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View Full Version : BMO Nesbitt Burns Don Coxe Weekly Webcast



Sapiens
11-15-07, 11:02 AM
http://events.startcast.com/events/199/B0002/code/eventframe.asp

Excellent call, lend it an ear. Banking system under stress and Fed's actions.

bill
11-15-07, 12:05 PM
http://events.startcast.com/events/199/B0002/code/eventframe.asp

Excellent call, lend it an ear. Banking system under stress and Fed's actions.

Thanks Sapiens
The guy is spot on regards to grains and other commodities. I continue to think that the corn ethanol subsidy was put in place not just for ethanol demand alone but to expand infrastructure for grain production export and that is real value in the US . I passed up purchasing quite a few Iowa farms 2yrs ago as I wanted to avoid dollar denominated assets. I favor uranium in Australia . One of his best points was to make sure you pick a stable country with commodities.

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jk
11-15-07, 01:06 PM
excellent presentation. here are my notes for those who are interested:

bank write downs => levered losses of liquidity. note incrs in libor and eurobor.

abx was dropping and dollar dropping even as stock indexes rose.
gold also rising- "that rare asset which is nobody else's liability."

dollar tied into u.s. banking system.
when dollar rising meant funds flowing into dollar zone. this meant improvement in liquidity, increased access to funds, for

u.s. banks.
now persistant outflows from dollar stresses banking system.

fed supplied liquidity by lower rates is opposite to action which would defend dollar.

foreign banks taking huge write downs on dollar exposed assets.
wirte downs imply loss of faith/credibility as well as diminished holdings in the dollar zone.

the dollar and the major u.s. banks go down together- they are each other's problems.

petrocountries less and less willing to invest back in dollar zone.

cb's have been selling gold over last 2 decades- they've been wrong.
meanwhile as india has gotten wealthier, indian brides have absorbed the total cb sales.

none of this is good for the dollar or equities valued in dollars. the value of u.s. stocks in the global markets will

shrink.

s&p pe's will shrink.

what about multinationals' earnings abroad? eurozone, britain and canada are main site of u.s multi's foreign investments.

weaker dollar means u.s companies more competitive with u.s. subsidiaries abroad.



the key to commodities is growth in 3rd world.

even if u.s. goes into recession and u.s. savings rate increases; doesn't mean that china and india and brazil will go into

recession.

you don't see china sending cars or cranes or ships to the u.s. thus china's heavy metal imports go into their own domestic

capital goods. roughly 40% of chinese gdp goes into fixed capital investment. if chinese export industries are hurt, say

chinese gdp goes down 3%, that drops growth from 11 to 8% but china is twice as commodity intensive as u.s. so will still

need commodity imports.


in india, too, lots of internal growth.

the food story:
u.s. consumers' incomes are stagnant, can't use the housing atm, but must spend more for food and fuels. thus disposable

income going down. ppi and cpi imply this will just get worse. crude goods are going up over 20% annualized, but finished

goods going up only 6%. collaps in crack spread re petroleum is going to normalize- implies gasoline going up. heating oil

near or at all time record. consumer will be spending more on eating and heating, and driving. consumer optimism

deteriorating as we enter xmas buying season.

consumer discretionary stocks underperforming and have a lot more underperformance to come.

for 63 straight quarters consumers have grown spending faster than incomes. eventually this must lead to retrenchment.

so banking system retrenching on lending. consumer retrenching because of rising costs of basics. dollar going down as fed

expands money supply. thus higher costs for imports.

as 3rd world sees dollar going down, so expanding own money supplies to slow the rise of their currencies versus the dollar.

so their money supplies increasing. so globally money supply growth dramatically higher than real growth.

we've run down inventories of everything we need. no cushion against crop failures, mine problems, interruptions in oil

lifting.

no cushion left. hard for cb's to manage this situation.

moved from global disinflation to a global economy which is fundamentally inflationary.

overall price increases of chinese goods coming into u.s. now twice the u.s. cpi. so china no longer exporting deflation.

food is 40% of cpi in china, and is rising over 16%. same thing in india where food is 30% of cpi. this puts pressure on

wages in 3rd world. cost of egg production in india is up over 80%

commodity companies are still cheap relative to earnings and the rest of the stock market. these companies are

irreplaceable. every time a putin or chavez seizes assets, this reduces investment in the sector. also the value of similar

assets in politically secure environments rises.

want to own inflation hedges.

commodity stocks will be rerated upwards because their assets and income are strong relative to inflation.

reduce exposure to financials, u.s. consumer discretionary. use sell-offs to buy commodity stocks. e.g. potash, suncor,

barrick. when yen strengthens these stocks sell off. there will be volatility but long term "in the sweet spot."

less of global gdp will be in u.s. more will be elsewhere. and more will be invested in production of basic goods. primary

producers will get bigger piece of pie even if growth slows.

ultimately there is so much forced savings in petrocountries and swf's which are not levered, must go somewhere.


+++++++++++++

questions-
earnings not great in commodity companies because of cost rises. - there will be pe expansion. value on basis of unhedged

reserves in the ground in politically secure areas. once people realize there's inflation, reserves will drive the values.

need to own producers, not processors. also can invest in e.g. oil service cos, agric. eqpt, seeds, etc.- companies which

help relieve scarcity conditions.

bill
11-15-07, 05:11 PM
I favor uranium in Australia . One of his best points was to make sure you pick a stable country with commodities.

This is why:
http://www.miningmx.com/energy/677377.htm


Froneman calms U shortfall, license fears
David McKay
Posted: Thu, 15 Nov 2007
There was also uncertainty regarding legislation passed in Kazakhstan, where Uranium One has uranium oxide producing assets and exploration prospects, which restated subsoil agreements. In terms of the law, certain contracts are to be revised in order to "restore the economic interets of Kazakhstan", according to a parliament statement on September 12.