Richard Kelertas: Economic Turmoil Creates Potash Values

By The Energy Report, on November 11th, 2011

Richard Kelertas Fertilizer companies have felt the pain of global monetary chaos, but as indicators lag, some potash equities are positioned ahead of the curve for big gains. Dundee Capital Markets Vice President and Senior Financial Analyst Richard Kelertas believes investors need to be sharpening their pencils and establishing positions. In this exclusive interview with The Energy Report, Kelertas shares his best names.

The Energy Report: There’s been damage done to potash stocks over the past six months. Why?
Richard Kelertas: Macro issues have hurt all commodities. When the world is worried about its next breath, all these stocks get hit very hard. We’ve had the Euro crisis and then the Greek debt crisis since these stocks peaked in summer. Also, I think there were expectations that North America and Europe would emerge from the last serious recession with half-decent growth going forward, and that recovery would be moderate, measured and continual from 2010 all the way up to 2013–2014. That’s now been interrupted by macro events, and the odds that they will be quickly resolved is almost nil. We are going to have to deal with slower economic growth worldwide, not just in the eurozone and North America, but also in China and all of Asia because it’s all interdependent.

We will also have to expect that the consumer will be drawn back a bit, both in Western societies where food is a necessity and a luxury, and in developing economies where it is a necessity. So, high-end food values, high-end organics and food stocks that are higher priced will be under pressure. That means lower requirements for meats, which means that the farmer may be cutting back on his crop output.

TER: Can you make a case for growth in potash consumption?

RK: For the next six months, I expect flat growth. Prices and volumes have retreated slightly. Inventories dropped in October. That’s good news. I expect prices will be flat to down.

However, if Europe’s debt crisis and low North American growth are resolved in the next 6–12 months, we could then see Asian export nations gear up again. That means that their diets will improve again, and crop prices and speculation in crop price increases going forward will pick up. That will happen sooner than six months in the futures market, but at the same time my expectation is that the next six months are going to be slow.

Within the next year, we should see some growth return. That will be composed of three components: Farmers will use potash at normal levels and growth will be reflected in shipments and prices. Lands that will be brought back into production will expand demand. This is fallow or abandoned agricultural land throughout the world, especially in Africa, that has been bought up by either investment pools or sovereign wealth funds or specialty farm land managers. In the grand scheme of things that doesn’t seem to be a lot in terms of the total farmland area throughout the world; however, potash application rates will be much higher than normal because you are bringing it from infertility to fertility levels. So, we could see a substantial push and it will show up in perhaps a 0.5–0.75% increase in potash demand worldwide.

TER: Are you able to venture a forecast on the price of potash?

RK: My international price forecast, the Vancouver export price, is about $450–465 per ton (/t) right now. For 2012 we expect an average price of $505/t and then moving to $520/t average price in 2013. The peak price in 2013 should be around $650/t, maybe $625/t. But, it won’t be as high as the $700-725/t that I thought may take place when I made that forecast a year ago.

TER: Are fertilizer prices leading or lagging economic indicators?

RK: They are lagging indicators. We need to see economic activity pickup first. The mood of farmers is always pretty gloomy, and getting them to change their view on world markets requires crop prices to move. But, crop prices won’t move really unless you see economic activity pickup.

TER: Is potash still low-hanging fruit? Or is it getting much more difficult to mine?

RK: That’s a good question. We just put on a seminar and heard from ERCOSPLAN, the German exploration consulting firm that has provided a lot of NI 43-101s for potash projects throughout the world. If you’re doing deep shaft, it is very expensive and time consuming, and there are long lead times. I would say that most of the best sites, except in Saskatchewan and Russia, are deep-shaft mines. There may be one or two open-pit opportunities in Ethiopia or in Utah where you’ve got very shallow deposits. Solution mining, though, provides you with the opportunity to get several large sites into production in a relatively short period of time.

