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Monday, December 31, 2007

There Is A Real Shortage Of Agricultural Stocks

To quote Don Coxe from his December 28, 2007 Conference Call;

"We have a shortage. There's more of a shortage of agricultural stocks than there is of soy beans. So this is a good time for investors in this group but it's always dangerous when you've had the kind of runups that these have had to say, "Well next year is still going to be a good year." But if you think back to what happened when oil came off $22 and started its way up. When you got to $50 oil there were fewer people on board to say that we could have a run from there.

So remember that adjusted for inflation these grain prices are still at trivial levels. What people have got to adjust to is the idea that a bigger and bigger part of total consumer expenditures in the world are going to have to go on food and that's being resisted all over the place. You had the elections in Venezuela and Russia where they froze food prices during the election campaign and then they're surprised when there's scarcity in the stores and that's one of the things that beat Chavez. He thought he could by just extending the imperial arm continue to deliver cheap food to the voters and the urban mob. He got fooled.

So the food story is one of genuine scarcity of food and of stocks but you're right. The biggest scarcity is in the stocks themselves."

I have been searching for agricultural stocks and its been difficult to find anything that has not all-ready doubled or tripled.

I have found one income stock called Cervus LP. It trades on the Canadian Venture Exchange with the symbol CVL.UN-X. It trades at $16.50 and pays a $0.09 monthly ($1.08/year) distribution (6.6% yield). This company owns some John Deere dealerships in Western Canada as well as some construction equipment dealerships. It to has a big run up and is very illiquid. You can find out more by clicking here.

You can read a transcript of Don Coxe's December 28, 2007 Conference Call by Clicking here.

Sunday, December 30, 2007

2008 Investment Recommendations

BASIC POINTS INVESTMENT RECOMMENDATIONS with my comments in italics at the end of each point.

1. Remain heavily underweight banks, particularly investment banks that have displayed monumental stupidity. Do not assume that a change at the top will automatically convert them into temples of wisdom, (unless it is accompanied by demands for the departing to repay bonuses based on bets that turned out disastrously). Better to assume that, like subprime-based CDOs, there are layers of rot that can make the entire product dangerous to your financial health.

Stay away from Canadian Banks for now. Especially the CIBC.

2. Remain overweight Emerging Markets, emphasizing those that are oil, gas,and/or food exporters.

I do not like investing in emerging markets.

3. Soaring food costs threaten stability for some Third World economies. We have been ardently endorsing India since we returned from our leave of absence a year ago. We are now more cautious, because a weak monsoon could be politically and economically destabilizing at a time of $4 corn and $10 wheat.

Stay away from Indian stocks or ETFs for now.

4. Remain heavily overweight gold—both stocks and the ETF. Gold is almost as good a protection against banking problems as SKF—the UltraShort Financials ETF—a security which may not be a suitable investment in some portfolios.

SKF-N is interesting or you can try HFD-T in Canada.

5. We continue to believe that the Agricultural stocks are the pre-eminent investment class of our time. Farm incomes are rising rapidly, and, in the US, farms and farm land are the real estate assets that are rising in value and are virtually immune to foreclosures. That means the leading Ag companies have great pricing power and minimal credit problems. We now hear suggestions that because food inflation has finally made it to the cover of The Economist, it is time to start moving toward the exits. Not so: We think that fine cover story could be the atonement—At Last!—for
the magazine’s famous 1999 cover: $5 Oil.

Look at CVL.UN-X

6. Remain overweight oil and gas producers, including the Alberta oil sands producing companies. As disappointed as we are with the new royalty schemes in that province, Alberta certainly remains more attractive than Nigeria or Angola—and much more attractive than Russia, Kazakhstan, or Venezuela.

Recommend COS.UN or how about HTE.UN?

7. We think it is time to begin accumulating the refiners that are equipped to handle heavy high-sulfur crude. The collapse of the crack spread has savaged refiners’ earnings, but that will eventually rebound. The Saudis have virtually turned out the Light, and less and less of the oil that the Gulf states will be lifting will be of the most desirable grades.

This makes Harvest Energy HTE.UN very interesting

8. Retain the base metals stocks that have long-life unhedged reserves in secure areas. Even if there is a global recession caused by global collapses of subprime paper and LBO loans, it will not be deep enough to drive base metal prices back to 2004 levels—but would be worrisome enough to push further mine development even farther into the future.

Take a look at MMP.UN-T

9. When borrowing, borrow where possible in dollars. When investing, invest where possible in other currencies.

Good idea.

10. Stagflation is a bad backdrop for bonds—and for non-commodity stocks. The central bankers could have headed it off had Wall Street behaved with a modicum of morality, but the Fed and its brethren are forced into sustained reflation because of the global solvency crisis. Corporate earnings for most sectors will not meet current optimistic Street forecasts, and rising inflation will reduce the market’s P/E.

Stay away from market index funds for now.

