Tuesday Tidbits

With this post I wanted to talk a little about the the top down process in to trying to learn about the farm stocks and deciding whether I will ultimately buy any of them (which I don't know at this point).

The biggest macro here is that the global supply and demand equation for food is evolving. If you do not believe this then clearly these stocks are not for you. The demand for better nutrition should mean good things for meat and dairy prices and also the things that cows and chickens eat.

Forgetting politics and other potential sources of external shocks for the moment, the idea of having exposure to this segment from a place where it rains, is lush, green and fertile and has relatively cheap labor would seem to be a reasonable combination for this theme. So this means you need to explore countries like Indonesia, Malaysia, Thailand and maybe Vietnam in the future. The above description might also apply to parts of South America.

From there the next step would be to do whatever makes sense to draw a conclusion about each country and economy's prospects. Then decide if it is likely whether a given stock is or is not a proxy for the country and whether that is a good thing or not.

A decision also needs to be made about what is hoped for out of this sort of holding. More volatility or less, a proxy for a country or not, if only one stock will be bought should it be a livestock name or should the company grow stuff in the ground, if it is to be crops, what crops matter more to you and there are probably a couple of more. Additionally, what you decide now about these issues may change as you actually study a few of the stocks.

To complicate things a touch more; what if the best stock is from a country you already own? You would either increase your weight, sell one to buy another or find something else.

There also needs to be a little bit of elimination that gets done before any numbers get dissected. I doubt I am going to buy a stock that trades for several hundred Indonesian rupiah as the exchange rate takes about 9300 IDR to buy a greenback.

Information is also an issue. Finding info for Ozzie and NZ countries was very easy, maybe you would expect that, and info for the Brazilian companies was also easy to find. One Indonesian company that caught my eye didn't have its 2007 annual report posted yet and my email asking about the 2007 report bounced back as undeliverable. As favorably disposed as I am to the crop mix, and the stock has done well, buying against that backdrop would be tough.

Now for a little less process, so to speak. Anyone spending a lot of time reading about foreign markets (the actual countries and the things that move their markets) probably already has some ideas/opinions about the countries involved.

In this light ruling companies out for various top down reasons (Thailand has a slew of political issues going on, it would be easy to think the politics could spillover into the food businesses a little quicker than in other countries as an example) becomes a little easier.

This could quickly shorten the list.

After all that you may decide, for whatever reason, that the segment is not right for you or the name you pick could turn out to be a bad pick or the whole space could be a mistake. As always, moderation is key.

Finally, I was on CNBC yesterday along with Kevin Landis talking about the solar stocks. I was able to get my hands on an official transcript (below) for anyone who missed it.

Kevin: If you want a pure play, a play on efficiency, which is the greenest of all energy forms which is Echelon (ELON).














Roger: Hey Maw! Get off the dang roof!

















If you want more you can click here for the video.