Market Perspective

Land will be THE BEST Investment for the Next 40 Years – Part 1

Posted by on Jan 6, 2012 in Ned Massie, Perspective | 0 comments

In an uncertain world it is easy to become confused by the cross currents in the current global economy.  The easiest illustration of that fact is the stock market in 2011. In 2011 the best one word description for the stock market is volatility.  We saw huge ups followed by severe downs and at the end of 2011 the stock market indices were remarkably close to where they started 12 months previous.  In other words, there was a lot of activity for very little result. No wonder investors are both confused and afraid about where they should put their money to work.  As a result, the vast majority of investors are putting their money in treasury bills, treasury notes, and bank CDs.  When you think about it, people are selecting financial instruments with rates of return less than the rate of inflation because they value access to their cash as more important than yield. In a normal American economy there is approximately $2 trillion sitting on the sideline.  The last number that I saw for the amount of cash on the sidelines is $9 trillion.  So the fear and uncertainty in the economy today is worth approximately $7 trillion, or three and a half times more than the norm. In the midst of all that confusion, let me give you facts that should guide your investment decisions: In 2011 demographers say that the world population reached 7 Billion; Those same demographers estimate that in 2050 the world population will be 9 Billion; In other words, over the next 40 years, world population will increase by 2 Billion people; Restated, in 40 years there will be 2 Billion more mouths that need to be fed, and those folks will need places to live, work, and play. Every product we humans consume originates in land.  As a result, the demand for land will increase significantly over the next 40 years because of the need to produce more food and fiber. We enjoy helping folks with their land investments because we understand that not all tracts of land are created equally.  Call us, we would like to help...

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Roller Coaster Economy

Posted by on Dec 30, 2011 in Ned Massie, Perspective | 0 comments

The last several years have seen more ups and downs in the economy than the best roller coaster ride at any theme park in the United States.  The fact is that if you are being buffeted by those trends, there is a long line of folks who feel the same way.  Economic whiplash seems to be a universal condition. In an economic storm of this magnitude, it is important to find a safe haven.  Traditionally, US Treasury bonds and notes have been considered a safe haven by investors around the world.  Likewise, gold has been a very popular safe haven.  However, both are suspect today. US Treasuries could easily end up being devalued by the amount of money that the Federal Reserve is printing.  That condition will be ameliorated somewhat by the fact that most other central banks are behaving similarly.  But my guess is that at some point the wheels will come off of that process as it is controlled by humans and humans have this ugly habit of making mistakes. Gold is another traditional safe haven.  However, the rules that were put in place in 1936 relative to the commodity markets began being changed under the first President Bush and continued through Clinton to allow investment banks to get into the commodity markets in a big way.  As a result, the commodity markets today have evolved into another form of gambling. As a result, we see huge swings in commodities and in the middle of those huge swings, people are trying to say that gold (another commodity) is a safe haven.  I do not believe it.  It is now just another lottery ticket. In Virginia, 50% of our land is wooded and timber production has many fine attributes that make it a “safe haven”.  Consider the following: Trees grow larger every year regardless of interest rates, commodity prices, the price of gold, or the value of other commodities; We Americans annually consume about four percent more wood fiber than we harvest which builds in a long-term bias towards higher wood fiber prices; Land is tangible; And on a really stressful day, you can go for a walk and enjoy the world God created…try that with a Treasury note or gold. Looking for stability in an uncertain world, your best investment is a great tract of timberland.  Call us, we welcome the opportunity to help you....

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Is This a Surge or the Beginning of a Recovery?

