Mr. Coxe has more than 35 years of institutional investment experience in Canada and the U.S.. As chairman of Coxe Advisors LLC., he follows global capital markets, based on his maxim, "Never invest on the basis of a story on Page One - that is the efficient market. Invest on the basis of a story on Page Sixteen, that is headed on its way to Page One".
He is a former global portfolio strategist for BMO Financial Group and was co-manager of the flagship Harris Insight Equity Fund. Since 1992, Mr. Coxe has been analyzing and making recommendations on global markets for clients of BMO Financial Group through his monthly journal Basic Points. He was ranked No. 1 in 2007 and 2008, by Canadian institutional investors in the Brendan Woods survey.
At the end of 2008, Mr. Coxe retired to focus his efforts on his consulting business and new special projects.
The Coxe Commodity Strategy Fund launched in 2008 - at $297-million - was the largest IPO in Canada for the year. Mr. Coxe continues to serve as portfolio consultant to Harris Investment Management Inc., the investment adviser to the Coxe Commodity Fund.
In the future, Mr. Coxe intends to devote time to addressing the global food challenge, which is likely to become the global food crisis. Before entering the investment business, he served as general manager for the Ontario Federation of Agriculture and general counsel for the Canadian Federation of Agriculture. For many years, he was involved in framing public policy for agriculture and for public pension funds. He considers his greatest accomplishment the repeal of provincial death taxes on Canadian family farms.
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Sonali Verma, Globe Investor: Hello, welcome to our discussion! We have a lot of questions, so let's get straight to them.
Ed the Perplexed asks: Why will printing more money be inflationary in a deflationary environment? In the past year the world has lost an immense amount of wealth, tens of trillions of dollars. If governments print money, to start replacing that which has been lost, why is this inflationary to the currency printed? If there is an enormous hole in the ground, and governments are just starting to fill it up again, why will money lost its value?
Don Coxe: Inflation is primarily a transactional issue, although it usually eventually translates into asset pricing of assets deemed to be hedges against inflation. In the 70s, there was a deep recession, accompanied by high inflation because of excess monetary expansion at a time of soaring food and fuel prices. It could happen again.
Louis Silvestre asks: Hi there Don. I was wonder with the losses in the bank stock and the Government just printing money to replace those loses. Does that not make the out come flat. In the belief that bank stock where worth so much (US Bank) and now half or less. And with this printing ....brings us back. to the same position.----where inflation was? I also read some where that gov't use substitue inflation to lower or raise rates too... thank you
Don Coxe: Dear Louis,
Bad banks can go along with rising inflation if monetary authorities print excess money. That happened-to some extent-in the 70s. It should be far greater this time.
Rena & Wallace Rogers write: Hello,
Could you explain the difference between Cox.un and Ssj.un and specifically the different holdings.
Don Coxe: I do not know the investing philosophy or strategy implementation of the find you name. Our fund is built around the principles I've been enunciating for 7 years---there are no secrets and you either like that philosophy or you don't. those who've followed my work are in little doubt about what we do and why we do it
Ginger Butler writes:
1) With reference to his famous quote "never invest in a page 1 story, invest in a page 16 story" why did he go against his own counsel with an IPO largely based on food/fertilizer stocks in May, 2008 - AT THE TOP OF THE MANIA - when food riot stories were plastered all over page 1?
2) Don seemed to be impressed/relieved that Obama would be listening to Volker's advice. The WSJ article on April 11 indicates that Volker's advisory board hasn't even met yet and he hasn't spoken to Obama in a long time. How does this factor in to Don's belief in Obama's ability to properly manage the US economy out of this disaster?
Don Coxe: Good question. It took us some months to get the prospectus cleared so the timing was clearly suboptimal. That said, because we kept large amounts of cash and only deployed it over 8 months, we've got a portfolio that should perform well over the time horizon we chose: five years.
As to your second question, I am distressed at Volcker's marginalization. That means Summers and Bernanke are our best hopes-mostly Bernanke.
As I wrote in last month's Basic Points, I am deeply disappointed in Obama.
Ingo Moritz writes: Last year I believe you said that China could grow from internal demand. That dragging 300 million people into the middleclass in China would still result in a large demand for commodities, even as they were exporting less to Europe and US.
