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Should You Buy Farmland? Or Bonds? Or Oil? No!
This story appears in the June 24, 2013 issue of Forbes. Two areas investors should pare back on are bonds and farmland. And regarding energy, be extremely careful. Bonds have been overpriced since 2008, but that doesn’t mean the bubble won’t eventually burst. Debt instruments have already taken a hit as the Federal Reserve hints that it will be scaling back its vacuuming of Treasurys and mortgage-backed bonds. Unless you have to do the bond dance (the only buyers, other than speculators, of long-term government paper are financial institutions that must have such securities for regulatory reasons)–don’t! Municipal bonds are in a different universe from corporates and Treasurys. Here the big risk is solvency. Unless you are an expert or have an advisor who is, go for well-diversified muni-bond funds with durations of under five years. Undermining the integrity of the dollar is similar to introducing a virus into your computer: It corrupts the information. In the economy an unstable dollar undermines the integrity of prices. Hard assets go up when the dollar is weakened, as people seek to preserve what they have. Traditional, productive investments are hurt. In the inflationary 1970s the price of farmland boomed. Same with agricultural commodities. Farmers leveraged to get more and more land. When inflation was conquered in the early 1980s, this Fed-created boom collapsed. Agricultural America went into a depression. A couple of years ago in Nebraska I warned against the rapid rise in the price of farmland since the early 2000s. I was assured that farmers had vivid memories of what had happened in the 1970s and would not overborrow to make purchases. I’m not so sure this is the case today. It certainly isn’t with Wall Street , where institutions and individual investors are treating farmland as a great asset class, and many are borrowing to purchase it. Caveat emptor! Energy also has been given an artificial boost by the shaky dollar for the past decade. Commodity inflation, including oil, has for the moment sharply subsided because the Fed has been sterilizing most of the money it’s been printing by borrowing it back from banks. There’s no way to know how much more of a downside there is, but unless you are farsighted and nimble, you should be extremely cautious with energy investments. If you’re overweighted in energy, cut back for now. To repeat, the Fed may give commodities, bonds and farmland a new round of bubble life, but if you’re a long-term investor, don’t get sucked in. Continue reading
Good Quality UK Farmland Growing In Value
Monday, June 17, 2013 Western Daily Press Top-quality farmland could be costing £20,000 an acre within the next seven years, according to a leading consultant. But while James Brooke, a partner in land agents Bidwells, was referring to top-grade arable land, the rich pastures of the West Country, famous for all-year-round grass, might not be far behind. James Brooke said the ongoing rise in land values, particularly for Grade One land, would continue, and could hit £20,000 by the year 2020 Mr Brooke was speaking at the major national arable event, Cereals 2013, in Lincolnshire. He said the ongoing rise in land values, particularly for Grade One land, would continue, and could hit £20,000 by the year 2020. The current average price is just under £7,000. Demand for land was being driven by an ever-increasing world population that needed to be fed, he said. That demand for good agricultural land would continue to grow. “There is no indicator as to why the current trajectory of land-price travel should fall. I see no reason as to why £20,000 per acre should not be achievable.” He urged farmers to work within reasonable budgets and not over-extend their borrowings. Farmers seeking to expand would want to purchase more land before prices increased much higher, but he said they should be inventive when drawing up plans for future expansion. Mr Brooke said land that was adaptable to produce different crops and also to withstand climate change would be particularly sought after in the future. “There is a need for good quality land in good areas with good irrigation and drainage. We need to be able to grow crops which can adapt to climate change,” he stressed. British farmland was attractive to overseas buyers, Mr Brooke added. “So long as we have a fairly benign tax regime, we shall be seen as attractive to investors.” But in the short term, the market was being stretched by a lack of owners wishing to sell – possibly because of land being handed down from generation to generation without attracting Inheritance Tax, he said. Currently the West Country is the most active region for farm sales, according to estate agents Smiths Gore. Its Taunton office reports over 50 per cent more land was marketed nationally this spring compared with 2012, in what is traditionally the busiest period for farmland market activity. But as 2012 had the least land marketed on record, the amount for sale remains very low and will not satisfy demand, explained specialist agent Simon Derby. “Although the land marketed was a considerable increase compared with last year, we do not expect there to be much more land sold over the whole year compared with last,” he said. Smiths Gore’s analysis shows that up to a quarter of all the land marketed throughout the year was advertised in April and the first half of May. Read more: http://www.thisissomerset.co.uk/Good-quality-UK-farmland-growing-value/story-19307832- detail/story.html#ixzz2Wx2541J7 Continue reading
