Don Coxe 10.14.11 Conference Call

· Since last week we have had strong stock markets and some good economic news in the US although the Eurozone is still dubious. So things look better.

· I think what we should do is look at the story behind the news this week as it relates to Cargill, a private company, the world’s largest grain trader. It is something that Don watches very carefully because of his interest in the agricultural stocks. Cargill’s statement that the financial trades are really messing up the markets is extraordinary given that their expertise is in trading. We should care because of a meeting being held this week in Europe of the G20. Don has been asked for a 2nd time to prepare a report to be distributed at the G20 meeting on commodity trading. He did an analysis of the issues he thought the G20 should be considering. Sarkosky is looking at grain prices because of rising food prices and is concerned with what he views as speculative trading. Their fear of inflation is why the Euro has much higher interest rates than US

· G20 is also very concerned with the wide spread between what the Europeans are paying for crude and what the US is paying….over $25. Very serious regulation of commodity speculation being considered. Now with Cargill coming out with its piece this will add fuel to those who want strong regulation of commodity trading. Cargill has given ammunition to those who now want tremendous regulation. This Cargill announcement is a big new story even though its not been covered in the media.

· The chances of something coming out of the G20 meeting about speculation especially in foods and fuel have been increased by the Cargill announcement. Concern is that speculators (hedgies) are causing undue volatility in commodity prices.

· JP Morgan’s earning statement came out this week. They managed to increase their earnings by a cent. Don had earlier expressed disapproval with Jamie Dimon’s arrogance in his view that bankers should be allowed to be traders.

· Don is skeptical of the bull market because the banking stocks have so underperformed the S&P and this is an indicator that Don watches carefully. All banks stocks were down one day when S&P was up which shows that people are skeptical of banks. The banks are using their money to buy back stock when Bernanke wants them to use the funds to provide loans. Not something that makes one cheer about capitalism. The bad feelings about these banks is gaining momentum.

· What we need is real economic activity. The consumer has shown real resilience and has resumed some of their spending. Jamie Dimon indicated that credit card use is increasing.

· This stock market rise shows a belief that this time they will find a fix for the Eurozone especially if the Germans and the French are willing to put in enough money. Don finds it hard to believe that they can, however, get support for what amounts to a blank check when they will have to face the voters at some point.

· The rise in gold this week shows that gold is becoming something that investors can use to express their optimism instead of just being a fear trade.

· Don was part of a panel with two other major economists. It was all going very well but then Don made the mistake of mentioning gold and his belief that at $1600 gold was measuring the fear in the Eurozone. One chief economist disagreed with Don saying that gold was not measuring fear, there was no way to do that, that gold was going to crash (which he repeated twice) to which the other chief economist made a point of saying in connection with Don’s remarks that he doesn’t listen to gold bugs. Keynesian economists will fight gold being brought back into the financial system. Those who consider gold as a barbaric relic will fight gold ever being brought back into the system. Don said he guesses there are some subjects like gold you can’t raise in certain polite company.

· It will be interesting to see how far this rally proceeds as it s based on the Euroland being righted which will require huge amounts of cash infusion. Even the bullish economists say we have a 40% chance of a recession which doesn’t exactly send a strong signal.

· Don still remains cautious but does enjoy seeing all the green on the screen at the moment.

· Question about the slowdown in China? No doubt that China is trying to force a slowdown to hold down inflation. China announced last week that they had copper stockpiled equal to a year’s use in the US. Still of the view that he would be a happy man if his only concern was China. China has such few banks, it is much easier for the government to step in and help them out if necessary. Plus the banks do not have all the “stuff” we do such as collateralized debt so it is simpler to get a handle on the Chinese banks if they run into problem. Plus China doesn’t have social security and medicare problems it will have to deal with.

· Question about Canadian banks? They are so much better regulated. Has so much more confidence in the Canadian banks than those in the US. Canada is still much better situation than any other country in the G7. Canada remains very attractive.