Posted by rahrens_1 on May 29th 2011 at 12:17 am
Don Coxe Basic Points Highlights (May 26th 2011)
It discusses Europe and Greece and the fact that even though Greek GDP is 3% of the eurozone the euro nearly collapsed during the Greece crisis of 2010. He notes the Euro is backed by a theory and hence is the opposite of gold and silver. Coxe notes that those in Europe with wealth entirely in euro’s are buying bullion as protection. The euro had been strengthening this year as speculators thought the US outlook was worsening. This lead to a pullback in gold and silver but the IMF story has helped the gold recovery.
With respect to Spain he notes that many believe there is widespread fudging of local governments’ financials and hence the Spanish overall debt level will soar.
Coxe believes that US fiscal problems won’t be addressed for 2 years and Obama will be re-elected by demonizing Republican budget proposals. He will be aided by the fact most Americans believe the deficits can be eliminated without cuts to Social Security and Medicare. He expects in a year or less long Treasurys will trade at higher yields than many high grade corporate bonds.
The State of State’s Finances
He notes that Illinois has an estimated 54.4 billion in underfunding of state pensions that can never realistically be funded. He also notes a scary stat that State and local governments account for 13-14% of GDP or twice the industrial sector! He also notes how much has gone to government employee unions and has helped save government jobs at the expense of private sector jobs. He expects municipal bonds to become a minefield and expects many to trade at yields far above lower grade corporate bonds.
He notes that we’ll soon be celebrating the 3rd anniversary of zero interest rates. At the same time he notes the weakness of Financials and how many wouldn’t be around without TARP, see chart of pg #14 of Basic Points. He also notes that Canadian banks remain the worlds strongest.
He notes that in Egypt many Coptic Christians are being killed and the Islamic Brotherhood will push for Shariah Law forbidding Christians to participant in government. He notes these Christians represent 10% of the population and were protected under Mubarak. He also notes the message sent to other leaders in the area when no one offered refuge for Mubarak.
He notes that in Bahrain the state of emergency is due to end next week but some of the Saudi troops will remain for an indefinite period.
He notes Yemen is in a state of civil war and Al Qaeda will be the real winner here. It is also unclear who or what will succeed Abdullah Saleh, the current leader.
Saudi’s noted last year that an ideal price for oil was $70-80/barrel but the $125 billion given to inhabitants has become a tax on oil and the new ideal likely needs to be $85-95/barrel.
He notes that the mid May US PPI number for ‘Crude Foods and Feeds year-over-year inflation rate was 30.1%’. Coxe expects food inflation to be more durable than in the 70′s due to politicians greed in green garbs. An example of this is the fact that 30% of corn is used for ethanol production! The conspiracy theory that food inflation is due to speculators and OPEC should cause people to look at the CME instead.
He also notes the main reason corn and soybeans are in such high demand is that not all the world is vegetarian. There is an impact of higher protein diets in in countries like India.
Coxe concludes that we can produce enough food for food demand but we can grow enough for food and fuel demand. He see’s agricultural stocks as standing to gain in the face of any global slowdown.
Coxe’s Thoughts on Gold
Coxe addresses the scorn on gold as a barbaric relic by Keynes was due to his faith that central banks would exercise restraint in monetary policies making gold passe. The 70′s proved him wrong but the 80′s and 90′s cause people to pause but since 2007 he’s been proven wrong yet again. As for the comments ‘gold pays no interest’, he notes that $1 million euro’s or US dollars pays no interest if held in a safety deposit box either. Gold is establishing itself as an alternate currency. Gold does fluctuate but if commodity inflation comes roaring back paper money will plummet. Coxe notes that gold has for millennia been the one commodity that can always be used to buy other assets, goods, and services and it will always have that basic function.
Don Coxe Basic Points May 2011, see here.
Coxe in Bloomberg, see here.