Greece Looks For Salvation In EM Status
http://www.ft.com/cms/s/0/9ba2b82e-d742-11e2-a26a-00144feab7de.html#ixzz2Wqkme400 June 17, 2013 3:52 pm Greece looks for salvation in EM status By Robin Wigglesworth and Kerin Hope Greece has managed several unwelcome firsts as the eurozone crisis has unfolded. Last week, it set another precedent when MSCI, the influential index provider, relegated the country from its developed country index to emerging markets. The move was the first time MSCI downgraded a country from developed market status. While many investors had predicted MSCI’s review would end in a relegation, the move still contributed to a 3.2 per cent decline in the Athens Stock Exchange on the day. Yet, the downgrade could prove to be a blessing in disguise. Although hundreds of billions of dollars track MSCI’s developed market indices, Greece only had a small weighting and its companies are too small to be of much interest. Moreover, the type of investors that are benchmarked to developed market gauges tend to be risk-averse and shun stricken countries such as Greece. By contrast, in the EM index, Greece will have a higher weighting, which could more than override the effects of the downgrade. HSBC estimates that less than $200m of passive developed market index-tracking money will seep from Greece as a result, but the EM inflows could go above $1bn. More importantly, perhaps, the emerging markets gauge will in the longer run prove a more natural home for Greece, given that the investor base is more used to economic and political uncertainty. “Let’s face it, Greece is an emerging market and now it is classified as one,” says Achilles Risvas, manager of a Greece-focused hedge fund at Dromeus Capital. “With Greece being in the eurozone but classified as emerging markets, a number of the Greek corporates will have a relative edge to similar comparables in emerging markets.” Indeed, last week’s stock marker decline was only partly caused by the index relegation. Investors were spooked by the failure to privatise the government-owned gas monopoly, Depa, and political strife triggered by an abrupt shutdown of ERT, the public broadcaster. But some fund managers took advantage of the selling pressures from the index downgrade, and the market has climbed 6 per cent in the two days after the MSCI downgrade. “When all the index boys are forced sellers, you can pick up some great assets at very attractive prices,” one equity fund manager says. “For Greece the significance will be in the difference between the pool of forced seller versus the willing buyers on the emerging markets side.” After falling into a technical bear market – more than a 20 per cent drop since its March peak – some analysts argue that the Athens stock market is rich with opportunities. Although Greek equities are still up 93 per cent from the market’s trough last year, when fears of a eurozone exit were at their peak, the market is still worth only roughly a fifth of its pre-crisis total. Valuations are extremely low, and after surviving a domestic depression, many Greek companies are now relatively lean. Hedge funds have already made a lot of money betting on Greek bonds. But, with yields now climbing, hedge funds have started to weigh the opportunities on offer, not least in the recapitalisation of the domestic banking sector. Buttressing the banking sector will be a boon to the economy. “The recapitalisation of banks should restart credit flows, which will bring important oxygen into the economy,” says Paolo Batori, strategist at Morgan Stanley. “We believe that Greek economic growth is close to a turning point.” Nonetheless, much hinges on a return to economic growth, political stability and more clarity on the government’s finances. None of these factors can be taken for granted. Predictions of a Greek economic rebound have tended to disappoint, the ERT imbroglio highlighted the country’s political fragility and its debts are still ballooning. Greece is expected to receive a debt reprieve of some sort from its official sector lenders, but the extent of that will be politically sensitive. In the meantime, its bailout programme could easily veer off course. Athens will only get a debt write-off if it sticks closely to the targets – and privatisation is already wildly off-target. Local analysts worry some listed companies that have survived this far could still implode next year as banks are not expected to increase lending soon. Hedge funds have required very favourable terms to recapitalise Alpha Bank and will be wary of many other weaker lenders. Moreover, doubts persist about when the economic recovery will start. The government is predicting growth will return midway through next year, but some local economists are already predicting a seventh year of recession in 2014. Emerging market investors may well be more comfortable with these kinds of risks, but few will yet be rushing to snap up Greek equities. Additional reporting by Ralph Atkins, Alexandra Stevenson and Christopher Thompson Continue reading
