Friday, August 27, 2010

The Potash price play

Una Galani, Reuters ·

Potash prices are crucial to how far BHP Billiton can stretch its US$39-billion hostile bid for Canada's Potash Corp. of Saskatchewan. The miner's offer is essentially a bet on demand for the commodity, which accounts for the bulk of the fertilizer giant's value.

According to calculations by Reuters Breakingviews, every US$50 increase in the long-term price of a tonne of potash adds about US$20 to Potash Corp.'s value. BHP's offer reflects the current market. But if prices rocket, so too will the value of its target.

To value Potash Corp., start by looking at its other businesses. The company's phosphate and nitrogen divisions are worth roughly US$11-billion, according to Morgan Stanley's estimates of what it would cost to rebuild them. Potash Corp. also owns stakes in smaller listed rivals which have a current market value of US$8-billion. (more)

BNN: Top Picks

Paul Harris, partner and portfolio manager, Avenue Investment Management, shares his top picks.

click here for video

9 Stocks to Hold Forever

Timothy Lutts /,

As to the market, which is very good about following the rules of supply and demand, these are very interesting times. Demand is down, in part because of lousy economic news (which I’m not going to go into today). Bond yields are at record lows … a clear sign of the market’s “flight to safety.” And it’s extremely difficult to find an optimistic economist these days. (You know in your heart that they’re often wrong, but you listen to them anyway.)

Ben Bernanke commented a month ago that “the economic outlook remains unusually uncertain,” and the President of Cisco (CSCO), John Chambers, repeated that outlook after his company’s earnings report last week, saying, “We think the words “unusual uncertainty” are an accurate description of what’s occurring.”

The market, of course, hates uncertainty, but I’ve learned to embrace it, which is why I’ve been growing increasingly optimistic in recent weeks, particularly because the market hasn’t fallen apart. So today, I want to give you part two of my article on “Stocks to Hold Forever.”

Part one, back on July 28, told you about the amazing Mr. Phelps, whose investment strategy was to buy stocks with exceptional growth potential when they were young … and never sell them. (more)

As Economy Wilts, Investors Await Bernanke Speech

By: Dan Weil

Investors are waiting with baited breath to see what Federal Reserve Chairman Ben Bernanke has to say in his speech about the economy at a Fed symposium Friday.

It will be his first public remarks since the central bank’s decision earlier this month to buy Treasury securities with the proceeds from its maturing mortgage bonds. That will keep the Fed’s balance sheet at $2.05 trillion, avoiding a shrinkage of its quantitative easing program.

After this week’s housing data, some economists are growing more worried about the possibility of a double-dip recession and deflation.

Existing home sales plunged 27 percent in July from June to at least an 11-year low. And new home sales dropped 12 percent in July to at least a 47-year low.

Economists now expect that second quarter GDP growth, originally estimated by the government at 2.4 percent, will be revised down to 1.5 percent Friday. That’s a far cry from the 3.7 percent expansion in the first quarter. (more)

Bullish Sentiment Plummets to Credit Crisis Low

By: John Melloy Executive Producer, Fast Money

The number of individual investors who have a bullish outlook on the stock market for the next six months plunged to 21 percent, from 30 percent last week, according to a widely followed sentiment survey.

What’s more, this is the lowest weekly reading from the American Association of Individual Investors since a March 2009 level of 19 percent, which occurred just before the S&P 500 collapsed to a 12-year low of 676.

1047.22 -8.11 (-0.77%%)

So effectively, individual investors feel as good about stocks as they did at the very depths of the credit crisis, even though the S&P 500 is still more than 50 percent higher than that low.

Looking at the events of the past five days (the survey is completed every Wednesday) not much comes to mind that would trigger such a surge in pessimism. There was the record plunge in July existing home sales on Tuesday, but the stock market actually almost finished higher that day as traders speculated that was just the after-effects of a tax credit that pulled sales forward. (more)

Gold stocks discount lower gold price

David Berman/

Michael Curran, an analyst at RBC Dominion Securities Inc., is bullish on gold and gold equities, and you can see why. Whereas gold trades at about $1240 (U.S.) an ounce right now, gold equities are discounting considerably lower prices for the commodity, leaving plenty of upside potential.

According to his figures, the average discounted gold price among North American Tier 1 producers is $915 an ounce. In other words, the stock prices assume that the long-term price of gold will tumble about 26 per cent from the current level. Yamana Gold Inc. (YRI-T10.79-0.03-0.28%) has the lowest discounted gold price, at $780 an ounce. Newmont Mining Corp. (NEM-N59.440.701.19%) has the highest discounted gold price, at $1017 an ounce. Barrick Gold Corp. (ABX-T48.820.861.79%) is near the average, at $904 an ounce.

