agriculture story.

· One does get concerned when you think the rush is primarily due to a rush to get out of paper money. There could be some momentum here with the feeling that the government may seem powerless to deal with pending inflation.

· Seems to be a good time to be buying stocks and buying bonds. Everything seems to be going up, stocks, bonds, gold. Makes people nervous as this just doesn’t normally happen.

· We can then feel most comfortable with the asset classes that have the best fundamentals including commodities and emerging markets.

· We have a mixture of a good news/bad news bad story. These paradoxes are tough on strategists. This makes them nervous as this could unwind very fast if inflation comes into play which will force the Fed’s hands (e.g., rates will move up).

· However the economy improves it is obvious the US will not be leading it. Will be very very different so then for forecasters it will be tricky.

· After the election it will take a while before any coherent policies come from the US….will probably be chaotic.