Notes from Don Coxe's Instituational Call (2/25/11) FWTW
posted on
Feb 27, 2011 01:32PM
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Below are my notes from Coxe's 2/25/11 call FWTW...he is once again focusing on PMs!
Don Coxe 2/25/11 Institutional Call
· Big story is oil and its implication for global economy. Oils shocks are very disabling for economies as it changes a whole set of assumptions that businesses/investors were relying on. So oil shock goes beyond just the oil industry/oil stocks. The effect will be felt differently as these different prices work their way into the system.
· The pattern that seems to be emerging is that dictators who are not as harsh as those in Iran are under siege. What no one expected was Libya. Libyia produces between 2 & 6% of the world’s oil and while on its face this may not look bad, it is. Even with Saudia saying they would step up, what they have is heavy oil not the light sweet crude. What has been hurt is the refiners….their margins are so thin that they are being devastated. An industry that is crucial to world economy is in big trouble (refining) and no one is looking to bail them out. In US when gasoline prices go up, consumers cut back.
· The oil shock is especially bad to come at this time as we also have food inflation. In the 70’s we had food and fuel inflation so we should look at what happened then when inflation got totally out of hand. But don’t think we will have wage inflation like we did in the 70’s – just look at what’s happening with the public sector unions in Wisconsin.
· Bad luck also that European Central Bank is changing its leadership at the top and there is no successor in site. Axel has taken himself out of the succession plan because he was opposed to all the bail outs. The new successor looks like it could be an Italian but don’t think Germans will go along with that. If the Italian takes over leadership there will be even more Germans rushing to buy silver and gold coins. The biggest problem we have here is that there is no real leadership.
· Tim Geitner’s quote this week is causing Don great alarm. When asked about whether rising oil and food prices would cause inflation Geitner said that the Central Bankers know how to handle food and oil inflation and it is not exactly rocket science. What he meant is that bankers will continue to print money resulting in QE 3. This will mean a bigger rush by many into inflation protections like gold.
· What also is different this time is that we are also having metal inflation. E.g, iron ore, copper prices, steel are trading at an all-time high. This will impact business. This is not a good story.
· Cooperation with the different countries that avoided world melt down is now also falling apart. Also most of the various governments are trying to deal with their big deficits by making major cuts. This is not something that will stimulate economies. Factor in enraged public unions which have the ability to shut down key sectors of an economy and troubles are everywhere.
· This week we have all time highs for feeder cattle and this has not yet even been felt in consumer’s pocket. What might delay this for awhile is that Walmart will try to keep prices low given its own struggles and move to get more consumers to buy.
· All of this comes at a time when US housing prices have not yet stabilized. Shiller recently said we could still get a 25% drop in housing prices. Average mortgage has about 2 ½% equity in it. Back in 70’s real estate was a good place to put your money but that is not the case now.
· Likelihood of a double dip reoccurring is up significantly which he believes has already started in Europe and looks to be spreading to the US.
· Bond market – a tactical investor might say that a combo of Treasuries and gold might be a good safe haven while dust settles. Thinks also that TIPS has to be considered in one’s portfolio.
· Commodity prices and real estate prices are important and government can’t do much about these. All the bullets have been fired. The debt levels that have been accumulated have taken a lot of the ammo out of the government.
How does all of this affect our strategy??? At the moment at least all commodities with exception of nat. gas are at price levels where the producers are winning big. This is a hostile environment for Central Bankers, consumers, etc. Looks to Don like the precious metals are now cheap relative to the other commodities. (Even in 70’s when there was a deep recession gold was going up.) Need to be more cautious. Risks are higher now than they have been in a long time. Should be emphasizing those companies that are really strong and those that people have to buy. He is skeptical of the stock market despite its continuing rise. Seems to also like Treasures and TIPS