Do you still hold that belief , particularly in light of what Copper has been experiencing lately, or are the naysayers who talk of no decoupling between China and US markets right? Comments I have read about what is happening in China are confusing.
I have studiously continued to assert my belief that China will continue to be the key to understanding the global economic outlook-particularly for commodities. China's stimulus package is the real thing---unlike Obama's which really seeks to transform the US economy over his first term in office. That said, I am somewhat sceptical of copper's dramatic surge.
D. Harrington writes from Crocker Hill, New Brunswick :
I have followed the commodity story for some time and am convinced that two of its components are worthy of a long term commitment. Energy and agriculture appears to be as can't miss as one can get in this environment. My dilemma comes in how best to place my chips on the table.
What is the best approach for a long term (10-15 year) investment in these sectors? Normally I like to select stocks to avoid the expense of holding other instruments but I am unsure with this type of play.
Don Coxe: I like to deal with investors who have a long-term orientation. Our Fund has a five-year mandate, and we buy and hold stocks that should outperform over that time horizon. I have trouble with 15 years, because China's demographic outlook will start weakening by then, due to the single child policy that has the effect of increasing the population of young males at the expense of potential mothers.
Kevin Veitch writes:
We are getting very diverse opinions lately on the direction of gold, I'm starting to wonder if the opinions are based people's own self interest. On one hand we hear that gold prices are going down because gold, being a safe haven, as the markets improve investors are pulling their money out of gold and driving down the price. Also as the US markets improve the US dollar will rise and drive down the price of gold even further. On the other hand we hear that because the US government has embarked on a plan of quantitive easing this will eventually result in inflation, devaluing the dollar and rising the price of gold. We hear gold future prices anywhere from $700 to $2000. Can you give us your opinion.
Gold is buffeted by the economic and demographic deflations on the one hand, rising financial risk and humungous monetary expansions on the other. We see it gradually taking a large role in global monetary policies---which implies significantly higher prices.
Its haven aspects show up in day-to-day trading: gold tends to climb when broad stock indices are weakening.
Paul writes from Burlington, Ontario: Bond Markets are anticipating severe recessionary conditions. What areas would seem to offer the best opportunities at present?
Bond markets are sharply divergent from equity markets in recent weeks. Such disjunctions in the past have more often than not validated the bondbuyers' views.
If that isn't the case this time, it will probably be because of stagflationary conditions.
J. Robert Poirier writes: As a result of the present financial crisis some argue that capitalism will drastically change into some sort of a new, yet undefined system. What are your views on this?
Don Coxe: I've been writing about this for many months. I believe that capitalism will survive, but that may be based more on faith than on reason. That's one reason to be emphasizing commodities, because nobody can create trillions of tons of copper or bushels of corn through manufacturing derivatives-and because even socialist economies need food, fuels and metals.
Veronica Onyskiw writes: What is your forecast for the Cdn dollar?
Don Coxe: I have been a bull on the loonie for six years. Once again, I believe it is deeply undervalued relative to the greenback-if not to the yuan!
Peter Jones writes from Orillia, Ontario:
Don: Today copper inventories at the LME went up 2300 tons, while the price of copper went up .07 cents. How can copper continue to go up in the face of a global recession?. Is this short covering, or real demand for copper from China or elsewhere??
Dear Peter ,
I am skeptical of copper's surge at a time that other non-food commodities-notably oil-are so weak. It wasn't that long ago that Japanese traders tried to corner copper-with disastrous results. That said, China's stimulus package seems to be working, which means there's real demand out there.
I like the food commodities better.
Dick Capling writes:
Congratulations Don, on a long and distinguished career. I have lived in Ancaster for many years, and have seen the family dairy farms in our area, passed along from generation to generation. Your leadership in ensuring this family succession is commendable. But when I shop for groceries in the fresh fruit and vegetable sections, all I can find is imports -- even for storable products like squash, carrots, apples and turnips. I understand why this happens -- but it's disturbing that we can't seem to have Canadian grown fruit and vegetables available year-round at our supermarkets, the way we have Canadian meat and dairy products. When we were kids in Kitchener, our parents shopped at the market year round, and we ate what was in season, or in local storage. Is it nothing but a nostalgic fantasy, to think that our supermarkets could bend a little towards this notion? Could you comment on this from a public policy viewpoint?