But the limiting factor right now is financing, and that’s because you’re dealing with $800 million (M)–1 billion (B) for a 1–1.5 billion tons per year (tpa) equivalent of potash, even for a solution mine. The second limiting factor is cash balances. If we are going to have a long, drawn-out economic downturn here, which is quite possible, then very few of these projects will come to fruition and get into production. They will run out of cash before they can either get taken out or get the financing. So, there are only a couple of strong plays that have plenty of cash and, where cash-burn rates are low, can survive this downturn and lack of liquidity in the marketplace. The third thing is that we could possibly see some deep-shaft mines flood over the next 6, 12, or 24 months like we had in Russia with Sil’vinit (acquired by Uralkali OAO (URKA:RTS; URKA:MICEX; URKA:LSE). We could see something possibly happen in Saskatchewan or in other areas. And I don’t think it’s a question of “if”; I think it’s a question of “when”. Many deep-shaft mines are 2,200 meters down. A lot of money is being spent pumping out water, and you could see some production disruptions. If that’s the case then the market could get tighter very quickly.

TER: Limited access to financing could be a major problem for small companies, couldn’t it?

RK: Yes, absolutely. I think about 100 worldwide projects are being considered in potash, both public and private. I would say 10–15% of them have a hope of getting financing, and of that, I think perhaps three or four might actually get financing.

TER: From everything you’ve just said it sounds like margins are going to have to contract or that prices are going to have to go up. Where does this put the potash producers?

RK: Well, at the current pricing their margins are pretty good. For instance Potash Corp. (POT:TSX; POT:NYSE; Not Rated) is the most visible, and its operating margin, not gross margin, so we’re talking before interest, is about 40%–45%. Terra Nitrogen Co., L.P. (TNH:NYSE; Not Rated) is 65%. CF Industries Holdings Inc. (CF:NYSE; Not Rated) is 60%. Now CF is urea, and it’s a different kettle of fish, but Potash Corp. is about 40%. So, prices can come off quite a bit before they’re going to have any issues. However, I can tell you that any projects that are not in progress will be put on the back burner. You need to have potash pricing power. For instance, BHP Billiton Ltd. (BHP:NYSE; BHPLF:OTCPK; Not Rated) Jansen Project in Saskatchewan needs average long-term potash prices of about $500–550/t really to make a go of it, and from my work the long-term international price is about $410–425/t.

But to answer your question, in a lot of cases their cost inputs have gone up too. So, if they have the combination of prices falling while their cost inputs remain high for let’s say two, three or four quarters, their margins are going to get squeezed quite substantially. But there is no doubt about Q112 and Q212, so If this economic crisis settles down, they’re going to push for higher prices.

TER: The large-cap companies have so many advantages. It seems like there’s so much risk in the small-cap potash equities.

RK: Right: That’s why they’ve been hit very hard. The juniors are the most at risk.

TER: What regions are the most favorable for companies right now?

RK: I would say the best places are Saskatchewan, Utah, Arizona and Ethiopia in Africa.

TER: What specific companies are you telling your clients to invest in?

RK: We’ve been very consistent in the stocks we like since the economic crisis of 2008. On the large-cap side, Agrium Inc. (AGU:NYSE; Buy) has probably had the lowest margins of the big-cap names, but it tends to have the most diversity in its product mix. It has a wholesale nutrient division, a retail division and a specialty fertilizer division, which includes distribution. In a tough economic environment, we opt for diversification. In a very strong commodity market, it makes sense to go to single commodities or pure nutrient plays like Potash Corp., CF Industries, Terra, The Mosaic Company (MOS:NYSE; Not Rated) or Intrepid Potash Inc. (IPI:NYSE; Not Rated). Because we expected the economic recovery to be very difficult, we liked Agrium the best in the large-cap space, and we still feel that way. Until we see commodities fundamentals suggesting a speeding up of economic recovery, we’ll stick with Agrium on the large-cap side.

TER: What about small caps?

