The Rude Awakening
Wall Street, New York
Thursday, November 16, 2006

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• The rally in grains continues to produce
  opportunities,
  
  
• An agricultural powerhouse to turbo charge your own
  portfolio,
  
  
• Starting with water, lost puppies, a call to traders,
  all your market data and plenty more...

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Eric Fry, reporting from Laguna Beach...

In today's column, Chris Mayer, the editor of Capital &
Crisis, shares a few insights about the corn market. But
before we get started, I'd like to share a few insights
about Chris. First of all, he's a darn nice guy. And he's
very conscientious and very hard-working. He's also a
creative thinker and a very fine poker player.

None of these virtues would guarantee investment
success...but they would all DESERVE investment success. We
are happy to report, therefore, that Chris has met with his
just desserts.

His investment record at Capital & Crisis has been nothing
short of brilliant...or extremely lucky. He's made a total
of 30 recommendations since taking the helm of Capital &
Crisis two years ago. During that time, he's closed out
only two positions for losses (-3% and -8%), and has
averaged a gain of 46% on all his closed positions. As for
the positions that remain open currently, the average gain
is about 33%, which means that the average of all
recommendations – both closed and open – is about 40%.

"Chris, do you mind if we broadcast your success?" we asked
the humble editor yesterday.

"I guess," he answered cautiously. "You never know how long
this kind of stuff will last. Believe me, I know."

We admire Chris' humility, but not as much as his
investment instincts. So we wouldn't be surprised if good
luck continues to follow him around like a stray puppy.

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Going with the Grain
By Chris Mayer

I just recently read Marc Faber's October letter. Faber, as
you probably know, writes the Gloom, Boom & Doom Report.
His contrarian financial views often appear in various
media outlets.

His latest issue included an interesting little piece on
grains. Mark McLornan, of Agro Terra Ltd., wrote it. The
piece opens with a question that is right up my alley:

"Where in the world can you buy real assets that are cheap,
uncorrelated to economic cycles, and independent of
interest rates? What asset class can take advantage of the
major cyclical forces of China/India development, global
warming, and depleting water resources?"

I spend a considerable amount of time thinking about where
to find cheap tangible assets. More than just finding cheap
assets, I also like to see that the investment somehow
cashes in on some bigger trend or idea. In Capital &
Crisis, my original letter, I've forged a good track record
finding just these kinds of opportunities. And in the first
few months of my new service, Mayer's Special Situations,
we've also added some nice investments loaded with tangible
assets and wealth creating businesses.

McLornan, not to leave us hanging, gives us his own
investment candidate: grains.

"The agricultural grains market has been totally
uncorrelated to economic cycles for at least the past 50
years. The main factors driving grain prices are a
combination of population growth, increases in standards of
living, and production capacity."

Of course, the reason this strikes a chord with me is that
I also like the grains. In Capital & Crisis, we've held
Agrium (NYSE: AGU) since January 2005. It's nearly doubled
over that time. In MSS, we've got Saskatchewan Wheat Pool
(TSE: SWP). It's a little below my entry price as I write,
but a good story is unfolding there. Recently, the Pool
made a bid for Agricore, in an attempt to become a major
agricultural powerhouse.

In bullet point form, here are some of the key points
McLornan mentions:

• Demand outstripping supply for the last six years,
  while inventory levels are also low. "Any shock to the
  demand or supply side," McLornan writes "and this market is
  positioned to explode."
• Increasing prosperity in China and India leads to
  more and more people eating beef and chicken. In China,
  meat consumption is growing 20% per year, putting pressures
  on the grain markets to support growing livestock.
• Demand for wheat is outstripping production in China
  and India. Production of wheat in China is actually
  falling.
• The growing scarcity of water – particularly in China
  and India. We've covered this phenomenon pretty well in
  this publication. McLornan makes an interesting point here.
  The most efficient way for China and India to conserve
  water is to import grain, as it takes 1,000 tons of water
  to produce 1 ton of grain.
• The U.S. would be the natural choice to make up that
  slack, but water is getting scarcer here too. McLornan
  writes about the once-vast Ogallala aquifer that underlies
  the Central Plains, "the world's fastest disappearing
  aquifer." Farmers are drilling deeper for water at
  increasing costs.
• Biofuel demand. Here a picture is worth a thousand
  words. Take a look at this:

Do you think all that extra corn used for ethanol is going
to impact the price of corn? I think so.  Net-net,
McLornan's observations in the Gloom, Boom & Doom Report
all add up to a bullish outlook for grains. That's a good
backdrop, too, when you think of Saskatchewan Wheat Pool.

The Pool announced an offer to buy Agricore, the other
leading Canadian grain handler. "We are attempting to
create a significant agri-business with decades of
expertise, superior assets and a truly unique home grown
Canadian advantage," said Pool president and CEO, Mayo
Schmidt. "By combining operations we will create the scale
and scope of operations to enhance Western Canada's
position in a global environment."

I love the deal. Whether it will happen or not is another
matter. Regulators will have to approve it and given
Canada's rather hostile turn on business lately, maybe we
shouldn't count on that.

In any event, I like Pool's thinking. With their rock-solid
finances, Pool is in good shape to position itself as a
global player in the coming boom in agricultural markets –
in particular, the grains.

Saskatchewan Wheat Pool is a buy.

[Joel's Note: Do you feel the urge to take advantage of the
major cyclical forces of China/India development, global
warming, and depleting water resources? We suggest starting
at the beginning with Chris Mayer's special situations
report on investing in water. Its effect is already showing
up in the grains and will soon become the dominant market
force of this century. Can you afford NOT to dip your feet?
Click here for the full report:

Investing in Water – A Special Situations Report
http://www.isecureonline.com/Reports/MSS/EMSSG761

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And the Markets...