Could you suggest ways we can invest in Canadian fresh fruit and vegetable production to better ensure the availability of local Canadian produce in our supermarkets?
Dear Dick ,
Thanks for the kind words. Before I came into this business, I spent three years with the Federation of Agriculture, working to develop policies that would save family farms.
Those policies need to be revisited in the light of the global food crisis.
As for the produce in stores, I look forward eagerly to the time farmers' markets reopen in Chicago and can once again buy fresh food directly from the producers. But we certainly benefit from getting a diverse diet the year' round. My grandmother in Kitchener used to make preserves out of our Victory Garden, so we ate high-quality food in different form through the winter. Those times are long gone!
Jineshwar Singh writes:
When do you see the end of the recession and what is your take on the rate of the economic recovery? Will the recovery be slow?
Dear Sir ,
Larry Summers said last week there are two kinds of economic forecasters: those who know they don't know and those who don't know they don't know. Galbraith said that macroeconomic forecasting's prime purpose was to make astrology respectable.
I look to the commodity markets and monetary growth to give us the signals-and they have both been positive in the past two months.
But the global banking system (outside Canada) is dragging us all down in joint expiation of its egregious sins. I don't know how long this collective punishment will last.
DANIEL IKONOMOV writes: What is your view on silver bullion vis-a-vis gold bullion? Thanks
Dear Daniel ,
I haven't been a real bull on silver since we cashed out my son's hoard of silver coins at the peak of the silver mania. It's not truly a monetary metal, and it tarnishes, which means it isn't a pure precious metal-and its main industrial use was photography, which has been rendered obsolete by technology.
Gold is the pure play, but it will doubtless drag silver along. I like simple concepts.
Chee Chow in Vancouver writes:
Sir, do you belief in Kondratieff cycle that suggest we are entering economic winter period? Thank you.
Don Coxe: Kondratieff was the economist who called the Depression right, but predicted capitalism would return. For that he was executed by Stalin in the gulag.
I was a believer in his work when I came into this business 38 years ago. I'm not sure it applies in a world where two emerging third world economies are more important for the global economy than Western Europe.
Ken Greenaway writes: I am a disciple of your beliefs that food is the future. I am interested in 'beefing up' the food based side of my portfolio. I would also like to diversify into world markets to hedge our CDN$ exposure to a fragile US$. Can you comment on ABF (ASSOCIATED BRITISH FOODS) as a potential investment? Are there others that might be interesting such as Carrefour?
Don Coxe: I am glad we share that basic belief. However, as Advisor to the Coxe Commodity Strategy Fund, my compliance officers counsel strongly against giving advice on individual stocks in that asset class: we could be trading in the stock or could be contemplating trading in the stock. Sorry about that.
Zach Davidson writes: Don, Gillian Tett wrote an editorial in last week's FT titled You proposed the same idea a few months back to the Obama administration and mentioned you did not hear back on your proposal. Any new thoughts, insight whether this idea is gaining traction?
Don Coxe: Gillian Tett is probably the best financial journalist in the world. I remain of the view that gold will be taking on a bigger role, but it probably won't be because of Obama.
Andy Bee writes from Calgary: What do you see as the top three under-valued growth sectors and your top two stock picks in each?
As indicated in my response to an earlier questioner, I am not permitted to make such individual stock recommendations. I can comment on sectors and groups and on the qualities I most admire or most despise.
Sorry about that.
Karynn Oxley writes: We have a balanced portfolio - financials, utilities, etc based on dividend return with the advice to hold. We have held throughout the last year. We are down about a third. Do you agree that we continue to hold stocks or should we convert to cash? We are in our early 60s. It kills me to see stocks like Teck Cominco - we have held it all the way down - should we have sold? Should we now?
If it's any comfort, I share your pain. That said, I don't believe long-term investing is dead. You have the great privilege of living in Canada, where the banks can continue to pay our generous dividends without having to rush to government for bailouts.
You may not have noticed that commodity stocks global have outperformed major indices over the past six months. Even beleaguered Teck Cominco has been on a roll lately.
