Oil Dips But...

GOLD $829.80 -35.00

CRUDE OIL $114.45 -0.75

To many of us who have participated in the commodities
rally over the last few years, Don Coxe of BMO fame
and editor of the much looked-forward to Basic Points is
probably the high priest of that belief (which I guess
means that Josef Schachter would be the high priestess).

While Schachter was saying last week and the week
before that it was time to start loading up on oil stocks
again, his suggestion looked more than a little early and
on a day like this where oil is down almost $1.00, but oil
stocks are acting as if they were down $20.00, one wonders
if panic is hitting the commodities market particularly
on the mining side where gold today is down thirty some
bucks and a chart on gold looks absolutely bleek.

For those who received Coxe’s Basic Points late last
week and had time to review it over the weekend, you
might have been feeling hopeful for this week’s activity.

Certainly not today…

As far as his investment recommendations for looking
ahead, he writes:

1. This is not the end of the commodity bull market.
Bear Stearns, F&F and other crisis will one day seem
trivial. The new global middle class that is repricing
commodities never will.

2. Remain underweight the banks and financial stocks
(which we note today, aren’t paying attention to him
and are actually doing quite well).
As a new recommendation he suggests, “Clients begin
taking preliminary positions in companies which stand to
benefit most from the possible onset of realism in US energy
policies. When—if not—offshore drilling finally gets
the nod, the majors and service companies should benefit
enormously.”

He makes an interesting comment on natural gas and
notice how natural gas prices have gone off a cliff over
the last while. He writes, “Natural gas supplies have exceeded
expectations because of the Barnett Shale and
coal bed methane booms, and because this summer has
not been as hot as had been feared. We recommend the
natural gas-oriented producers with above-average reserve
life indices.”


Natural gas is very much dependent on weather.
For those bullish on natural gas, you hope for hot
summers which would see air-conditioning increase
demand for electricity, cold winter which would increase
demand for electricity for heating and of course
hurricanes, which would shut down production facilities
in the Gulf of Mexico. It hasn’t happened.
As far as other recommendations, Coxe takes a
look at the fertilizer companies and suggests they
“have delivered the most impressive earnings gains of
any other commodity group. Nevertheless, their share
prices have fallen in recent weeks along with other
commodity groups on days when traders have been
buying banks and dumping commodities. They probably
have the most predictable earnings of all the major
commodity sectors.”
Coxe also remains a believer in gold and writes,
“Gold remains the asset that offers unique risk reduction
features in equity and balanced portfolios. As to
investment strategies, the ETF outperforms during
gold bullion selloffs, but the stocks outperform when
bullion rallies. We believe investors should have exposure
to both kinds of asset, but leave the weighting
to be resolved on individual portfolio risk/reward considerations.”

He adds,

“We keep reading forecasts predicting
falling inflation and gold prices because of a US recession,
but insisting that the recession will be neither
deep nor long. Recession actually proved to be an
aphrodisiac for gold lovers in the Seventies.”

We have seen a huge and painful correction in commodity
and stock prices, bigger than we would have
thought possible.

Here’s hoping the economies of
China, India and Asia keep chugging and can rescue
those commodity prices and ourselves.