RK: On the small cap side our top picks continue to be Allana Potash Corp. (AAA:TSX; ALLRF:OTCQX; Buy) and Karnalyte Resources Inc. (KRN:TSX; Buy). They have the most cash, the lowest burn rate and they are the closest to production and financing. They have all the components in place, including their NI 43-101 resource estimates. But they both have different advantages and disadvantages. Allana has the possibility of being an open-pit mine, or open-pit/solution mine combination, or just a solution mine, which would be low cost because of the solar evaporation in Ethiopia.

Karnalyte is a solution mine, but it’s a gigantic deposit and will probably only need one cavern for 10 years. It does not have to do a lot of drilling. But if it does, the drilling will be horizontal. The key thing with Karnalyte is that it has boron-free magnesium chloride. That is attached to the potassium salt, KCL. The magnesium chloride comes out with the potassium. Thus, its extraction costs are not any different. Refining costs are going to be a little bit more expensive to separate the magnesium chloride, but that’s an extra revenue source.

TER: So, Allana is getting the magnesium chloride practically for free?

RK: That’s correct. Allana has not only the opportunity for MOP (muriate of potash), which is the standard potash, but also SOP (sulfate of potash), which sells at a premium. When the first million tons is fully operational, Allana will be able to produce 20–30% SOP.

TER: Karnalyte is up 31% over the past 12 weeks, and it’s the only one I see with its head above water over that period. Most others are the mirror image of that, down anywhere from 20–40%. Why such high relative strength?

RK: I think there are a few things: One, it has been getting its story out aggressively. Number two, it has been very close to getting the feasibility portion of its magnesium chloride production, and that will be ready by the end of November. I think that’s the most important thing, and it is just now starting to be understood by the market, which has been quite anticipatory of that. Three, there’s been some talk on the street that Karnalyte has worked a 30% contingency into its production costs, which is a lot higher than what it will actually work out to be. That means that its return on the project is much higher, we think, than what the company has been telling the street.

TER: How much per ton is the magnesium chloride right now?

RK: Well, it sells anywhere from $450–700/t depending on the end-product use and the purity levels. It will almost be a one for one. I think that Karnalyte will be able to get 600,000 tpa of magnesium product that they’ll be able to take out of the ground. That’s not factored into its numbers, but my NAV reflects that expectation to a small extent. So, it could be double the size in terms of profitability and revenue than the consensus on the street.

TER: Your target price on Allana is $3.05, which is an implied return of about 200% from current levels. I’m wondering about its preliminary economic assessment (PEA) due out before year-end. What is that going to tell investors?

RK: Well, I think it is going to solidify the resource in terms of measured/inferred. And of course, you’ll get a good idea of whether Allana can go to an open-pit or solution or both. More than everything else it’ll firm up the opex and capex. It will be quite clear that the area will support not just a million tons per year (Mtpa), but 2–2.5 Mtpa.

TER: If it is a solution mine, how much advantage will the solar heat evaporation be?

RK: If it’s open-pit, opex will be $40–50/t. If it is a solution mine it’ll be $65–70. A typical solution mine with natural gas or coal evaporation costs would be close to $90–100/t.

TER: What other companies are you talking to investors about?

RK: Well, at our conference we had nine presenters. Of course Allana and Karnalyte were there. We also had Passport Potash Inc. (PPI:TSX.V; PPRTF:OTCQX; Restricted). There were others at the conference that we have put on our watch list, and we are bringing them forward to investors as items of interest. We are looking at the resource and numbers on each one. They include Western Potash Corp. (WPX:TSX.V; Neutral), which just came out with a further update on its NI 43-101 and firmed up its resource estimate and capex/opex. We had IC Potash Corp. (ICP:TSX.V; ICPTF:OTCQX; Buy). We had Encanto Potash Corp. (EPO:TSX.V; Buy) and we also had ENP Minerals, which is hoping to get going in Utah. We had Rio Verde Minerals Development Corp. (RVD:TSX; Neutral), Epm Mining Ventures Inc. (EPK:TSX.V; Neutral) and Verde Potash (NPK:TSX.V; Neutral). So, we’re talking about those and getting up to speed as well on the numbers and the resource for each one of those companies. We’ve issued research on them and put them on our watch list, but we don’t have firm numbers or target prices for them yet. We will continue to speak with those companies.

