The Donald Coxe Call

As you may know, Donald Coxe has left BMO capital and has set up his own shop (click here). He was among the first to catch the commodity wave and those who have been following his advice for a while have made a tonne of money in a pretty mainstream, low risk fashion. Like all of the long-term “stronger for longer” crowd his picks have taken quite a hit since July 2008, but Coxe was among the first to admit what happened and how he missed that change. That keeps him on my favorites list.

For a long time he has had a weekly call for his subscribers that was posted on the web where there was no security on the call and was widely listened to by lots of non-subscribers. For now, at least his calls are open to everyone. I for one hope he keeps it that way. Here’s the link (click here) to these weekly calls. The calls are consistently above average compared to other investing podcasts (particularly on the content to self-aggrandizement ratio), but this week’s call gets my “Best Of The Podcasts” award.

I recommend listening to the whole half an hour call, but for the cliff-notes version, here’s my notes:

Charts show the INDU (down) vs Gold (up) since the US election.

There are two interpretations of gold’s rise:
(a) Obama’s program won’t work – flight to safety (fear).
(b) Obama’s program will work – inflation is coming.

Coxe votes for (b).

Current situation is, in Coxe’s view, a lot like the 70s.

From the 70s we know that commodity stocks are what recover strongly after a recession with large monetary growth. This has already started.

By the way, things were way worse in 1974.

So, the market doesn’t know if Obama’s 2 T$will work, but if it does commodities will come back hard.

The crucial difference from the 70s is housing and the baby boomers. The baby boomers needed housing in the 70s. They need to sell housing now (this is a demographic-based deflationary factor which is global for the developed world).

A 50% premium (contango) for WTI crude oil from spot to Dec 09 is something Coxe has never seen before. What we are seeing is, despite the global slow down, dec 2010 oil is $60. This explains why the oil stocks are starting to pick up. US consumpion has not fallen by 5-6%. The actually demand for oil has not fallen off a cliff. Industrial commodities have fallen off a cliff, but oil stocks.

Things are turning. IBD shows chemical fertilizers has gone from 150th industry to 50th.

Coxe thinks there’s a strong possibility that two centuries of global warming has ended and global cooling has started. Spot corn is $3.66, dec 09 corn is $4.07, dec 10 is $4.57. Farmers can make a lot of money with these prices.

So, we already have two commodity groups which are moving up strongly. You can make money in oil and agriculture/fertilizers. Market won’t make big bets either way on Obama’s program succeeding at this time.

Coxe says again. A downturn that begins with the financials (bank stocks) doesn’t end until the bank stocks recover. Coxes can’t say this downturn has bottomed until the bank stocks recover.

Coxe admires Obama, but the bail out bill was created by Pelosi is long on far-out liberal programs could never get through congress under ordinary situations and short on genuine economic stimulus. E.g. 4 B$for ACORN.

Keynes said its better to have someone dig holes and fill them in than to have no activity. So, this bail out stuff may have a short term benefit. The long term addition to the built-in deficit is bad but that is long term.

So, will it work? The money supply is growing. That’s good. Once the money supply starts growing things (economy? stocks?) can turn up really rapidly. In addition we have these bail outs for the banks. As long as they help the ones that can do something useful, Coxe doesn’t mind if they help the ones that don’t deserve it (big wallstreet firms).

They should give money to the banks that give money to people face-to-face, e.g. letters of credit. Coxe says there are signs trade is coming back.E.g. Baltic dry index has doubled (from a very low level). China money supply and velocity is picking up. Claims China did a better job of doing Keynesian stimulation than the west. If you care about commodities, China is what counts.

Coxes expects the global recovery will come later this year led by China and India. India is still growing and has done a lot of stimulation itself (monetary growth, help financials).

If you don’t look at the money-center banks, what you see is that regional banks (NE, midwest, southeast) are out-performing.

Summary: Even if Obama’s stimulus is doing bad things giving money to bad people, then its better than nothing. Take the political debate out of it. Don’t sulk. Its likely that we’ll get a turn. So follow the signals. The industries that are out performing now will probably continue to out perform 6 months from now.

Contributing Writer, Douglas M. Dillion, www.worldofwallstreet.us