Thursday, January 17, 2008

Morgan Stanley Worried About Fertilizer

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Aha! Finally we found a way to worry about even the bulletproof fertilizer stocks. Not even a week after stellar earnings from Mosaic (MOS) we now can find a way to even begin to worry about the biggest secular story out there. :) Classic action here. Nothing is deemed safe anymore since the sky is falling.

If you look close enough you can find a wart on anything - for example, with the economy slowing won't nicotine addicted smokers finally begin to quit since they are running out of cash? Won't they cut back on toiletries (bad hygiene makes a rise as people are too poor to buy the basics)? Won't we stop flying on airlines (why are they going up as oil falls and mergers are announced - people will be too poor to fly anyhow)? Etc etc. Won't people make less visits to the doctor (who can make those co-pays - the great depression is upon us)?

As with McDonald's last week[No Safety, even in McDonald's] where the thesis is people will be so poor they will cut back to visiting the cheapest restaurant in America; we are now officially in over reaction / paranoia mode. When will we bottom? Perhaps when we see the analyst come out with the 'rigorous' analysis that Walmart (WMT) must be sold because people are too poor to shop there as well. This is classic move from bullish to bearish and from 1 extreme to another. Where were these analysts 6 months ago? We went from an immune consumer 6 months ago to a consumer who will abandon even McDonald's (and next Walmart). All in 180 days. As I wrote last week - keep in mind these newly minted MBA's who have never lived through even a 20% market correction or any sort of recession (2001 was a recession on paper only) - and any slowdown will seem to be the "End of Days". It seems to be starting with the commentary and "analysis" I am reading the past week :) And yes I am negative on the economy, but it is all relative. Some of the ideas I am seeing tossed around by analysts are harking to 1930-1939. :) Perhaps, but I am not ready to really go that far.

Thanks to Notable Calls on Fertilizer

Morgan Stanley notes yesterday’s declines in fertilizer shares seem to be largely due to a somewhat surprising gain in potash inventory. While the bulls would argue that this inventory build is seasonal, the firm notes that historically inventory build generally starts in August or September and not in December. If the potash market is so strong, how could inventory have risen so sharply in the month of December? Firm believes the issue may go a bit deeper and may turn out to be a bit more ominous as customers may be over-ordering in light of tight supply and rapid price increases. This would distort what producers see as “demand.” While producers continue to maintain that they are unable to keep up with orders and sales are on allocation or some degree of restriction, the inventory gain may have shown otherwise. The potash inventory gain may only be a small “hiccup” in the perfect stream of data we have been seeing, but points to a certain degree of vulnerability in the shares if the data turns less buoyant.

Firm maintains Cautious industry stance but does not have enough data to call for a sustained downturn. Maintains Underweight rating on PotashCorp (NYSE:POT) and Agrium (NYSE:AGU) and are currently Equal-weight on Mosai (NYSE:MOS).

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Just like with McDonald's I think if we look back in a year we will see these as great buying opportunities. But for now, we live in fear and every shadow lurking around every corner is the beginning of the end for every secular growth market we have. They are all suddenly just "gone". After Apple (AAPL) reports the quarter of the century next week, you will see the same commentary I am sure - yes, it was a blockbuster quarter but with the consumer unable to even buy a Big Mac how will he ever buy a new laptop? Look I could be wrong on all my theories and in fact fertilizer stocks are done, Apple is done, Petrobras (PBR) is done (who needs oil anymore anyhow?), etc etc. But you will at least know why the NAV of the fund is $0 if every great secular story ended last week. And please send me pictures of your fallout shelters as we move to this Mad Max world. :)

Folks, these analysts have moved the US down from our top spot in world GDP to Kiribati [World GDP by Country] levels of consumerism in the past 3 weeks. How quickly we've fallen. Look at Togo just pass us by in the still of the night. Katy bar the door. It's over for the USA.

Long Mosaic, Apple, Petrobras, and Potash in fund and in personal account

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