TER: Western Potash CEO John Costigan noted that his company has the largest resource base of current junior potash explorers and developers. What does that mean to you?

RK: Well, there’s the old adage: It’s not necessarily how big it is but how low-cost it gets. To me, quality or concentration of the resource is number one. You have to take a lot of brine out before you get a half-decent concentration of potash. So, it is going to be all about costs. It seems to have fairly low opex costs, but I have to check into that and do more work on it. On the surface, costs seem to be a bit low compared with comparable projects. The initial capex of $2.5B to get it started sounds reasonable for a 2 Mta mine. I think it’s going to be a question of distance to market and ease of getting the mine up and running.

TER: Encanto was one of the presenters at your conference. How much can it expand its resource?

RK: From the information we have, we think the resource could be expanded quite significantly. With all the agreements Encanto has with native groups in Saskatchewan and its proximity to the Esterhazy deposit where Potash Corp., Agrium and Mosiac all operate, I think it has a good chance of expanding its resource anywhere from 25–50%. That is quite possible. But, again, before we make any pronouncements on it, we’re going to be speaking with management and talking with the engineers and geologists.

TER: Were there any other companies you wanted to mention?

RK: Not at this stage. We haven’t done enough work on, for instance, Ethiopian Potash Corp. (FED:TSX.V; FED.WT:TSX.V; Not Rated). We haven’t done enough work on IC Potash or EPM Minerals. So, we’ll reserve judgment on those for the time being.

TER: Richard, it was a great pleasure speaking with you once again.

RK: No problem, my pleasure as well.

Richard Kelertas has 25 years experience as a research analyst covering the forest products sector. He has been one of the top-ranked analysts in the sector over the years consistently, and was most recently ranked No. 1 by Brendan Woods. Kelertas has worked for a number of well-known brokerage firms, including ScotiaMcLeod, Deutsche Morgan Grenfell, UBS Warburg, and Desjardins Securities. He has a bachelor’s degree in forestry and a master’s degree in forestry and economics from the University of Toronto. Richard is also a Registered Professional Forester.



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Doug Casey: Uranium, Rich People's Food Hold Value

By The Energy Report, on April 29th, 2011

Worldwide hysteria and the fear factor notwithstanding, Casey Research Chairman Doug Casey still considers nuclear power “by far the safest, cheapest and cleanest form of mass power generation.” Sharing his views in this Energy Report exclusive on the eve of a sold-out Casey Research Summit in Boca Raton, Florida, Doug says power generated from wind, sun, the tides and other alternative sources are “very nice special applications but don’t work economically unless they’re subsidized.”


The Energy Report: You have traveled the world extensively, studying the geopolitical forces that shape the economy on a day-to-day basis. In the past, you’ve been quite enthusiastic about uranium because of the need for nuclear power. Has the situation in Japan altered your view?

Doug Casey: No. What’s happened in Japan is most unfortunate, but it hasn’t altered my view at all. People are referring to it as a Class 7 Chernobyl disaster. Perhaps 20,000 people, or more, have died because of the earthquake and subsequent tsunami in Japan. Not one death, so far, has been attributed to that nuclear power plant.

What happened at that plant was not anticipated, and the reactor shouldn’t have melted down. Still, I have long said that nuclear power is by far the safest, cheapest and cleanest form of mass power generation. That is absolutely as true now as it was before the Fukushima disaster.

Around the world, coal is the source of the vast majority of power, and it kills directly, through air pollution and fly ash, thousands of people per year and many thousands more per year through coal mine disasters. Most of the mining deaths in the world—many thousands each year—occur in coal mines. No one ever talks about that. Nor do people seem to recall that when a large hydroelectric dam gives way it kills thousands of people. The debate on nuclear is intellectually dishonest.

TER: But mass psychology includes a nuclear fear factor.

