Ask any New York pick pocket and he’ll tell you the game’s easiest when people on the street are gazing upwards. Gold share investors had their pockets picked in 2011; shares fell whilst gold soared +20%. But insider buying is now at Nov 2008 levels and that level saw the bottom of the last bull. Managers are flabbergasted by this lack of faith. Our Supply Inelasticity theme miner, IAMGold (market cap USD 7.6bn) is an example. With operating cash flow of USD1bn pa –margins have ballooned- and USD 600mn in cash, IAMGold are doing the sensible thing for a miner: exchanging USD 1bn of soft cash-in-the bank for USD 1bn of hard gold-in-the-ground. Management fancies the Americas, but West Africa will do (they’re already at home in Burkina Faso and Mali). They should watch out for governments. Zambia is the latest to say "Your Mine Is My Mine". Pick-pockets come in many shapes and sizes.

In politics, the message can be more important than the messenger and the messenger often as important as the Messiah. Herman Cain, black son of chauffeur and cleaning lady, may be Messiah or merely messenger. But he rented a bus and drove to Florida to whip Romney and Perry in the GOP Straw Poll. Cain’s "9-9-9" message (9% income tax, 9% corporation tax, 9% sales tax) has beefed up a flagging tax-cutting agenda at a time when tax-cutters are ridiculed in Europe. The result? His competition is falling into line on tax. Cain has other engaging qualities. He teases Obama about his "blackness", fought serious liver cancer and ran Godfather’s Pizza for Pillsbury, whilst also serving as a minister in an Atlanta Baptist church. Anyone who thinks 9-9-9 doesn’t add up should quiz Mr Cain directly; he used to be a ballistics mathematician and a Director of the Kansas Fed. Cometh the hour, cometh the man.

News arrives on my desk of an innovation sure to wag tails. Nestlé (Emerging Middle Class theme; PER 16x, Yield 4%) has developed the first commercial to appeal to dogs. Nestlé Purina’s Beneful dog food ad features squeaky toys and bells, proven to entice lovers of meaty chunks. Consumers come on 4 legs as well as 2 and 62% of US households own a pet. There are perhaps 1/2bn dogs with "owners" in the world and, when quizzed, 15% of them (the owners, not the dogs) said they’d prefer their dog to themselves if there was only one crust left in the larder. So the dog-food business sounds solid. Who brought me this news? Fox News, of course. One suspects them of bias.

When innovation drives growth, make sure you own car manufacturers and not horse-shoe makers. Luckily, in our SAP holding (PER 15x, Yield 1.9%) we own a leading-edge enterprise software provider and one that is massively dominant (Oracle, no minnow, is half its size). The triple waterfall of mobile phones, cloud computing and social network produces double digit growth unhinged to the cycle, and software is set to take a much bigger part of global IT spend (USD2trn by 2015). SAP’s advantage is its huge installed base, allowing it to flog its conservative and captive audience products at 84% gross margins as well as services at –much lower- 23% gross margins. This produces free cash flow -after R&D- of nearly 1/3 of sales and trend earnings growing at +15%. The growth area is Emergia (Asia etc) but as corporate Sclerotica gathers courage, its IT managers will wish to keep their jobs safe by up-grading through a low-risk, proven champion. Step forward, SAP.

Why is phosphate giant The Mosaic Company redeeming its debt? Because it can. Fertilizers are a burgeoning business these days as the world struggles to improve its diet and grow more meat. Mosaic generates cash flow of about USD 1.5bn a year, so it’s paying down its debt and taking its net cash above USD 5bn (UBS says the cash pile will grow to USD 13bn by 2016; Mosaic’s market cap today is USD 28bn). Virtue does not go unrewarded. Moody's has upgraded the debt of Mosaic (Supply Inelasticity theme; PER 10x, Yield 0.2%) to Baa1 from Baa2. Moody’s alphabet soup puts Mosaic on a par with Russia and Mexico and more highly regarded than either Brazil or India. I’d rather own a Mosaic bond than a Mexican bond, but I’d prefer a Mosaic share to either.


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).