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The Gold Stock Strategist analyzes leading junior gold producers and major gold mining companies.

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Wednesday, March 10, 2010

Perspective: Macro Strategist Don Coxe

BNN interviewed Don Coxe yesterday. Mr. Coxe is strategy advisor at BMO Financial Group and Chairman, Coxe Advisors LLC. Mr. Coxe, a 37-year veteran of the Canadian investment community, is a favorite macro strategist of mine and he aptly sums up the state of the world economy and where it is headed in the future.

His investment strategy theme is “Chindia’s necessity is the mother of investing,” a take on Thorstein Veblen’s early 20th century observation that “necessity is the mother of invention.” What Coxe is trying to convey is that we will continue to see a bifurcated market in which commodities continue to do well because of China’s and India’s (Chindia for short) demand for raw materials. He believes the economic recovery in Chindia is real and that demand for hard assets will continue to expand.

Coxe points to the problems of the West that will continue to hold back industrialized economies. The problems include a debt-laden consumer, sharply lower housing values, a trillion of toxic assets at the big bailout banks in the U.S., and the aging of the population in Europe and the United States.

He sees the bulks (iron ore, coal) doing very well going forward, citing a recent 20 percent price increase for iron negotiated by BHP Billiton (BHP) as evidence that Asia will continue to pull the world out of its economic malaise. Copper permeates the global economy, says Coxe. He talks about copper being another leading indicator signaling recovery for the world economy.

A bet on base metals is a bet on China. A bet on precious metals is a bet on Obama -- Don Coxe --

His take on gold is that the breakout above $1,000 an ounce occurred when the two biggest demand markets—the jewelry industry and Indian brides—were falling off. Major central banks had stopped selling gold and India’s central bank even made a huge purchase from the IMF. Coxe indicates that gold is a barometer for relative values because it is a store of value. Gold doesn’t make you rich, it protects what you have. In a recent report, he writes that “Gold is an absolutely necessary component of any wealth building strategy.”

Another thread that he expands on is that there is a tremendous level of financial paper throughout the world with counterparty risk. Counterparty risk is the risk that someone can’t pay back a loan. As a result, this means the paper (loan agreement) is only as good as the credit quality of the debtor. Coxe states that gold has no counterparty risk. As a safe haven play on extraordinary levels of public debt in U.S. since the Obama Administration has taken power, the price of gold has broken and stayed above $1,000 an ounce.

Gold is a bet that paper money isn’t a good bet.” -- Don Coxe --

He also expects there will be increased consolidation in the gold mining industry with majors cleaning up their balance sheets, paying down their debts, and building cash in preparation for acquisitions. As always, he offers his preference for gold companies with “unhedged reserves in the ground in politically safe areas of the world.”

Emerging gold producers with large and expanding reserves look like good plays if Mr. Coxe is correct.

Never invest on the base of a story on page one, you invest in a story on page 16 on its way to page one. -- Don Coxe --

Give it a listen, I think you’ll enjoy his perspective.

Source: BNN

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