DC: That’s true, because the average person is absolutely ignorant of science. Ask a kid in the city where milk comes from, and he says it comes from a carton out of Safeway. He doesn’t know it comes from cows and what’s involved in raising cattle. It’s the same with power. They think it’s like magic. But if you want to turn the lights on, if you want your refrigerators to run, you’ve got to generate the power, and you’re not going to do it from wind and solar. Those are very nice applications, but they don’t work economically unless they’re subsidized.

I have high hopes that these things will get better in the future, along with tidal and geothermal power. But now, and for the next generation, only coal and nuclear make any sense for mass power generation. Of course, if the government hadn’t been involved in nuclear for all these many years, we might be using thorium—which appears to have many advantages—instead of uranium. We’d certainly be far more advanced with uranium reactors using different technologies. The Fukushima plant design was almost 50 years old and the plant itself was 40 years old; that’s the equivalent of driving a 1957 Chevy today for your primary transportation. This is what happens when you have heavy regulation that makes capital costs so high that you can’t put in new technologies. Is nuclear power potentially dangerous? Of course. Everything is. But it’s a question of alternatives. I’m afraid hysteria has overwhelmed reason here.

TER: But how can we get over that? Can uranium really increase in value if the entire world is reassessing nuclear facilities?

DC: Reassessing in favor of what? Sure, they’re going to build more coal plants because India and China and the whole world needs more power. But aside from coal, what are they going to do?

TER: How about liquefied natural gas (LNG)? Some suggest that LNG will be a viable alternative in Japan, at least temporarily.

DC: LNG is fine except that it suffers from the NIMBY (not in my back yard) syndrome too. First, you have to get the gas; there’s plenty of gas, but nobody wants it recovered using current fracking techniques. Then you have to compress it and deliver it in a highly compressed form. Nobody wants an LNG tanker around, because if it explodes, it’ll literally blow up a city. That happened in Cleveland in the 1940s. Hundreds of people died and it took out half a square mile of Cleveland. So it’s not without risk.

A new hysteria is developing since we found shale gas, with absolutely vast quantities available using new technologies of horizontal drilling and fracking. But there are dangers of damaging the water table, so everybody will say, “You can’t go for shale gas here because it can potentially ruin our water”—and maybe they’re right, at least in some instances. Everybody wants power but nobody wants to do what it takes to generate the power. I don’t know how all of this is going to end, but probably badly because the world is so politicized.

TER: Shifting focus a bit, Doug, earlier this month, in a piece entitled “Keeping Capital in a Depression,” you wrote about agriculture as a viable option, and your summit agenda includes an “Investing in Agriculture” presentation by Steve Yuzpe, CFO at Sprott Resource Corp. Could you tell us a bit about your views on agriculture going forward?

DC: The prices of most grains, especially wheat, corn and soybeans, have doubled in the last year. You can make a good case that agriculture is a good place to be for the long term. I’m quite involved in the cattle business in Argentina and I think cattle actually will go much higher for a lot of fundamental reasons. Agricultural land all over the world has gone up hugely in the last few years. But that’s the problem, because if you want to make money, you have to buy cheap. Almost no assets are actually cheap anymore because so many trillions of dollars are floating around. I try to look at all the markets, everywhere. There are very few bargains.

TER: A recent article you wrote suggested that you’re not crazy about commodity foods such as wheat, soy or corn because they’re so subject to political interference and—as you put it—”they’re not as important as foods for wealthy people, which is the profitable sector in the market.” What do you mean by subject to political interference? And what are foods for wealthy people?

DC: Two different questions and they’re both good. As for political interference, Argentina is an excellent example because Americans are only a few years behind the Argentineans in learning how to destroy an economy. In agriculture, a government can use export controls—subsidizing some things and taxing others—to manipulate the market. Wheat, soy, corn and other grains are common targets. These are commodities for feeding masses of people, grown by the millions of tons. I find boutique areas of the market much more interesting—and less regulated.

TER: For example?

