Thursday, May 1, 2008

Today's Interesting Reads...

Some things I (or my team of 10 hamsters aka research analysts) need to read by the end of the day....

Company Specific

Fortune: Mosaic (MOS) - Why It's Up 342%
  • As food prices rise, fertilizer producer Mosaic is cashing in. And despite the massive run up in its shares, they actually look underpriced.
  • Since 2006, potash prices have increased 190% while prices for DAP have risen 400%. Mosaic's share price and earnings growth have followed similar trajectories. Mosaic's stock gained 342% last year--the best showing of any Fortune 500 company--and it's up another 25% so far in 2008.
Fortune: Chesapeake Energy (CHK) - Meet "Mr. Gas"
  • Combative CEO Aubrey McClendon has built once floundery Chesapeake Energy into the country's hottest natural gas company
  • He's Aubrey McClendon. He's worth more than $3 billion. He's co-founder and CEO of Chesapeake Energy. It's a natural-gas company, okay? Headquarters in Oklahoma City, $25 billion market cap, No. 324 on this year's Fortune 500. Already the most active driller for gas in the U.S., by a factor of two, and soon to become the country's biggest gas producer.
Food Crisis
  1. CNN reports Congress just figured out that food prices are impacting people. News Flash! See, when you use your own government's reports you'd never figure it out. Do you think any of these people actually do their own grocery shopping? Ivory tower...
  2. CNN figures out that food price inflation could be here for a few more years.
  3. WSJ - Americans begin stocking up on food anticipating further price hikes. This is the Fed's worst fear - they fear something called embedded inflation expectations. That's when people begin to horde with expectations of future price increases... which invariably are self reinforcing leading to ... price increases. But you know what? NYC bankers need more bailouts - so we can't worry about small things like that! Thank you for another handout yesterday Uncle Ben says every bank in America.
On the "pooring of America" - really my comment is not just America but all Western (above global mean) countries as there is a flattening of global wages - those below the mean will improve - those above will falter - I outlined this in 'Do the Bottom 80% of Americans Stand a Chance?'. Again these are not stark differences from 1 month to another - they are LONG term EROSION. So you don't notice it. Until one day you wake up, look back 5 years, 10 years... and for a great many in this country they have made no progress. US (and global) wealth inequality grows.

Now we see it has happened in Europe.... it has happened here in the US as well (real wages flat the entire decade adjusted for government inflation - and in real terms that means negative wage growth adjusted for real inflation). The difference? Social support/safety nets reign in Europe. In America? You fend for yourself... find a way people. NYTimes: For Europe's Middle Class, Stagnant Wages Stunt Lifestyle
  • Their combined annual income of 40,000 euros, about $62,500, lands Ms. Renard, a teacher, and Mr. Talpot, a postal worker, smack in the middle of France’s middle class. And over the last year, prices in France have risen four times as fast as their salaries.
  • At the end of every month, they blow past their bank account’s $900 overdraft limit, plunging themselves deeper into a spiral of greater resourcefulness and regret. “In France, when you can’t afford a baguette anymore, you know you’re in trouble,” Ms. Renard said
  • The European dream is under assault, as the wave of inflation sweeping the globe mixes with this continent’s long-stagnant wages. Families that once enjoyed Europe’s vaunted quality of life are pinching pennies to buy necessities, and cutting back on extras like movies and vacations abroad.
Again, we are seeing historic shifts in wealth from the "West" to the "East" - a seismic change (keep in mind the East had some of the greatest civilizations and wealth before the "colonization era"); I swiped a term I saw on Minyanville last year called "reverse colonization"... away we go... Fortune Magazine says we have 7 Years to Learn Mandarin (remember Jim Rogers moved to Singapore and his daughter has a Mandarin only speaking nanny)
  • A recent study by the economist Angus Maddison projects that China will become the world's dominant economic superpower much sooner than expected - not in 2050, but in 2015.
  • While short-term investors are already cashing in on China's growth by playing the global commodities boom, smart long-term thinkers are contemplating what happens when China matures from an exporter of cheap goods to a competitor in sectors where the U.S. is dominant - technology, brand building, finance. China has almost wiped U.S. makers of low-value items like toys and socks, but by 2015 it may threaten Apple (AAPL, Fortune 500), J.P. Morgan Chase (JPM, Fortune 500), and Procter & Gamble (PG, Fortune 500).
  • Angus Maddison's forecast (which uses purchasing power parity) isn't built on outlandish assumptions. He assumes China's growth will slow way down year by year, and America's will average about 2.6% annually, which seems reasonable. But because China has grown so stupendously during the past decade, it should still be able to take the crown in just seven more years.
  • If that happens, America will close out a 125-year run as the No. 1 economy. We assumed the title in 1890 from - guess who. Britain? France? No. The world's largest economy until 1890 was China's. That's why Maddison says he expects China to "resume its natural role as the world's largest economy by 2015." That scenario makes sense.
Back to the United States of Subprime - the NYTimes reports that Low Spending is Taking its Toll on Economy. No doubt - that's what happens when 70% of your economy is just transferring the same paper money from 1 human to the next in exchange for "services" and you produce very little tangible (are toxic mortgage backed securities considered an export? I guess so - well at least we have exports). I outlined this as a mosaic of short ideas here (keep in mind, in great irony these are the stocks now RAMPING up as the belief is EVERYTHING will be fine in 6 months - this is just setting them up for excellent shorting in the future - reality will set in to the paper traders in NYC when earnings comes in the 2nd half of 08) A lot of things people don't think about like amusement parks, casinos, and the like - will go... we are too busy buying luxuries like rice.
  • For months, beleaguered American consumers have defied expert forecasts that they would soon succumb to the pressures of falling home prices, fewer jobs and shrinking paychecks. Now, they appear to have given in.
  • On Wednesday, the Commerce Department reported that the economy continued to stagnate during the first three months of the year, with a sharp pullback in consumer spending the primary factor at play.
  • Even more ominously, Americans cut back on a wide variety of discretionary purchases, conserving their cash for necessary spending.
Meanwhile on the topic of politics, our leadership used to be so bad that many just hoped they'd fight to a standstill and not pass anything so they don't cause more harm than good. But now we seemed to have entered an era the past 3-5 years where the leadership is not only not helping the country, they are truly becoming an impediment... the country must now overcome their actions just to keep moving forward. Now that's leadership. It all comes back to lobbyists, special interests, and the fact leadership is only focused on their 4 or 6 year term. They need to pay for elections and "pay back" those who pay "for them" to get into office. Now it's costing us competitively on a global scale. And it will continue, I expect for 10-15 more years until we literally break down under our own weight of inflation, entitlement programs, and structural deficits. I know... I know... that's such liberal thinking... but its bad from both sides - they are both equally harming us.... Thomas Friedman has his thoughts on how putrid our energy policy is.

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