Peter Krauth has been pitching the idea of investing in preparation for “The Last Five Minutes” — which is basically a premise that we’re approaching the point where consumption and depletion of many easily economic commodities (meaning, they’re not too hard to find or expensive to produce) is reaching its last huge move upward, the part of the exponential curve that looks like the handle of a hockey stick, going from a slight curve to almost a straight vertical line.

The five minutes part, by the way, is just his clever metaphor — he talks about how if you made a crack in the Hoover Dam that releases just one drop of water, then double the size of the crack every minute, that Lake Mead would drain in 57 minutes … but that the effect would be almost imperceptible until the last five minutes, when 97% of the water is drained. He describes the basic path of consumption of many commodities as being similar, and says that the constant doubling and redoubling of demand means that we’re approaching that “last five minutes” when the depletion and demand starts to become extremely noticeable and the prices should spike.

It’s obviously not as simple as that, but there are a lot of folks who are seeing the recent recovery in commodities, particularly gold and oil, before the “mini flash crash” in oil the other day, as the start of another breakout or bull market in those commodity prices. Most commodities have a pretty clean inverse relationship with the dollar (they’re priced in dollars, for the most part, so a falling dollar means a rising commodity price … all else being equal), so clearly much of the recent move is a combination of cheering about more easing from the Federal Reserve, with yet more years of zero percent interest to try to goose our moribund US economy, and the potential that the Europeans might just get religion about lowering interest costs still further and debasing the euro, too. It’s particularly notable that environments like this make buying precious metals particularly attractive for a subset of “stability seekers” — there’s no opportunity cost, since you’re not giving up any return from other perceived “safe” assets when Treasury Bonds offer a coupon that’s lower than the inflation rate. One of the arguments against gold is that it doesn’t give you any income and it actually costs you money every year (storage, etc.) … and we’re getting awful close to being able to make that same argument against US government bonds. Gold is a special case, to be sure, but similar trends enter the debate about pretty much all commodities.

On the flip side, frantic worries about the potential stall in the Chinese growth engine continue to circle in these markets, since China is either the principal or the marginal buyer of most of the widely traded commodities — which means that Chinese industrial demand effectively sets the price for a lot of the stuff that comes out of the ground, like oil and coal and copper and iron ore. And of course, if people generally have less money, well, they buy less stuff. And if they buy less stuff, then the demand for the stuff that you make stuff out of ought to drop.

So that’s the backdrop — do you think weak global economies will lead to global deflation or depression on one extreme, where no one has money to buy anything and therefore prices drop, or hyperinflation on the other as more and more dollars chase scarce commodities? Something in between? Well, Krauth is pitching us some ideas that are based on the future demand for commodities, so if you think we’re going to see prices rise for most commodities he thinks you’ll find great wealth in the pages of his Real Asset Returns newsletter. For $895 a year (on discount, naturally, from the expected future “list price” of $2,900).

Which means it’s time to take the Thinkolator out of the garage again and rev her up bit — but lets start with a little taste of his big picture argument:

“Most people don’t watch the Continuous Commodity Index (CCI). But they should. It tracks the 17 natural resources that feed our entire global economy. And it’s suddenly on fire… forming the rare – and coveted – ‘Golden Cross.’ Technically, this marks the very beginning of a bull market. And in this case, it could be a roaring one for commodities….

“If it’s a tangible commodity, Real Asset Returns will be looking at the plays that could show you the biggest possible gains.

“Isn’t that what you really want in this uncertain, volatile market – to make your fortune in something real?

“Something backed up by hard assets with honest value in the world?

“Something that can appreciate in value while inflation and crushing debt are sending everything else into the tank?

“Something that’s not tied to the amount of interest some mega-bank is charging to millions of cash-strapped consumers?

“Something completely detached from the shady credit default swaps and mortgage-backed securities that killed off the global economy four years ago?

“Something that’s not going to disappear in some “flash crash” that erases derivative-based fortunes in a nanosecond?”

