Don Coxe has turned bullish on stocks

[dan_s]

This from Don's newsletter:

At all our public meetings, we are asked whether the upcoming US elections
could prove to be good news for the economy and for stocks.
We say that we doubt it—partly because we doubt there will be substantial
change. We continue to believe Mr. Obama will be the likely winner and we
continue to believe that, despite his charm and energy, he will tend to be, on
balance, a negative for US security abroad and for the US economy.
However, he remains a formidable campaigner. His State of the Union speech
this week was truly impressive. He is to the rostrum and teleprompter what
Horowitz was to the piano and stool. He was passionately moderate. He
wowed his supporters and scared his opponents. He used the takedown of
Osama bin Laden as the metaphorical structure for an arresting view of what
has made American society great—and how it can be great again. His claims
of impressive strength for US manufacturing and the US economy certainly
overstated reality, but a President is expected to be a cheerleader.
If Mitt Romney and Newt Gingrich watched, they may each have felt they
were fighting for the right to take on the political equivalent of Muhammad
Ali in his prime.
No, he never once mentioned the pipeline that he vetoed. He would have
had to push even his skills for exaggeration and obfuscation to their limits,
and The Speech was hardly the occasion.
We wrote about the Keystone XL turndown last month, observing that
Obama makes such decisions to appeal to his big backers in the NGOs, to
the far Left in his own party, and in his own, pathetically-unshakable belief
in Green energy.
Keystone was a particularly vulnerable application because it would be a
shovel-ready product built entirely with funds supplied by a Canadian
company, was vigorously backed by the Canadian government, and it would
reinforce the development of the oil sands, with reserves of Saudi proportions.
The US environmentalists are united in opposition to those projects, because
they would have the potential effect of securing American oil supplies for
many decades, whereas they want to get America off oil and on to Green
energy, such as lithium-fueled cars costing the taxpayers more than $50,000-
per-car that seem to have a nasty habit of catching fire.

[dan_s]

The American Left did its homework before uniting in the Battle to Kill
Keystone. Some of those high-profile Hollywood environment experts who
spent a night in Washington jails said that their objective was to shut down
the oil sands: when access to the US was banned, the oil sands would be
hopelessly landlocked because they expected Canadian aboriginals would
block a pipeline to carry oil to China.
Prime Minister Harper has bravely announced that Canada will not let the
international Left block the alternative to Keystone, the Gateway Pipeline to
Kitimat proposed by Enbridge. Hearings to consider objections to the line
have commenced.
Already, chiefs of the BC and Alberta First Nations have declared their
opposition to the Enbridge proposals, which would cross territories they
claim as theirs outright.
Fortunately, the American oil and gas industry is proving up vast reserves of
shale gas and surprisingly large reserves of shale oil despite the White House
and the Environmental Protection Agency… although you wouldn’t have
known that if you listened to the State of the Union speech. Mr. Obama now
claims much of the credit for all those discoveries, saying they came from
data prepared by government agencies at taxpayer expense. One is awestruck
at his audacious restatement of history. But, as Napoleon observed, history is
written by winners and Obama looks like a winner.
However, we can't let that breathtaking claim go unchallenged. The
Republican takeover of the House meant that the industry's most vocal
Congressional foe, Congressman Henry Waxman, no longer presided over
the Energy Committee, and Nancy Pelosi was no longer able to get backing
for favored green companies while battling both on and offshore drilling "to
save the planet."
Result: the shale boom has proceeded without active Congressional
opposition, and the Gulf is once again experiencing a pickup in drilling
activity. (The headline you may not have seen, because it appeared on Page
16, was that even the EPA's investigators have admitted that they aren't finding
new oil slicks in the Gulf, because microbes have apparently devoured much
of the leaked oil from Macondo, and those microbes have become part of
the food chain, which means the shrimp are back. Remember when we were
assured by The Best Experts the Government Could Find that the Gulf would
not recover for years, and the shrimp and pelicans might not come back in
this decade? And have you seen the TV commercials from the Gulf states
trumpeting their pristine beaches, saying "Y'all come down now"?)

[dan_s]

RECOMMENDATIONS

1. We recommend that balanced-fund investors increase their equity
exposures from minimal to modest.
The risks of policy failure in the eurozone remain large and unquantifiable,
but the ECB is, for now, performing like the Bernanke Fed—full-blown,
damn the torpedoes, crisis mode. The Germans and other skeptics may
permit the monetary expansion to proceed apace as long as the euro
doesn't collapse. As long as the refinancing continue, PIIGS bonds' and
eurobanks' status as financial typhoid carriers goes into remission.

. The Treasury yields almost seem to be designed to push investors into
dividend-paying stocks.
With recently-downgraded 10-year Treasurys yielding 2%—a negative yield
in real terms, and a Bernanke pledge to hold spigots open for another
3 years, investors should seek alternatives. Bonds are historically priced
for (1) quality of the issuer, and (2) the currency of issue, and (3) the
attractiveness of the yield. Three strikes, Treasurys, and you're out.

3. Dividends are more predictable than earnings and, for the past year, great
dividend-paying stocks have been far more fun and rewarding to own than
those with unreliable or non-existent dividends. That trend will accelerate
this year.

4. Spot natural gas is $2.60, while nat gas three years from now trades at
$4.27. That contango is helping to finance the continued over-drilling of
shale gas, because producers can lock in breakeven prices in the future.
What the biggest shale producer, Chesapeake Energy (CHK) is doing is
trying to get the industry to collectively cut back on drilling. There will
be no Gaspec. We recommend you stick with oil. The long-duration oil
producers still look very attractive, and their long-duration reserves will
far outlive Obama.

5. Copper is on a roll. If it breaks $4, then it should mean that China has
completed its painful downshifting and has paved the way for the entry of
the new regime at a time of resumed growth. We have been underweighting
the base metal producers for more than two years, but we are now looking
more closely at the possibility of an upgrade.

[dan_s]

6. The USDA's annual crop report was a shock to holders of grain futures. But
$6.40 corn and $12 beans will still entice US farmers and their counterparts
abroad to buy fertilizer and other inputs this spring. Remain overweight
agricultural stocks.

7. Gold has in the past decade evolved from being a curiosity to a speculative
investment to a sound investment. It is now becoming a necessary
investment, as central banks print money prodigiously—and promise to
continue. Emphasize the miners at the expense of the bullion ETFs.

8. Canadian house prices remain very strong, evoking warnings from the Bank
of Canada's Mark Carney and several bank presidents. The widespread
Canadian conviction that the US housing experience is irrelevant north of
the 49th Parallel may prove to be a remarkable case of mass solipsism.

9. Apart from this potential major private sector problem, Canadian public
policy continues to be better-managed than in the USA; Canadian bonds,
high-quality preferred shares and the high-quality, high-yielding Canadian
banks' shares are attractive investments for investors anywhere.