I thought Don's take on Goldman's call to get out of commodities was interesting...see below.

Don Coxe 4/15/11 Conference Call

· US is running a deficit of 8% GDP which the US has only run previously during war times

· There is really getting to be a concern whether the US can get its act together. Rest of world is beginning to wonder whether we are significantly dysfunctional.

· It is Coxe’s view that the advanced industrial world is showing the signs of the stagflation similar to that of the 1970’s. Two components of stagflation include (1)economic stagnation & (2) inflation

· In 70’s inflation kept rising like it is now with the commodity piece rising faster than the rest.

· Most of the Government spending is on auto pilot. Believe government is putting more money into system than it is drawing out.

· Political arena is changing it seems. Reoccurrence of a division between the lower levels and the political elitists. Thinks this will mean tumultuous action in Washington as it is difficult for the two to even talk together.

· Obama’s response to Ryan’s proposal was surprisingly political. There was not much new except that the Obama people are determined to position themselves as the only ones that can save those now getting the entitlements.

· Thinks Obama will be reelected because of his appeal to federal workers, those dependent on entitlements, and unions which means that there will be little chance of deficits being reined in anytime soon. Add to that the fact the Republicans are unable to come up with a leader.

· Wages are going up for federal employees plus at state level wages are going up. Wages in private sector will not go up. Government is a bigger part of the economy now than was the case in the 70’s. As Don states, the “sheer size of the government” suggests that there will be additional uncomfortable inflation push.

· Push for precious metals are coming from countries like China where they have double digit inflation. They will be devoting more and more of their savings to something they can believe in – e.g., hard assets.

· We will have inflationary pressures on a global basis.

· As a result the dollar continues to decline (although higher today/Friday).

· This all suggests from an investors standpoint we will need to have even greater focus on those sectors where there is some pricing ability. Not much incentive to put money into bank accounts where there is little interest.

· Big banks are again the beneficiaries as they have the pricing power. They borrow at incredibly low rates and they can pay dividends to investors and pay themselves big bonuses. Continued gigantic distortion going on.

· So what is the good news? Sudden surge of sun spots is good news….almost out of nowhere. Also stock prices remain at very high levels which is the result of all the money being pumped into the economy. Elevation in the stock prices which still seems to be priced based on 4% GDP. This is good news for those who want to rebalance their portfolios. Those who believe in stagflation can move money out of stock market and move it into commodities.

· Best performing group in recent months has been the grains. Yet there has been a major underperformance of key ag sector. Fertilizer producers 6 mos ago were 41st best sector per IBD and now they are down to 130 best sector. None of the ag groups rank near the best groups. This indicates to him that we have a huge opportunity to invest in a group that has pricing power. This should be a tremendous year for Ag stocks but now they are on the bargain counter.

· Precious metals were ranked 4th 6 months ago and then also fell off the wagon but unlike ags have now moved up to no. 9. This is the bad news sector where you rush to when you think things are going to get worse. Certainly you have to have a good weighting in the PMs. All that printing of money will eventually make its way into the inflation numbers.

· Things seem to be getting worse. Thinks energy prices will stay elevated.

· Investors can now rearrange their portfolio into more of the commodity sector (ag, oil, PM)

· Question from audience: What is your opinion about silver stocks which have not seemed to have moved much. Don – you need to differentiate between miners where folks are concerned with their lack of reserves and the streamers (like SLW) where one has to wonder how they will be able in the future to maintain their current incredible profit margins since they will have to continue to buy properties which will be more expensive. Keep in mind that some of the biggest silver producers are the big gold miners. Thinks they should be doing better than what they are with many having big surprises in earnings in the future.

· Real return bonds should be a big component of any fixed income portfolio given the real threat of inflation. (Susan – thinks he means the bonds tied to inflation like TIPS)

· Question – what do you see ahead as to pipelines, REITS, utilities? Don’s response: Could be viewed as positive as they will be viewed as being able to “stay in business” Although the pipelines didn’t give you the best returns in the 70’s they did outperformed the cyclicals.

· Question – What do you think about Goldman’s suggestion that investors should move out of commodities. Don’s answer: Their vehicle they use for oil was not really working very well given the price contango so it was a good way for them to get their investors out of a poorly functioning vehicle. You have to take what Goldman said with a grain of salt. Don does not agree that commodities will underperform. Said it seems to be a very poor time to take money out of commodities at this time when GDP is being scaled back and US is facing the worst fiscal crisis ever in its history.