DC: Apples, peaches, blueberries, or, for that matter, cattle. The rich people in the world are getting richer, mostly because of politically-caused distortions. But the middle classes are growing by tens of millions of people per year in China. They don’t want to just eat bread and cheap soybean-based foods. Rich people like to eat meat, so it makes sense to me that it’s a better place to be. Plus, ranchers haven’t made money raising cattle for decades—most do it just because they’re ranchers, and can’t break a bad habit. Cattle herds worldwide have been in liquidation for a long time. I believe that’s going to change, and cattle prices are going way up.

Another problem mass commodity producers face is that every year farmers can plant huge new crops, adding volatility to the market. But cattle take years to mature. So the supply is more predictable, and constrained.

TER: In the world of the Greater Depression that you foresee, to what extent is the production of foods for wealthy people—the fruits and the meat—sustainable? Wouldn’t these markets also crash?

DC: In a depression the standard of living goes down. That’s the definition of a depression. But it will go down less for rich people than for poor people. So in relative terms, I think rich people’s foods will be higher-priced. I don’t think they’re going to go down as much and they’re likely to go up more. Think about caviar. The number of sturgeon will go down and the number of people who want to eat fish eggs will go up. In fact, if I could buy long-term contracts on caviar and good eating fish, I’d do it.

Regardless of what happens in the U.S. and Europe, both of which are in a lot of trouble, the Indians and the Chinese are coming up rapidly in the world. Scores of millions of people a year in both of those countries are joining the middle class. After they have money, nobody wants to eat high-fructose-based corn products. They want to eat rich people’s food too.

TER: In terms of the mass commodities, you pointed out that at any point farmers can simply plant more grain. But aren’t there issues in terms of the amount of arable land available, appropriate water sources and machinery and so forth that inhibit or limit that ability to just plant more? If we have this ability to just plant everywhere, why are potash and fertilizers going up so much? Doesn’t that indicate we’re trying to get more out of the same places?

DC: That’s absolutely true. There are counterarguments to everything I’ve said and I’m well aware of them. For instance, when it comes to these grains, they’re all gigantic monocultures. Whenever you have a gigantic monoculture that goes for many, many miles in every direction, like in the grain-growing areas of the world, you’re looking at a potential disaster because a bug—whether it be a microbe or an insect—could devastate all of it at once. When plantings were much more variegated, you couldn’t have a wholesale disaster wipe out the whole crop.

Another thing to consider is that while the fertilizers increase yields on the one hand, on the other hand, fertilizers as well as the various biocides are very destructive of soils. They kill good microbes and earthworms and things like that. And, of course, in many growing areas they pump water up from the water table. That’s generally a non-renewable resource because it takes thousands of years to recharge those water tables. That’s another potential disaster.

At some point you could find the grains going through the roof for those various reasons. But in the meantime, as people plant grains, for instance, here in Argentina cattle are being kicked off good land because it’s being planted with grains. The cattle have to go on junkier and junkier lands that are less productive. All of these things are pushing against each other in the markets. So, having said all that, I prefer the ends of the market that are generally looked upon as being rich people’s foods.

TER: Aside from holding precious metals and finding agricultural niches such as you’ve described, how does someone with any wealth preserve it during this tumultuous period you anticipate?

DC: You must be geographically and politically diversified. That’s critical. It’s hard to find a politically stable place, but at least you can find a politically isolated place that’s unlikely to be overrun in a war, or become a police state. The average person lives his whole life in the country where he was born, and whatever happens in that country happens to him. He’s planted there and stays there, acting like a vegetable, which isn’t a very intelligent approach to survival. So I recommend, first of all, political and geographical diversification.

TER: When it comes to geographically allocating your capital, you’ve founded a development in Argentina called La Estancia de Cafayate, a remote “lifestyle community” near the Andes—apparently now home to more than 150 people from a couple of dozen countries. But you know a lot of other places, too. How do you view Argentina now in comparison to other countries that are thriving? Thailand’s economy is healthy, expanding more than 7.5% last year. And of course everybody talks about China’s economic growth. Do you consider those politically stable places? Or would you focus more on South America?

