INVESTMENT RECOMMENDATIONS
Donald G. M. Coxe
Global Portfolio Strategist, BMO Financial Group
1. Global stock markets are pricing in nothing but good times.
Nevertheless, with the Fed, the ECB and the BOJ in tightening modes of
varying intensity, the global liquidity flood that has been lifting most
boats has crested. Adding heavily to equity positions at a time of rising
geopolitical tensions and shrinking liquidity is an unsound strategy. Use
strong rallies, particularly in US stocks, to reduce equity exposures.
2. Remain overweight in oil and gas stocks, with heavy emphasis on
Alberta oil sands companies. US refiners remain very cheap, and
Washington's lawmakers, who speak with forked tongues,
simultaneously command the oil companies to change their gasoline
mixes (at great cost), and control their price increases. We believe they
will achieve the first objective, but fail miserably in the second.
3. Remain overweight the base metal producers. Every base metal except
nickel hit alltime highs in recent weeks, but their stock prices did not.
They remain the most attractive commodity producing group (other
than the Alberta oil sands producers).
4. Remain overweight the gold and silver producers. The speculation
attendant on creation of the silver ETF has made the byproduct silver in
the typical gold deposit more profitable. Emphasize those mines with
the best reserve characteristics.
5. Ben Bernanke says the flat yield curve isn't a significant indicator that
the economy will slow down. If so, then "It's different this time" has
become the cornerstone of Fed policy. He could be right, but if you have
substantial US equity exposure, then your bond portfolio should be
betting he's wrong. Increase your US bond durations and upgrade your
portfolio quality in balanced portfolios. In bond-only portfolios, be
alert for more signs that the economy will be softening by summer, and
prepare to move from neutral to long duration.
6. The dollar is getting help from those rioters in France, and from the
market's belief that Bernanke is committed to raising rates to 5% and,
perhaps, beyond. The French rioters will go away well before Bernanke
stops tightening. By late this year, both those dollar props will be gone.
March