If the discounted gold price were to narrow the gap with the actual, current price – say, to $1,200 an ounce – then share prices would rise considerably. In fact, the average pop would be 55 per cent. Even with a discounted price of just $1,000 an ounce, the average share price would rise 17 per cent. (more)

10 Practical Steps That You Can Take To Insulate Yourself (At Least Somewhat) From The Coming Economic Collapse

Most Americans are still operating under the delusion that this "recession" will end and that the "good times" will return soon, but a growing minority of Americans are starting to realize that things are fundamentally changing and that they better start preparing for what is ahead. These "preppers" come from all over the political spectrum and from every age group. More than at any other time in modern history, the American people lack faith in the U.S. economic system. In dozens of previous columns, I have detailed the horrific economic problems that we are now facing in excruciating detail. Many readers have started to complain that all I do is "scare" people and that I don't provide any practical solutions. Well, not everyone can move to Montana and start a llama farm, but hopefully this article will give people some practical steps that they can take to insulate themselves (at least to an extent) from the coming economic collapse.

But before I get into what people need to do, let's take a minute to understand just how bad things are getting out there. The economic numbers in the headlines go up and down and it can all be very confusing to most Americans.

However, there are two long-term trends that are very clear and that anyone can understand.... (more)

Birinyi Cuts 2010 Forecast, Says Bull Market Intact

Weakening economic growth will cut returns for the Standard & Poor’s 500 Index this year while failing to end the bull market that started 17 months ago, according to Birinyi Associates Inc.

The benchmark gauge for American equities will probably rise 17 percent from today’s close to 1,225 by year-end, the Westport, Connecticut-based research and money management firm founded by Laszlo Birinyi wrote in a note to clients. Birinyi forecast a rally to 1,325 on March 29.

Declines in companies from Wal-Mart Stores Inc. to Procter & Gamble Co. are unlikely to be erased this year, spurring the lowered forecast, the firm said. Birinyi, one of the first money managers to advise buying stocks before the S&P 500 bottomed in March 2009, has maintained his bullish stance even as the gauge lost 13 percent since April. (more)

Gerald Celente: Economic Collision Course: The “Crash of 2010”

Following the “Panic of ’08” and the subsequent “Great Recession,” Washington, Wall Street and the media united to promote the belief that extreme crisis management measures enacted by governments had rescued the world, and staved off even worse disaster.

“Recovery” was in the air. “Recovery” was the word on the public’s lips. “Recovery” was fervently preached and endlessly pitched.

A very few argued that the measures could not work; that they would not live up to expectations. But only Gerald Celente predicted, from the onset, that they would fail completely, leading to the “Crash of 2010” and an inevitable descent into the “Greatest Depression.”

Now, with the data catching up to Celente and the economic skies falling, the “Recovery Hawks” have turned “Chicken Little.”

Celente plotted out the collision course and provided strategies for both steering clear of the dead end “Road to Recovery” and following roads less traveled that would lead to safety and success.

As every driver knows, in the moment before a collision there’s a gap – a split second – between recognition of the crash to come and the impact. In economic terms, that gap was the period between August 2007 (when we pinpointed an imminent financial crisis) and now … August 2010. (more)

Chances of Double Dip Now Over 40%: Roubini


The chances of a double-dip recession are now more than 40 percent and policymakers have options to stimulate the economy, Nouriel Roubini of Roubini Global Economics told CNBC Thursday.

Second-quarter gross domestic product growth will be revised down to an a annual rate of 1.2 percent from an initial reading of 2.4 percent, Roubini said, adding that any improvement recently was due to inventory adjustments.

Roubini, who is often referred to as "Dr. Doom," also said that a "series of tailwinds in the first half of the year ... are going to be essentially headwinds" in the second half. (more)

The 15 Best Things Warren Buffett Has Ever Said About Investing

Famously called "the oracle of Omaha", Warren Buffett often delights journalists and his fans with gems of essential business wisdom and humor.

Many of them actually come from his annual letters to his shareholders, where he explains Berkshire Hathaway's current situation. This is not your usual report - Buffett actually talks to his shareholders, explains what's going on, and cracks jokes.

Other extremely quotable nuggets come from speeches or interviews. Broadcast journalists call the investor a "bite machine".

We compiled a few of the best quotes on investing we could find, without claiming to be exhaustive. If we've missed any of your favorites, feel free to let us know in the comments. (more)

Keiser Report: Global economy death spiral