Posted by on Dec 20, 2011 in Ned Massie, Perspective | 0 comments

That is the question we are asking ourselves today. In some ways the land market today feels like the land market the second half of 2010.  Starting in June of 2010 all the way through January 2011, the land market was active. Mistakenly, we thought a year ago that the activity we were experiencing was the beginning of a recovery in the land market.  But just as we were getting comfortable that the land market recovery had started, somebody hit the off switch. If the land market had been a patient in a hospital between February and August of this year, someone would have called for the gurney to take the body to the morgue.  There was no sign of life. In mid-August of 2011 our activity index began increasing, the phone started ringing in September, and sales started to occur.  We enjoyed selling some of our clients’ land in September, October, November, and even December has been a good month for our clients.  Currently the Grant Massie Land Market Activity Index is not quite as high as it was a year ago, but it is remarkably higher than from February through July of this year. Our advice to our clients is that we don’t know if this is a surge or a recovery.  Discussions with REALTORS in other market segments indicate that they are seeing an increase in activity.  Conversations with businessmen in non-real estate businesses have also indicated that some are seeing an increase in business. However, after last year’s experience, we are not ready to say that it is anything more than just another surge.  We keep hoping that it is the beginning of a recovery, but we are not confident of it.  By the end of the first quarter of 2012, we will be better able to state what is happening in the land market. In the meantime, we are enjoying the level of activity, advising our clients that every offer may be the only one they receive, and hoping that everyone will have a Merry Christmas and a Happy and Prosperous New...

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Investing in an Uncertain World – Solutions

Posted by on Nov 7, 2011 in Ned Massie, Perspective | 0 comments

Solving the crisis in the housing industry will require acknowledging past mistakes and undoing them.  Nothing will happen as fast as I would like to see it unfold, but here are the steps I would recommend if I were asked. Fix Fannie Mae – The simple and best answer is to return it to its criteria and function pre-1998 with one exception.  To prevent it from being used politically, changes need to be made that insulate it from meddling by future congresses and presidents, including but not limited to, eliminating Fannie Mae’s ability to make any type of political contribution to anyone. Community Reinvestment Act – This bad legislation comes up for renewal every five years and should not be renewed.  Banks are capitalistic entities and the government should be prohibited from putting our banking system at risk in any way. Encourage Manufacturing in the USA – Our tax code should encourage manufacturers to locate facilities in the USA by such means as a one year write-off on new facilities, improvements to existing facilities, manufacturing equipment purchases, reduced taxes on capital brought back to the USA, etc.  Jobs, innovation and the basic creation of wealth will result. Repeal Dodd Frank – This bill was overkill, requires 200+ new regulations which is freezing the banking system because they do not know the rules and items 1 and 2 above solve the problem. Balance the Budget – It will take years and require raising the Social Security age, eliminating the required participation in Medicare, repealing Obamacare, and getting every federal employee, including retirees from Congress, receiving the same benefits. Will that occur or any of it?  I do not know.  But short of that combination of solutions, I am a long-term optimist with a lot of short-term concerns. Wise investing requires not following the herd.  The best investments are made at the BOTTOM of the economic cycle, not the top. As one of my favorite economists shared with me two years ago, “in uncertain times gold is actually a bad investment because if the worst thing happens, you cannot eat a bar of gold.” His recommendation was agricultural or forest land.  Both are hard assets that retain value in inflationary times.  Even better, on agricultural land one can grow food.  While you cannot eat a tree, its increase in value long-term tends to exceed the rate of inflation.  Ask me why and I will share. The best news is with about half of Virginia’s land being in forest, the balance is either crop or pasture land.  Therefore, it is possible to invest in a good piece of rural land that has both timber and cropland. Give us a call.  We will enjoy helping you find a great tract of land that will be a better long-term investment than a bar of...

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Investing in an Uncertain World – Destroying American Banks