Now, that’s really just the basic “buy hard assets/commodities” spiel that you’ll hear from most pundits in that space … and you can’t swing a dead penny stock promoter without hitting another premium natural resources-focused newsletter — pretty much every publisher has one, and just about anyone can claim at least a few really hot picks in this sector … it is, after all, the very epitome of the boom-and-bust stock sector, especially if you go down the food chain to the smaller companies. I have no idea what Krauth’s track record might be for this fairly new newsletter, though I will note that he has picked at least a couple good ones in the past for his Global Resource Alert, including our longtime gold fave Sandstorm Gold (now ticker SAND in NY, still SSL in Canada) — he wasn’t the first pundit to recommend that one, but I think he was one of the first few with big mailing lists to do so.

It looks like that’s probably the same letter we’re seeing promoted today, by the way … looks to me like they just renamed it Real Asset Returns (probably to make sure folks don’t mistake it for a foreign stock newsletter, now that most overseas markets are being clobbered by the US).

Oh, and the “Golden Cross?” If you’re not a chart follower, that’s simply when a short-term moving average line crosses above the long term moving average line — so, for example, the 20-day moving average line crosses over the 200-day moving average, which gives some indication that the stock might be “breaking out” and setting new, higher resistance as it builds into a bull move. I’m not a chart guy or technician in general, but that’s the basic idea — and that is happening with at least some commodity stocks — the GLD, for example (that’s the exchange traded fund that tracks spot gold prices) just had its “golden cross” a week or two ago.

I don’t expect him to illuminate a barnburner like SAND with this teaser pitch, but we can at least sniff out the ideas he does tease … we’ll dig into “Play #1” today, so let’s jump right into it with a few clues lifted from the letter:

“URGENT ‘FIVE-MINUTE EFFECT’ PLAY #1

“According to the U.N. Food and Agriculture Organization, global food production will need to rise by a whopping 70% as the world population swells.

“Yet arable land is getting scarcer by the day.

“The production of U.S. farmland is already at its limit. And in the last two decades, 41 million acres of farmland have been converted into condos, strip malls, and offices….

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“So it’s no wonder that over the past twelve years, we’ve seen agricultural prices skyrocket, with wheat up 172%, beef up 118%, corn up 221%, and sugar up 302%.

“Walmart CEO Bill Simon recently said: ‘U.S. consumers face serious inflation in the months ahead for clothing, food, and other products.’

“And that brings me to the first of my “5-Minute” recommendations – a company that’s going the extra mile to solve the problem of global food production.

“It’s the only viable solution, and one that’s not only embraced by food producers, but demanded throughout the entire globe.

“In fact, this company provides the material to increase crop yields by 50% to 100%.

“This company’s fertilizers create the most efficient and cost-effective way to produce more food. It’s that simple.

“The major nutrients in fertilizer are nitrogen, phosphorus and potassium. These life-giving elements replenish soils in harvest and add nutritional value to food.

“the company I’m talking about produces all of the ‘big three’ nutrients.

“It’s a true multinational, with operations in seven countries, playing a vital role in world food production.

“What makes it so critical to get into this now, is that this company has in-ground reserves big enough to supply the world for 100 years.

“It’s the biggest, best game in town.

“In fact, the company I’m talking about is capable of producing 1.6 million tonnes of potash a year, mainly from conventional underground mines….

“This company is a powerhouse ready to explode with profits. And it’s cheap, selling for a P/E of 15 – and to top it off, it also pays a dividend. In fact, it doubled its dividend in 2011, then doubling it again in 2012.

“The market value of investments it holds in Middle Eastern, Chilean, and Chinese public fertilizer concerns is roughly $8.6 billion.”

OK, so we’re not looking at a tiny jumper here — this is a biggie. Which one?

Well, you won’t be surprised to hear … but this is the first stock that almost any stock-follower would yell out if the clue was “potash” … Krauth is teasing Potash Corp. (POT). Which did indeed double its dividend in both 2011 and early 2012, but they also just this month boosted the dividend by yet another 50% for the upcoming payout.

Not that it’s going to suddenly become an income darling, the new higher dividend (21 cents/share/quarter) equates to almost exactly a 2% yield. But still, going from three cents a share to 21 cents a share in just over two years is really, really good dividend growth … and they still have a very low payout ratio (meaning, they can easily afford their dividend — they’re expected to earn over $3 this year and are planning to pay out only 84 cents/year per share, a payout ratio of less than 30%), and they are expected to keep growing earnings, so this could very well be the start of a long series of dividend raises.

