3% of our fund is invested in Supply Inelasticity theme share, Potash Corp (POT: US), the world’s largest fertilizer company. So it raises a cheer when quarterly profits double, sales rise +47% and the CEO declares his domestic market to be "extraordinarily strong". "Farmers just lick their chops at USD6 corn", he says (we’re now at USD 6.50) and are laying out on fertilizer to maximise yields whilst grain prices are strong. Although fertilizer family prices (nitrates, urea etc) have been rising, the old 2008 highs still tower 50-100% above current levels, and POT’s potential share price upside is similar. Earnings of USD 4 in 2011 (methinks guidance is too conservative at USD 3.80) puts POT on a PER of 11x, just as supply tightness starts to kick in. Inventories are low and the Chinese, a key 20% buyer who wish to avoid a Chinese Spring via food scarcity at home, are about to lock horns with Canpotex, the potash sales agency. What interests us is that the fertilizer business, where capacity usage is tight, is yet another growth ghetto in a global economy said to be struggling. Maybe good news doesn’t sell newspapers at present. But even economists have to eat sometimes, and rising food prices –like free lunches- tend to get them licking their chops eventually.

Talking of free lunches... in the casino, the house always wins. But when the croupiers are queuing up to play the tables, it’s worth grabbing a few chips oneself. Corporates in America have bought a record USD 400bn of their own stock in 2011. One wonders why a market wishes to buy 3% of itself. Take Diageo (DGE: LN), the world’s number 1 booze biz, and an Emerging Middle Class theme stock. It can raise debt at 2.0%, so it can buy its own shares yielding 3.4% at a healthy "turn". This alchemy enhances earnings (fewer shares in issue for the same profits) and enriched shareholders know that a free cash flow yield of 5.2% and earnings yield of 6.5% make this the sensible thing to do in straightened times. The numbers work even better with high yielding dividend aristocrats like BAT (BATS: LN); debt raised at 2% invested at a dividend yield of 4.5%, backed by an equity yield of 7.5% and a free cash flow yield of 8%. Casinos offer free lunches to their big punters, but they’re usually as rare as hens’ teeth in the equity markets.

Our Energy and Alternative Energy theme investment, ENI (ENI: IM) is another generous payer (6.5%). The market knows of their Libyan liberation (top centre, Africa), but fewer analytical stones are being turned in Mozambique (bottom right, Africa). A huge natural gas discovery there (23 trillion cubic feet of it, roughly 1/3 of the Marcellus shale in the USA) could turn the Ruvuma Basin into a major money pile, and verifies Anadarko’s recent increase in its estimates. This is enough gas to justify a large LNG terminal to siphon it off to China, where demand is expected to rise 5 times by 2020 and to Japan, the world’s hungriest gas importer. There are also whispers of oil in those deep, warm waters. Just to be sure, ENI has lined up USD 50bn for Africa over the next 4 years.

Word comes in from my wily technical guru, Paul Nesbitt, who speaks a different language to the rest of us. "The price action seen in the chart of the Gold & Silver Index (XAU) remains a messy pattern of ABC’s with three failed attempts to overcome resistance around the 230 level. The XAU Index closed on Friday just below its March 2008 high and reminds us just how badly it has performed relative to the Comex Gold price which closed on Friday at USD 1756.30 compared to its March 2008 high of USD 1025! If the XAU is going to make a fourth and successful attempt at the highs it will need to overcome resistance at the 78.6% retracement level at 212.36." I translate: gold shares have been capitalist running dogs compared to tearaway bullion. Closing above 212.36 could trigger the next big move up in gold stocks, maybe by over 50%. We are c205 now. Our stocks are mid-cap, mid-cycle, middle-class producers IAM Gold, El Dorado and Fresnillo.

Greece may be collapsing, but its legacies are prospering. Alexander the Great appears on a rare 4th century BC Greek coin and he’ll lead an army of 600 coins -the Prospero collection- into a New York auction room in January. This is good news for our Ageing Population theme coin seller Noble Investments (NBL: LN). Proceeds could fetch £5 - 20mn, and Noble will trouser up to 20% of this, so £1mn to £4mn. Seeing that Noble has "the largest order book of consignments for future auctions in our history", and sales for 2012 are said to be £13mn, earnings estimated at 17p (PER of 10x) are likely to be higher. Alexander –never one to miss an opportunity- might have seen it as sloppy that Noble has yet to evaluate the 900 boxes and 100 cabinets of coins belonging to Baldwin, which it acquired in 2005.


This diary (the "diary") is published by Global Thematic Investors Limited, a company domiciled in Hong Kong and incorporated under the Hong Kong Companies’ Ordinance on the 15th September, 2005. The diary is not intended for private customers and is written to be read solely by sophisticated investors, such as family offices, business corporations, banks and financial intermediaries. Statements are completely personal and may change without notice, are often forward-looking and therefore subject to uncertainty and risk. The predictions and forecasts implied may not subsequently be achieved. The diary is composed of information and opinion believed to be accurate, though this information may not have been verified. Funds or collective vehicles may only be open to certain persons in certain jurisdictions and may follow strategies that are speculative and involve a high risk of loss and may go up as well as down (a favorable performance record is no indication of future performance).