Posted by on Oct 14, 2011 in Ned Massie, Perspective | 0 comments

If you wanted to cause significant damage to a capitalistic society or even destroy it, the target has to be the banking system.  Capitalism only thrives when banks are able to lend money, a critical form of capital, to entrepreneurs and businesses. To clearly see the impact, study the economy of a third world country.  That study will show that you can have a population that wants to work hard and consumers that would like to buy goods and services, but if capital markets do not exist or cannot function… nothing happens. Closer to home, relive the Savings and Loan crisis with me.  President Jimmy Carter decided to reform the banking industry, which he did in 1978.  He changed a lot of rules concerning the savings and loan industry, expanding their ability to lend.  They followed the new rules and eight years later the savings and loan (S&L) industry collapsed. The government intervention that time was called the Resolution Trust Corporation (RTC) which took over the failed S&L’s.  The RTC was so effective that by the time they completed their work, there were no S&L’s. Fast forward to 1999 when the Community Reinvestment Act of 1999 was being debated.  Because Clinton wanted to distract everyone from his impeachment, he set the expansion of home ownership as a goal for his administration. One of his brilliant ideas was to force banks to make loans to those that did not meet the existing criteria for obtaining a loan.  Representative Barney Frank appeared on television and stated that those opposed to requiring banks to make such loans was because “Republicans are opposed to poor folks owning cars and homes”.  No mention was made of the valid concern that the loans would not be repaid. The requirement of CRA ’99 was that banks would make loans to unqualified borrowers in an amount equal to 5% of each bank’s total assets.  However, banks typically have capital equal to 10% of their total assets.  Further, if a bank’s capital gets down to 8% or less of total assets, that bank “fails”. Easy math suggests that CRA ’99 set the stage for American banks to fail en mass.  However, some politicians are never confused by such details as whether an unqualified borrower will repay their loan and if not, will that cause banks to fail. To them, social policy rules! Can’t you just hear the politicians say “Who cares about long-term impacts of government regulation, we have an election cycle to worry about.” But, there is one more piece of the puzzle that needed to be put in place.  One more change needed to achieve the political goal of Clinton.  Fannie Mae is next on our agenda. In the meantime, to combat the impact of bad policy on your net worth, talk with us about investing in a tract of land.  We will enjoy helping you find a great tract of land that will be a better long term investment than a bar of gold....

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Investing in an Uncertain World – Destroying the American Housing Industry

Posted by on Oct 6, 2011 in Ned Massie, Perspective | 0 comments

The new housing industry is approximately 27% of the American economy.  It is impossible to have a strong economy in the USA without the participation of the new housing industry. New housing is not just single family homes.  It also includes multifamily housing.  In fact, when the housing starts number is reported each month, that number reflects the total starts for both single family and multifamily. The USA is blessed to have a growing population.  That has been one of our characteristics for hundreds of years.  While the sources of growth have periodically shifted between births and immigration, the constant increase in population has provided economic growth. A review of other countries that are not enjoying economic growth today demonstrates that it is massively difficult to have declining population and economic growth.  Population growth is good. Recognizing that “owners” have a different perspective than “tenants”, our government wisely has created incentives for Americans to buy their homes.  To facilitate that result, over the years since the Great Depression, a variety of government agencies and entities evolved to facilitate home ownership. One of the Government Sponsored Entities (GSE) that was created is The Federal National Mortgage Association (FMNA) often referred to as Fannie Mae.  Fannie Mae and her sister GSE’s were created to buy home loans from banks and mortgage brokers with the intent of selling them as an income producing asset to investors such as insurance companies. These loan packages were attractive because they were conservatively under-written and carried an implied Federal Government guarantee which made them AAA financial investments.  Recognizing that the American taxpayer had some potential obligation, Fannie Mae was always VERY conservative in its criteria for the loans. In 1999, to achieve his political goal of increasing home ownership, Clinton appointed his friend, Franklin Raines, to be CEO of Fannie Mae.  Within a few months of his appointment, Fannie Mae changed the loan criteria so that it would begin buying the loans of unqualified borrowers – what we now call subprime loans. But once they were bought by Fannie Mae, packaged together, and sold to investors those subprime loans carried a AAA rating!  This is like the fairy tale of spinning gold out of straw… and just as real. The good news for Franklin Raines is that he received bonuses equal to tens of millions of dollars before he left Fannie Mae and no one has asked him to return that money.  The bad news is we American Taxpayers got nailed with the problem of collection on those loans and making good on the guarantees. Remember what we said in an earlier article – if you want to cause significant damage to a capitalistic society or even destroy it, the target has to be the banking system.  Capitalism only thrives when banks are able to lend money, a critical form of capital, to entrepreneurs and businesses. Today, the entire housing industry is operating on fumes.  The ripple effects are impacting the entire economy including the land market. In the meantime, to combat the impact of bad policy on your net worth, talk with us about investing in land.  The best investments are made at the bottom of an economic cycle, not the top.  We will enjoy helping you find a great land investment that will provide...

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