DC: I’m a huge fan of the Orient. I’ve lived in Thailand, and thought seriously about going back for the years to come. But as much as I love it, it’s the antithesis of Argentina—not just geographically, but culturally it’s exactly opposite as well. If you’re of Caucasian background, it’s fine to live in the Orient, which I’ve done for years, but you’re never going to really be part of society there, and you probably won’t learn the language either. Tonal languages are tough. All things considered, I’d say South America is the best place to be. It’s experiencing a boom right now because of agricultural prices.

There are a lot of places you can go in South America—15 countries. Argentina is just the one that culturally suits me. Of course, the government has been idiotic almost all the time since Perón, but it bothers you less than most governments in the world do. As far as Estancia is concerned, it’s without question the best community in the world to live in, at any price—even 10 times the price. It has far more in the way of amenities and facilities and climate. And most important, the people buying there are the kind of people I want to hang around. So it’s a good place to be.

TER: Another good place to be, this weekend at any rate, is your summit in Boca Raton. Participants can look forward to hearing from some remarkable people, with something on the order of 35 of them on your agenda. What do you expect to be the major takeaway from this summit?

DC: What we’re facing now is something of absolutely historic importance, the biggest thing that’s gone on in the world since the industrial revolution. Many things will be completely overturned in the years to come. What’s happening now in the Arab world with all of these corrupt kleptocracies being challenged and overthrown is just beginning. We haven’t heard the end of this in any of these countries—Egypt, Tunisia, Syria, Algeria. Saudi Arabia will be the big one, of course. Everything’s going to be overturned. And all these stooges that the U.S. government has been supporting for years could very well lose their heads.

So this is a very big deal that we’re facing here in the next 10 years. It’s going to be the most tumultuous decade for hundreds of years, bigger than what happened in the 1930s and 1940s. Hold on to your hats. You’re in for a wild ride.

Doug Casey, chairman of Casey Research, LLC, is the international investor personified. He’s spent substantial time in over 175 different countries so far in his lifetime, residing in 12 of them. And Doug’s the one who literally wrote the book on crisis investing. In fact, he’s done it twice. After The International Man: The Complete Guidebook to the World’s Last Frontiers in 1976, he came out with Crisis Investing: Opportunities and Profits in the Coming Great Depression in 1979. His sequel to this groundbreaking book, which anticipated the collapse of the savings-and-loan industry and rewarded readers who followed his recommendations with spectacular returns, came in 1993, with Crisis Investing for the Rest of the Nineties. In between, his Strategic Investing: How to Profit from the Coming Inflationary Depression broke records for the largest advance ever paid for a financial book. Doug has appeared on NBC News, CNN and National Public Radio. He’s been a guest of David Letterman, Larry King, Merv Griffin, Charlie Rose, Phil Donahue, Regis Philbin and Maury Povich. He’s been the topic of numerous features in periodicals such as Time, Forbes, People, US, Barron’s and the Washington Post—not to mention countless articles he’s written for his own various websites, publications and subscribers.



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Measuring Inflation Better

By Ajay Shah, on April 20th, 2010

In India, inflation measurement is commonly done using year-on-year growth rates. The change in a price index from March 2009 to March 2010 shows the average rate of change over the 12 intervening months. But the most important thing to focus on is the point-on-point change seen in January, February and March. Computing this requires first seasonally adjusting the price index, so as to avoid being confounded by seasonal fluctuations. We do this at http://www.mayin.org/cycle.in with updates every Monday.

Another big issue in inflation measurement in India is the problems of food and fuel. In both cases, there’s an element of administered prices, so a jump in the point-on-point seasonally adjusted price level might just be a month in which the government raised a price. This is not a statement about the deeper inflation in the economy. In any case, fuel prices are greatly influenced by the global oil price. Food prices often jump around reflecting a good harvest or a bad harvest. In order to understand the deeper `core’ inflation in the domestic economy – the stuff that domestic monetary policy should care about – it’s useful to look at the WPI excluding food and fuel. Starting with yesterday’s release, we do this also.



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