Here is what the four decade veteran, and Global Strategy Advisor to BMO, Don Coxe, is looking at for the back half of this year, including his investment recommendations:


August 5 (King World News) - The Olympic motto captures the aspirations and drive of poor nations which reform, achieve faster economic growth than the established nations, and rise to global competitiveness.

Economic historians consider the last millennium as being primarily about the Renaissance in European civilization, the discovery of the Americas, and later, of the inventions and investments that together powered the Industrial and Technology Revolutions in Europe and North America. China and India did not adopt the new technologies and lost their standing as global economic leaders to the West.

When future historians write of this century, they will focus on the re-emergence of China and India, as large-scale technology-adopting economies which, in just five or six decades regained the pre-eminent shares of global GDP they had enjoyed for seventeen centuries prior to the Industrial Revolution.

Since 1998, we have advised clients, “Do not invest in companies that produce what China produces, or will soon be producing. Invest in companies which produce what China needs to buy.”

Most commodities are no longer priced primarily by Europe and North America, they are less risky than conventional Wall Street economists understand.

Economies with costly social benefits systems and deteriorating demography age in vitality along with their populations. It is unreasonable to expect that overindebted Europe or the US will again have economic recoveries of Reaganesque or Thatcherite vigor.

Investors need to invest where the demand is—and will be for coming decades.  That means economies whose consumption of commodities per unit of GDP is still far higher than ours.

We are modifying our Recommended Asset Mix to reflect the recommendations we made in our Conference Call of June 22nd and our more cautious views now.

Investment Recommendations:

1.  Increase your cash exposure to 15%.  The euro's death throes could take a long time.  The elites may try to drag down as many innocent victims as possible to deflect attention from themselves.

2.  The dollar's surge is bad news for US exporters, but even worse news for equity investors.  It is the key component of the “risk-off” trade that drives investors into Treasurys with barely-observable yields out of almost anything else.  As an indicator, it is more reliable than Libor.  Avoid committing new cash into the US stock market as long as Treasury yields are going down and the dollar is going up.

3.  The US economy is slowing toward stall speed.  But it looks lustrous compared to Europe.  Remain underweight Europe and maintain exposure to high-quality US stocks, particularly commodity stocks, and technology stocks with demonstrably unique products.

4.  Canada continues to be the Northern Star that is barely visible amid the atmospheric pollution from US deficit politics and the widening crises in Europe.  It is a good financial market to find quality investments in a reliable currency.

5.  Gold has once again become a “risk-on” asset, which means it tends to fall when the stock market falls, and to rise when the market rises.  This is paradoxical and illogical.  Gold is a “Bad News Bull's” commodity.  This schizophrenic period of gold and gold stock valuation is unsustainable.

At this time last year, gold was inversely correlated to the value of the euro.  For months it has been positively correlated.  Bizarre!  We remain of the view that what might be the only way for the eurozone to assemble enough firepower to give credibility to the markets is for governments which have gold to use it to back very long-term convertible bonds.

6.  Libor-rigging, the latest—and biggest—story of bad behavior among the big banks in London reinforces the wisdom of avoiding investment in financial institutions whose public standing continues to deteriorate.  Investing in companies with traditions of incompetence has not historically been successful.  Investing in companies with traditions of incompetence and deception has historically been even less successful.

In the US, that argues for investing in the regional Main Street banks, which collectively continue to outperform the biggies.  In Canada, some of the big banks have been downgraded because of fears of a bursting real estate bubble, but those institutions and their brethren have reputations for being—in comparison with the Wall Street banks—stolid and solid.  As for the European banks, they are collectively undercapitalized and way overloaded with eurozone sovereign bonds.

7.  The Commodity Super-Cycle will last for at least a decade more.  Investors should be patient, and await an all-clear for the euro crisis before committing new money to a sector with a bright long-term investment future.

8.  Remain overweight the agricultural stocks within commodity equity portfolios.  We continue to believe this is the commodity sector with the best risk/reward characteristics.

9.  That the Canadian oil sands companies' shares have become the most conspicuous victims of American political risk fears is a grotesque, unseemly development.  Mr. Obama remains favored for re-election, because most Americans like him a lot more than they like the buttoned-down Romney.  That should mean that Keystone is dead.

But if the Republicans keep their control of the House and their strong representation in the Senate, they could certainly force his hand during the inevitable Budget bargaining.  Maintain strong exposure to those companies that give you more barrels of oil per share than almost any others in the stock market.  If Mr. Romney pulls off an upset, load up on those stocks that will suddenly be rejoicing about free markets.

© 2012 by King World News®. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed.  However, linking directly to the blog page is permitted and encouraged.

The interviews with John Embry, Egon von Greyerz, James Turk, Dr. Stephen Leeb, John Hathaway and legendary Art Cashin ($612 billion UBS) are available now.  Also, be sure to listen to last week’s line-up of other KWN interviews which include Gerald Celente, Don Coxe ($538 billion BMO) and Eric Sprott by CLICKING HERE.

Eric King

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rewritten, or redistributed.  However, linking directly to the blog page is permitted and encouraged.

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