Market Perspective

The Race Continues: Economic Growth vs. An Economic Tantrum – Week 6

Posted by on Jun 29, 2017 in Ned Massie, Perspective | 0 comments

Factors that Make Timberland an Attractive Asset: 1.  Timberland: Some clients have asked us about the impact the increased tariff on imported soft wood lumber from Canada will have on the US timberland market. The ripple effects that we see are the following: The reduction in imports in the face of strong demand for soft wood lumber suggests that timber stumpage prices will increase; It also suggests that the cost of lumber for housing will increase. We have seen estimates of increases ranging from $1,200 to $3,000 per house. Home builders tell us that all of their material prices have been increasing steadily over the last several years and they are concerned about the increased cost of lumber. In these uncertain times, it is critical to remember that land is the source of all wealth. Every product that we humans consume originates with land. Not all tracts of land are equal in quality and portfolio management requires every investor to hold some cash for liquidity. But historically, long term the best investment in...

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The Race Continues: Economic Growth vs. An Economic Tantrum – Week 5

Posted by on Jun 20, 2017 in Ned Massie, Perspective | 0 comments

Robots: There has been a lot of hysteria in the media recently about Artificial Intelligence (AI) leading to robots replacing humans. Historically the rate of return on capital assets has always been higher than the rate of return on human assets, hence the success of the industrial revolution. The hysteria over AI and robots is simply that, hysteria. While machines do not demand pay raises, need health benefits, or get sick they do require manufacture, repair, servicing, and replacement. The real focus should be on giving financial incentives to manufacturers to build robots in the United States so that these manufacturing facilities (tax bases) and the jobs of creating robots will be in America. China is apparently targeting (subsidizing) this fast evolving industry and over the last several years has grown their industry to where they now manufacture approximately 1/3 of all the robots manufactured in the world annually. To date, most of the software for those robots has come from Japan, Germany, or the United States. If our society is smart, we will create incentives so that America is the manufacturing center of robots. How this industry evolves will greatly impact the American economy of the future. In these uncertain times, it is critical to remember that land is the source of all wealth. Every product that we humans consume originates with land. Not all tracts of land are equal in quality and portfolio management requires every investor to hold some cash for liquidity. But historically, long term the best investment is...

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The Race Continues: Economic Growth vs. An Economic Tantrum-Week 4

Posted by on Jun 14, 2017 in Ned Massie, Perspective | 0 comments

New Home Sales Data we have received from some of the home builders in metro Richmond, Virginia has indicated that new home sales in the first quarter of 2017 were 27% higher than the first four months of 2016. New home construction is a leading indicator of the American economy. Although the total value of the new homes represents less than 2% or 3% of the national GDP, the impact of new housing ripples through about 27% of the American economy. Hence strong new home sales should be a very positive economic indicator. Or is it? One of the significant changes that is driving this increase in home sales is that Generation & (sometimes called the Millennials) appear to be moving out of their parents’ homes and are now buying their first homes. Gen Y represented approximately 30% of new home buyers in the year 2013. But so far in 2017, Gen Y represents over 42% of the home buyers. Gen Y is the largest generation of Americans in the history of America, being approximately 10% larger than the Boomer generation, the previous giant. Some of this buying is being driven by increased economic activity, fear of rising mortgage rates, and wanting to buy a home while rates are low. This year Gen Y is increasingly being able to find full-time employment. The contrast of the economic signal for auto sales (negative) versus new home sales (positive) is actually a reflection of the new housing industry operating at 70% of normal. So a decrease in demand caused by higher interest rates would have to cause a drop in demand greater than 30% before it would be reflected in the new housing statistics. In these uncertain times, it is critical to remember that land is the source of all wealth. Every product that we humans consume originates with land. Not all tracts of land are equal in quality and portfolio management requires every investor to hold some cash for liquidity. But historically, long term the best investment is...

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The Race Continues: Economic Growth vs. An Economic Tantrum – Week 3

Posted by on Jun 6, 2017 in Ned Massie, Perspective | 0 comments

Leading Indicator Flashing Yellow: In graduate school I learned that auto sales and home sales were two very good leading indicators of the American economy. Therefore, I have paid particular attention to the last several months of reported auto sales, both new and used. They clearly indicate a slow-down in the auto industry. It appears that the peak of auto sales was last year and while 2017 will be a “good” year by historical standards it will be softer than 2016. Our analysis is that the economy in this economic cycle peaked in 2014. So we are not surprised by the slow-down in auto sales as much as we are of the delay in it happening. In these uncertain times, it is critical to remember that land is the source of all wealth. Every product that we humans consume originates with land. Not all tracts of land are equal in quality and portfolio management requires every investor to hold some cash for liquidity. But historically, long term the best investment is...

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The Race Continues: Economic Growth vs. An Economic Tantrum-Week 2

Posted by on Jun 1, 2017 in Ned Massie, Perspective | 0 comments

Chinese Bond Market On May 31, 2017 the Wall Street Journal reported that Chinese five-year bonds traded at an interest rate higher than the Chinese 30-year bonds. In the financial world, this is called an inverted yield curve and is a forecast of a recession WHEN the increase in short-term rates is being driven by that country’s central bank. That usually means the central bank is attempting to slow down that economy. However, in the current situation, the fact that the five-year bond interest rates are higher than the 30-year bond interest rates reflects that investors are dumping the five-year bonds in an effort to raise cash. There are several reasons for that happening in China currently, including a new bank regulator that is attempting to gain control over the Chinese shadow banking industry which has more than nine trillion dollars in questionable assets. That amount is almost equal to China’s GDP and three times their foreign reserves. The last time a major global economy had an inversion of the yield curve because of investors selling bonds (as opposed to the central banks raising the rate) was the USA in 2007. You will recall that 2008 and 2009 were “historic years” in both the U.S. and global economy. Prudent investors should contemplate the significant ripple effects of a regulation driven investment yield curve in China. Those ripple effects will be felt in both the USA and the global economy. In these uncertain times, it is critical to remember that land is the source of all wealth. Every product that we humans consume originates with land. Not all tracts of land are equal in quality and portfolio management requires every investor to hold some cash for liquidity. But historically, long term the best investment is...

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The Race Continues: Economic Growth vs. An Economic Tantrum

Posted by on May 24, 2017 in Ned Massie, Perspective | 0 comments

Our Summary of the Current Economy: Since November 2016 the world economy has been in a race between two major forces: Economic Growth – Will the Trump administration succeed in replacing Obamacare and greatly reducing the tax burden on both the American consumers and corporations, to spur the American and world economy, or Economic Tantrum – Will a lack of activity on those two items above combined with any one of numerous potential “Black Swan” events create chaos in the global economy? The U.S. Congress is grinding forward extremely slowly. Of course, it is refreshing to see the legislative process actually working again although the Democrats oppose everything regardless of the dire consequences to the average American. The global economy has recently shown some signs of recovery but below the surface there are very negative forces which could result in a “Black Swan” event. The proverbial bottom line is that the outcome of this race is unpredictable at this point. My hope and prayer is that the American economy will “muddle through” like we usually do. In these uncertain times, it is critical to remember that land is the source of all wealth. Every product that we humans consume originates with land. Not all tracts of land are equal in quality and portfolio management requires every investor to hold some cash for liquidity. But historically, long term the best investment is...

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