Saturday, December 29, 2007

Enervest Diversified Income Exchange Traded Fund (EIT.UN-T) Is Trading At A 20% Discount to Net Asset Value

Enervest Diversified Income Exchange Traded Fund (EIT.UN-T) Is Trading At A 20% Discount to Net Asset Value.

At the close of trading on December 27, 2007 the units of this exchange trade fund closed at $5.23. Meanwhile its Net Asset Value (NAV) is $6.61. This is a discount of $1.38 which translates to a discount of 20.7%. This is extraordinary and unprecedented.

The fund is paying out $0.07 per month distribution which translates to a yield of 16.1%.

I think this fund should trade at a discount of 10% so I expect a 10% pop in the unit price unless the NAV collapses.

In interest of full disclosure I still own 15,000 units and I suggest you conduct your own due diligence. Click here to learn more.

Friday, December 28, 2007

Agricultural Stocks Are The Pre-eminent Investment Class Of Our Time

Don Coxe continues to believe that the Agricultural stocks are the pre-eminent investment class of our time. Farm incomes are rising rapidly, and, in the US, farms and farm land are the real estate assets that are rising in value and are virtually immune to foreclosures.

That means the leading Agricultural companies have great pricing power and minimal credit problems. We now hear suggestions that because food inflation has finally made it to the cover of The Economist, it is time to start moving toward the exits.

Not so fast.

In Don's December 19, 2007 Basic Points newsletter he makes an elegant argument of where we have been and where we are going. Don has been recommending Agricultural stocks for the last year and those that have listened to his advice have all-ready made some nice gains.

I will be emailing a copy of Don's December 19, 2007 Basic Points newsletter (this is only issued to Clients of Nesbitt Burns) on December 29, 2007. So if you haven't signed up for our free service then please do as soon as possible.

Thursday, December 20, 2007

Harvest Energy Trust Recommended at These Levels

Harvest Energy Trust: Kicking Out Healthy Distribution
by Peter Everds

Harvest Energy Trust (HTE) is a Canadian Royalty Trust with upstream and downstream operations.

As many of you may know, HTE cut their distribution recently and their units, which were trading at $28.96 in early November, got a big haircut and are now trading around $20. At current prices, the trust is yielding 17.5%.

Right now the market is not acknowledging the bottom line cash flow increases because of higher crude and NG pricing, not to mention the increase in the crack spread.

Even in Canadian dollar terms, the increases in natural gas [NG] and crude futures [CL] are significant. On November 20th, Don Vialoux estimated that the price of crude in Canadian dollars had gained roughly 28% from the low in August. He also estimated that natural gas in Canadian dollars had gained 46% from the beginning of September.

We have seen a number of Investment Banks, including Merrill Lynch (MER) and Goldman Sachs (GS), start to revise their CL price decks up in the last couple of weeks and this will help HTE's estimates. Moreover, the price decks are being upped by pretty hefty amounts. FBR (FBR) just upped their 2008 CL price $20, from $60 to $80 per barrel.

The kicker for HTE is the refinery. After 2 months of maintenance the refinery is running at full capacity. The 312 crack spread has been trending higher, more than doubling in the last 8 weeks. It has gone from a low of around $7 to the current price of $14.61 At one point this year the refinery was contributing roughly 55% of cash flow. The refinery will start contributing substantially to the bottom line as seasonal pressures lead to an increased crack spread.

We are starting to get seasonal upgrades in refiners: For instance: "Bank of America raises Refiners to Buy from Neutral; Raises 2008 refining margin outlook"; Valero Energy (VLO) raised to Buy from Neutral; Price Target raised to $80 from $68; Western Refining (WNR) raised to Buy from Neutral; Pri ce Target raised to $38 from $35

The 3Q payout ratio [POR] was 86%. Under the reduced distribution, the POR would have been roughly 70%. This is pretty reasonable considering how bad the quarter was. 4th quarter POR, with the refinery limited for 2 months, should still be in the 70s. In the "if everything goes swell category", 2008 2nd quarter POR could be in the 50s, compared to 2007's 2nd quarter POR of 63%.

Technically, HTE is at 3 year lows and the RSI and MACD are indicating HTE is oversold (surprise). There is a nice little gap in the 25.5 area. The chart is very similar to HTE's chart last year including the November gap down. Hopefully, the results will be the same with the strong rally though the first half of the year.

Insiders have bought 36,000 units since the mid-November announcement of the distribution cut. If you want a refiner that is kicking out a healthy distribution, Harvest might be worth taking a look a

Tuesday, December 4, 2007

Income Generating Securities Do Well In An Interest Rate Cutting Environment

Tha Bank of Canada reduced interest rates by 25 basis points today and the US Federal Reserve is expected to do the same next week.

The US Federal Reserve and the Bank of Canada are expected to continue to lower interest rates in an effort to prevent a recession.

When that happens, investors generally turn to dividend-paying stocks to boost their return.

If history is any guide than stocks in the utilities sector, dividend paying stocks and income trusts will trend higher over the coming months.
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