Of course, even a rising dividend doesn’t provide much salve if the stock price falls substantially over time — and POT has missed earnings estimates every quarter this year, which hasn’t helped the stock price of late. Potash Corp was one of the darlings of the first “agflation” boom in fertilizer stocks in the mid-2000s, when ethanol and hungry emerging Chinese workers and food rioters around the world made every farm, fertilizer and seed stock go up sharply for two or three years … but has been much more tepid over the past two years or so.

Potash and its largest North American competitor, Mosaic (MOS), are valued pretty similarly and both are known primarily as raw material producers of potash and phosphate from giant mines in Canada, though both also sell nitrogen and more refined products. Mosaic has had some company-specific issues of late, largely related to the (gradual) sale of shares by their controlling shareholder, the private company Cargill, but the two stocks have still moved almost in lockstep over the past two years, both underperforming their smaller, more diversified competitor Agrium (AGU), which has more of a distribution/retail presence (and is likely to buy the retail network of Viterra (the Australian-Canadian grain handling network that we’ve also featured in this space a few times, they’re being acquired by Glencore). MOS and AGU have also been at least doubling their dividend over the past two years or so, though both also have paltry current yields of between 1-2%.

But Potash is certainly the big guy in the class — they own massive reserves of potash in Saskatchewan, their crown jewel, and they should be able to produce that vital nutrient for many decades to come, and though they trade at a premium to their competitors they’re not all that expensive . The shares do indeed have a trailing PE of 15 (it was 16 a wee bit ago, when the shares were higher), and analysts see them earning $3.40 this year and $3.76 next year … the trouble is that, despite Krauth’s assertions of the “next five minutes” demand curve for fertilizer, that’s not really much in the way of expected earnings growth — and investors don’t like to buy stocks that aren’t growing earnings.

Potash is a pretty volatile commodity, it depends on the demand of farmers — and while we know that many agricultural commodity prices are rising, particularly the headline-getting US corn crop that was devastated by the drought this year, we also know that many of the US farmers are going to face cash crunches because of the drought, so you have to figure that there could be less aggressive investment in fertilizer over the next few months than we might otherwise expect when corn prices are booming. There is no dramatic excess demand for potash right now, POT reduced their outlook during the last earnings announcement in August, and has shut down one of their sites for a month to match supply with demand … so you can certainly make the argument that the demand for fertilizer will only grow, and that more mouths to feed means more potash, and that Potash Corp. should see the value of their mines and production increase substantially over time. The only problem is that this same “big picture” for Potash would have been equally true two years ago, but the stock is now about 10% cheaper than it was two years ago today.

Which isn’t to say that POT won’t work out well — it is a trophy asset, clearly valuable (valuable enough, indeed, that the Canadian government stepped into prevent the company being acquired by a foreign company a few years ago), and they are one of the major, low-cost producers of a product that the world will need for the foreseeable future. Production capacity for potash, and exploration investment, went up quite a bit following the agflation boom, which is probably hurting demand and pricing at least a little bit, and Potash Corp’s stock pretty clearly tracks along with the price of their major commodity — potash prices peaked before the financial crisis in late 2008, and have gradually worked up over the last two or three years to get to about half of where the price was before the fall. I do think that buying big, irreplaceable “crown jewel” commodity assets like Potash Corp is probably a good idea if you’re looking out a decade, but I have no idea whether or not the stock will do well over the next year — tell me where potash prices go, and I’ll tell you where the POT stock price will probably go. In the near term, I’m more comfortable with Agrium and their more diversified and steadier operations in the fertilizer space … but though they’re cheaper, they’re also not really growing earnings at the moment … and the stock is just tickling a three-year high, so they’re not exactly flying under the radar.

What do you think? Interested in any of the big fertilizer names like POT or their brethren, or anything else in the agriculture space? Let us know your faves with a comment below …

(And yes, there was a “Play #2” — a copper play of some sort, we’ll get to that next time out unless something sexier crosses our screen in the interim.)