Potash Corp shows its Strength

Potash Corp of Saskatchewan, the company with the hippest stock symbol in the world (POT), announced today that it was halting production at its Allen mine for 4 weeks. The stated reason: world potash prices are too low, so the company is “adjusting supply.”

Though Potash Corp controls only 20% of global supply (according to its website), it is also one of the lowest cost producers.  In addition, Potash Corp markets its product - along with local competitors Agrium and Mosaic - through a company called Canpotex, "an international marketing and distribution company wholly owned by the Saskatchewan potash producers."

If there was ever any doubt that Potash Corp and Canpotex have a virtual monopoly on potash prices, now there is none. By shutting down one plant (the Allen mine) that provides only 10% of Potash Corp’s total supply, the company believes it will be able to stabilize world prices. That is power.

Potash is currently trading at $42.94 CDN on the TSX exchange.  It's a reasonable price, but with a forward P/E of 10 and slowing BRIC demand, not a screaming deal.  If POT hits $35 or lower, consider loading up.

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"Money is power - and what can one accomplish without power?"

Cecil Rhodes

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Assess This

 

In yet the latest reminder of the inevitable Canadian real estate apocalypse, B.C. Assessment announced this week that home prices in Vancouver rose between 10-25% during 2011.   In the family-oriented West Side of Vancouver, prices “skyrocketed” (their words) as much as 20-40%.

In order to lessen the blow to existing homeowners, B.C. Assessment sent what it calls “extreme letters” to approx. 1500 households, letting them know in advance (as a matter of courtesy) that their property taxes will be increasing dramatically.

Since 2002, Vancouver real estate fairy tales have become so commonplace that many people now actually believe that their run-down house on an average size lot is worth $1.3 million dollars (1.26 million USD).

In the East Side of Vancouver (the city’s equivalent to New Jersey), an average single family home is now worth more than $800,000.

In a brilliant understatement earlier this week, the deputy assessor for the Vancouver Sea to Sky region stated: “It’s been a really strong market for Vancouver, a good one –a robust one."

Apparently, BC Assessment sees no downside risk to real estate prices rising at rates up to 37% faster than wages.

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"In our view, the housing market is one of the most vulnerable sectors to this weakening economic environment, showing classic signs of overvaluation, speculation and oversupply.  We are not calling for an all-out rout in the market, but caution is now decidedly warranted."

Bank of America Merrill Lynch, regarding Canadian real estate, December 2011.

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Happy New Year

Fresh off a nice holiday, and it's a new year.

Recognizing that there is no reason to start off the year too seriously, here's my favorite (repeatable) Inbox joke from the past couple of weeks.  Enjoy!

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The American Investment Banker and the Greek Fisherman

An American investment banker was at the pier of a Greek coastal village when a small boat with just one fisherman docked.  Inside the small boat were several large tuna.

The American complimented the Greek on the quality of his fish and asked, “How long does it take to catch them?”

The Greek replied, “Only a little while.”

The American then asked why he didn't stay out longer and catch more fish.  The Greek replied that he had enough to support his family’s immediate needs, so there was no reason to.  The American then asked, “But what do you do with the rest of your time?”

The Greek fisherman said, “I sleep late, fish a little, play with my children, take siesta with my wife, and stroll into the village each evening where I sip wine and play cards with my friends.  I have a full and busy life.”

The American scoffed: “I am a Harvard MBA and could help you. You should spend more time fishing, and with the proceeds, buy a bigger boat.  With the proceeds from the bigger boat you could buy several boats.  Eventually you would have a fleet of fishing boats.  Instead of selling your catch to a middleman you would sell directly to the processor, eventually opening your own cannery. You would control the product, processing and distribution.  You would need to leave this small coastal fishing village and move to Athens, then London and eventually New York where you will run your expanding enterprise.”

The Greek fisherman asked, “But, how long will this all take?”

“15-25 years,” the American answered.

“But what then?” the fisherman asked.

The American laughed and said, "That’s the best part.  When the time is right you would announce an IPO and sell your company stock to the public and become very rich.  You would make millions.”

“Millions … then what?” the fisherman asked again.

The American said, “Then you would retire. You could move to a small coastal fishing village where you would sleep late, fish a little, play with your kids, take siesta with your wife, stroll to the village in the evenings where you could sip wine and play cards with your friends.”

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