BE CAREFULL – Here’s why

5 of 10 Investment Recommendations from Donald Coxe’s Bank of Montreal Basic Points Distributed by BMO Capital Markets contact them for a copy of the 53 page IBM@1 = Big Ben’s Big Blues Basic Points HERE

IBM@1 = Big Ben’s Big Blues

From the Overview: We return to the blues theme we used a year ago (Dem Blues). Since then, the number we’ve been using for our analysis has been Zero. This time it’s One: the 1% coupon on Big Blue’s recent $1.5 billion three-year bond issue, which came—oversubscribed—at par. IBM was AAA back when its System 360 dominated the industry, but today it doesn’t even make its own PCs and it is a mere Single A.

The coupon on that bond tolls trouble for “Big Ben” Bernanke and most investors—particularly pension funds. (IBM’s bond yield is slightly less than half its stock’s.) The only major economy of the past century that experienced bond yields in that range has been Japan, a demographic disaster whose future is modeled on the passenger pigeon.

Recommendations:

1. Investors should retain above-average liquidity levels. The US and European ﬁnancial systems have solvency problems that have been papered-over. They could explode suddenly, creating severe liquidity problems.

3. Within commodity equity portfolios, use the four-sector approach. Its biggest overweight should be precious metals, emphasizing gold.

4. The second-most attractive sector is agriculture. It is largely independent of the economic and ﬁ nancial risks that affect most equity groups, for which the overweight in precious metals is appropriate. The prices of corn, soybeans and wheat are the most important indicators of agricultural stock performance, and they are continuing strong in response to weather problems in Europe and Western Asia.

9. Remain overweight Canada within North American and global portfolios. The soft patch for the loonie and the Canadian economy should not become anything more serious.

10. In balanced portfolios, emphasize long-duration high-quality government bonds as the best asset class for a double dip. When—or if—the clouds start to roll by, reduce duration immediately.