Nestor writes: Mr. Coxe, What stops the world from going back to a gold standard? Would it be ideal to return to a gold standard? What would be the pro/cons or returning?
Don Coxe: What prevents the return to a gold standard is (1) the tiny supply of gold relative to the scale of global financial transactions and money supplies, and (2) the large supply of economists relative to the supply of bullion.
Nevertheless, gold may well be creeping back into the system-if only as a protection for investors against runaway monetary expansion and runaway deficits.
W. Bean from Victoria, B.C. writes: Will future Basic Points regularly cover your updated observations as the global food challenge evolves?
Don Coxe: You can count on that! Food supplies remain precarious and the current trend to global cooling isn't good news for grain producers.
Lorne Ames writes: Mr. Coxe, there are at least three deserving buckets for funds in retirement - (1) a basket of commodity stocks allocated across gold, agriculture, energy and base metals, (2) solid Canadian (growing) dividend stocks and (3) cash equivalents/short term bonds. (I have left out income trusts, long bonds and non-commodity international stocks.)
I know that you would not and can not give advice on allocations for these three without knowing a lot about the individual's circumstances but I wonder if you could share your own personal portfolio allocation in very general terms.
(The existance of a company pension/annuity has an impact on any allocation since, if secure(!), can be present-valued into a long bond equivalent that should be considered as a part of one's portfolio or assets.)
Good luck with your work on the food crisis!
Don Coxe: I own all those three asset classes. I am, as you might expect, hugely overweight commodity stocks, and see no great reason to change that stance. But I'm not yet retired. I certainly agree that you don't want to be heavily exposed into long-term bonds as a retiree, because it's hard to see how long bonds will survive a return to a strong global economy-which will come sometime soon.
Martin van de Ven writes from London, Ontario: Mr. Coxe, could you explain too the average investor a way to compare a trillion dollars. I do not think the average person understands how much money has been printed, and how it will change the value of the current U.S. $$.
Don Coxe: I've seen a picture that shows that piles of $100 bills several feet deep totalling a trillion dollars would cover a football field.
(The principal current economic function of US $100 bills is in setline transactions with drug smuggler and pirates. Perhaps Mr. Bernanke will start large-scale printing of $10,000 bills to facilitate speediness in such deals.)
Deon Louw writes: Where do you see oil prices over the next 12 - 18 months, and how could a stochastic event such as an Israeli strike on Iran affect this?
Don Coxe: I'm not sure about the next 12-18 months, but oil prices will certainly be sharply higher in the next decade, unless Mr. Obama is right that we'll be able to heat and travel on grains, wind, algae, and hope.
As for an Israeli attack on Iran, it would certainly reduce the global risk of nuclear war, but would almost surely provoke a short-term spike in oil prices. That may be one reason why there's such a steep contango in oil prices--with all futures prices higher than current prices.
J.D. Service writes from King City, Ontario: It appears Mr. Coxe has left "his" Fund-the $297 million NEW Commodity Strategy Fund behind into retirement. If not commodities, whither? Where will it be headed now? If not commodities where? Or will it be directionless, and just drift??
Please be assured that advising the Coxe Commodity Strategy is my #1 priority. I retired from the Bank of Montreal as an employee, but am working full time as an independent consultant to BMO and its clients, and definitely intend to continue that program as far ahead as mine eyes can see.
Patrick W. writes: Every triple waterfall crash you detail in your book has taken decades to recover (if at all). Do you think the same timeframe will play out this time? Also, what sectors would you say went into a triple waterfall crash (just financials, or commodities/ the whole market too?). I loved your book.
Thanks for the kind words.
Nasdaq and Japan both remain in their Triple Waterfall patterns. I am unsure whether global (non-Canadian) bank stocks are in a Triple Waterfall.
Commodities most definitely aren't.
Darrell Podlubny writes: Assuming Don still has a positive outlook on the agricultural sector, which Canadian stock(s) would he most highly recommend?
As noted in replies to earlier questioners, I can't give individual stock tips. However, I can certainly assert that Canada has some truly great agricultural stocks-world leaders.
