Don Coxe Update – Aug 27th 2011



Don Coxe Update
(Aug 27th, 2011)

  • update on banks, focus on Eurozone but impact on US banks
  • he’s highly sceptical of Buffett’s investment in Bank of America given their problems aren’t simply balance sheet based.
  • all 50 states have litigation against Bank of America, will be in the courts for years
  • he doesn’t know how bad this will be but doesn’t see the BNK and CRE indexes as being at a bottom

Gold

  • he believes 1900 gold was simply the next stage in an increasing gold price.
  • see’s gold having a long way to run
  • on pullbacks investors should be adding, thru stocks not bullion, due to hedge fund manipulation of bullion
  • bullion miners are the cheapest he’s seen in his lifetime.
  • BMO report out on showing how gold stocks are cheap
  • historic return to gold as an asset and currency
  • the gospel according to Keynes is dead
  • gold isn’t a greed story but an investment vehicle for those with the most to loose.
  • when you can buy unhedged reserves cheap in the ground via the miners it gives you enormous leverage to higher gold prices

What could go right?

  • too risky to take a bet on the economically sensitive stocks, you need a hedge for things going badly
  • if (when) we slide into a new recession it will be hard for the government to find resources to help this time
  • with Merkel shutting down Eurobonds he doesn’t see how Europe can deal with events when the rest of the PIIGS squeal
  • the risk remain unquantifiable
  • Eurozone banks are only well capitalized as long as the Euro bonds they hold continue to be viewed as risk free
  • S+P is priced for good growth not pain

What to do?

  • much more difficult for asset managers to figure out the risks in their portfolio’s
  • what people learned under CFA programs won’t likely apply anymore, new formula’s required and gold must be factored in going forward
  • the efficient frontier has become the deficient frontier
  • there is a more level playing field between bonds and gold with interest rates so low, unlike the 70′s
  • don’t be distracted by bullion itself but view the miners as having the best earnings potential
  • we won’t discover something like the oilsands that changes the gold supply going forward

Q+A
1. Any comments on base metal prices here?
A: Iron ore and copper seem strongest due to Asia but if problems continue in the US this may not continue.

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