market folly

Investment Strategist Don Coxe is recently out with his thoughts about the markets. His insight can be summed up as such:

Bullish on: Agriculture, China, India, & Inflation (i.e. he expects it)

Next great investment: Food

Basically, he harps on the 'emerging markets' adage, but notes that China and India's standard of living is rising. And, his theory is that once they taste such a lifestyle, they won't want to return to old ways and the culture will shift to consuming more food. Overall, increasing population and increased ways of living require more food, healthier food, etc. (Hence, his bullishness towards food and agriculture). If you agree with Coxe, you can use the ETF: DBA (agriculture) to play the inflationary commodity and food thesis longer-term.

And, in terms of agriculture specifically, Potash (POT) is a solid play due to its dominant market share on the nutrient. Even as demand for the nutrient has decreased (slowed global growth), prices haven't fallen off a cliff like oil. So, when demand does kick back up, these producers should have some form of pricing power once they work off supply build up. We've seen numerous hedge funds pick up POT lately, including George Soros. Check out our in-depth look at Potash for more analysis and info.

Keep in mind though, that such plays could take a long while to unfold. If you conclude that inflation is in the future, then Coxe's thoughts could be right on the money. For what it's worth, Jim Rogers and George Soros are both bullish on agriculture as well. Our stop was triggered on our Potash position way back at $160 as per our post, and we have yet to revisit the name which now trades around $80, or 6x earnings. While the story is still attractive fundamentally long-term, signs of improving technicals (chart) would be needed. Or, perhaps some return of global economic activity and a hint of inflation would do. Regardless, the funds have been buying recently, as noted in our hedge fund portfolio tracking series.

We'd agree with Coxe in that inflationary pressures are set to show up at some point. And as such, we advocated shorting long-dated treasuries (see our rationale). The question is, when does inflation hit? One could be waiting for a while. And, there is the slight possibility that it could also just never show up (stranger things have happened). Obviously, if such inflation does occur, it will show up in commodities first and Coxe makes a good point there. In short, Coxe seems to agree with Rogers and Soros on a number of issues and it will be interesting to see things play out.

You can read Coxe's thoughts here.