Adding Fertilizer and Mulling the Market as a Commodity

Looks like the "fertilizer correction" is over. Adding to all 3 of my names on their bounces off support; actually like the Potash (POT) chart the best here, but they all move together.

I love this market. Uncle Ben has apparently created so much money, but none of it goes to people who need it out on Main Street. Instead it is flooding Wall Street pushing up equities (along with commodities) Kind of perverted, but we all thank Uncle Ben as investors, as we curse him at the grocery aisle. $122 oil? No problem. That only affects US consumers - stocks are independent of the "little people".

(X amount of stock) versus (Y amount of money supply x 20% annual growth rate) = prices go up. Economics 101.

Equities are simply another commodity at this point, it appears. Every other commodity is going ballistic, so they must all go up as well as the printing presses work overtime. I guess the current strategy is to simply move money from 1 commodity group to another - after one runs, take profits out, and go to the next one... repeat. Send Ben a thank you letter for destroying currency. Rinse. Wash. Repeat. Watch seniors on Main Street with fixed income crumble. Rinse. Wash. Repeat. Watch stock market speculators giggle with glee. Rinse. Wash. Repeat.

We'll continue to drink Kool Aid until the market shows any signs of recognizing reality. Or perhaps reality in a 20% inflationary environment no longer matters. As I said, with the 20% annual monetary growth rate we have embarked upon, it is going to be very hard to ever see a sustained downturn in the stock market. I mean if stocks were to go down 20% naturally, with 20% more money floating around, it will still be flat net. Just make sure to ask your boss for a 20% raise so that you can "break even" with the money supply.

Socialized markets are so fascinating - I'll get the hang of it sooner or later.

Disclosure: Long Potash, CF Industries, Mosaic in fund and personal account

Comments

[Amidwesternneighbor]

Lol...at first statements like this:

[$122 oil? No problem. That only affects US consumers - stocks are independent of the "little people".]

...made me question the author's sanity. Then I realized...he was going way over the top, ala "A Modest Proposal". :)

I am long POT too...because I believe that it is a two-fold story - not only a commodity "bubble" counterplay to a dollar-on-its-deathbed... but also a real growth play (hence "bubble" in quotes....)

[PhatPat]

I disagree with this last correction being the right time to buy into POT/MOS. The bounce up was on very low volume, showing a lack of conviction from institutional buyers. I am short on MOS for this reason.

[TraderMark]

Phat Phat, you may be correct - probably jumped a bit too soon but I am only in about 60% of my intended allocation. But again its about timeline, over the next week or two we probably could see some material weakness.

These names have switched from "about to break out" to "about to break down" about 6 times in the past 4 sessions so it could go either way at this point. Longer term no question though...

[hook]

it's a good thing FDX isn't getting hurt by high oil. yes, just the consumers, not stocks like fdx or ups. the high price of oil will filter through and hurt retailers, transports and eventually, ags. the chinese/indians and others who are starving will go back to eating rice oriented diets instead of protein as protein requires a lot of ridiculously priced fertilizer and most of these countries are self sustaining as far as rice is concerned. everyone in the ag trade assumes there is no substitution at higher prices of fertilizer. there is and this is why the price of rice is skyrocketing. a high price of rice is bearish for fertilizers. why? because rice requires no fertilizer and its high price is portending a move away from corn/protein based diets. if I'm a vietnamese national, do I pay 4 months of salary for a cheesburger or a few cents for some healthy and nutrious Pho. If I'm an Indonesian, do I spend a fortune on a rib eye or settle down for some basically free nasi goreng?

[subman]

I'm long on MOS but I hedge by shorting or buying POT depending on the day. So far, its been a profitable strategy. I suppose options are the better play, but I'm not that savy on how to trade them, yet. The recent correction may or may not be over but the underlying story supporting growth in fertilizer prices and profitability remains intact and shows no sign of diminishing. While I agree that the price of rice is on the rise, I believe the reasons driving this spike in prices have little to do with corn and fertilizer. Just like the shift in acreages to corn has impacted wheat prices and soybeans, similarly, many farmers in Asia are being forcibly compelled to grow crops other than rice such as latex. Also, regulatory forces and government subsidies are driving the conversion to Ethanol-based fuels and until this pressure abates, the need for corn and indirectly, fertilizer, will continue to spike. It is incorrect that market forces will function perfectly, adjusting corn consumption downward as fertilizer and oil prices increase, replacing corn with rice in people's diets, since the industry applications for corn and Ethanol usage around the world will continue to climb. Also, much of the world remains under the control of goverment authorities that will impede the free response of markets in these countries to increases in commodity prices.

[stockczar]

MOS is a great company. However, a stall in the growth rate will capsize the stock price. Adding shares would be high risk unless there is a substantial pullback. Amazing how nobody mentions the historical cycles of commodities. There is a cycle. The boom may be over. The bust may not as extreme.