Jordan Hokanson writes from Edmonton, Alberta:
You were one of the earliest, and more vocal proponents of agriculture being the space to invest in given the rising demand for higher protein food out of the developing Asian economies. Given all the global economic changes that we have seen in the past 18 months during the financial crisis have you revisited your medium term outlook for Agriculture? What indicators are you seeing to lead you to your conclusions?
The reasons why I turned so bullish on agricultural stocks remain intact. World food stocks remain precarious relative to risks from global cooling, and the pickup in demand that will come from China and India for high-protein foods once their economies move back into overdrive. Protein is at least as important as petroleum.
P. Waitzer writes: There has been a lot of comment regarding the secure investment in Canadian Banks. Do you share that view and do you think there is a likelihood that Canadian banks might reduce the dividends they now pay on common and preferred shares?
Don Coxe: I could be biased, because I've been an employee-and now a consultant-to Bank of Montreal since 1992, during which time stockholders have benefited hugely from dividends, and, in recent months, from Canadian banks' powerful outperformance compared to American and European banks.
That said, I see no good reason why Canada's banks shouldn't remain of pre-eminent investment quality. Canadian banks score very low on the Bankerly Cupidity and Bankerly Stupidity indices-but rank highly on the conventional statistics.
Joe Vechter writes: America selects its friends to be bailed out, changes accounting rules to assist its troubled companies and prints money like Zimbabwe. Can America be considered a 'Banana Republic'?
Given the nature of gold equities - those companies that can't find gold become worthless stocks and those that do find gold have investment bankers assist in limitless dilution. Is bullion a better play than equities?
Sunspots are at a minimum hinting at poor crops. If the weather prevents seeding, fertilizing and otherwise hinders farmers planting and incomes, will not fertilizer sales, equipment and the like be negatively affected? Again, is the commodity preferable to agricultural equity?
Thanks, sir, for the insight.
I concur in your criticisms of American policies, but decline to rank the USA with Zimbabwe--even in sardonic terms.
I disagree with your observations on the gold shares. The Coxe commodity Strategy Fund has a heavy weighting in gold miners, and they generally continue to outperform gold when gold is rising and underperform when it is falling. The crucial issue is their ability to replace production from new mines in politically-secure areas of the world. There's a huge shortage of gold deposits-and a growing shortage of safe jurisdictions.
I concur in your observations about the agricultural sector. Nevertheless, I remain of the view that the stocks should outperform the commodities.
Paul writes: I am retired. My income comes from Canadian dividends in the Big - 5 Canadian banks and utilities ; telcos and pipelines with a bit of energy. All are large cap blue chips. How secure are these for continued / rising income?
Don Coxe writes: Be glad you're a Canadian investing in Canadian blue chip stocks.
Be glad your government and central bank are performing so wisely, particularly in comparison with the US. Harper and Carney are gaining respect across the world.
Relax about your portfolio.
Cameron Marshall writes: I am incredulous at the amount of calmness in the market as trillions of US dollars are being created with little apparent effectiveness after nearly a year of stimulus in the USA. Central bankers have again indicated a willingness to dump gold into the market. I understand there is on order of 10 times more paper issued than there is actual physical gold available for delivery. Recently a fund manager backed out of a US ETF gold investment entirely after there was some serious concern expressed over whether physical delivery was actually ever attained at all or simply inferred as per the offering document details.
Question : Is the gold price languishing with all of the obvious financial trauma simply because of a massive expansion of paper bets on physical gold that it is assumed will never be "called" ie. forced to deliver ?
Don Coxe: Although I agree that financial markets are displaying behaviour that borders on insouciance, I think "calmness" n'est pas le mot juste.
Turbulence is never far below the surface, and routinely explodes into day trading.
As for gold, I believe that investors have drawn precisely the wrong conclusion from the G20 announcement about increased sales of gold from the IMF.
This is close to what I recommended to advisers to President Obama last November (although I have absolutely no reason to believe they even read them).
This starts the move of gold back into the financial system and should be seen as bullish
I have no comments on the Gold ETF, except that I have great respect for the World Gold Council and refuse to believe they'd be fudging their exposure.
Sonali Verma, Globe Investor: Don, thank you very much for letting us take so much of your time and for sharing your expertise with our readers. We really appreciate it. It's been quite the discussion.
Don Coxe: Sonali, it turned out to be fun, and I appreciate your professionalism.