Market Perspective

Investing in an Uncertain World – Eat Gold

Posted by on Oct 26, 2011 in Ned Massie, Perspective | 0 comments

One of my favorite books is “Manias, Panics and Crashes” by Dr. Kindelberger.  Yes, I am an odd duck in that I enjoy reading and thinking about economics.  But this book provides a superb perspective into several facets of our current economic environment. One of those is a framework to decide when an asset is going through a valuation bubble.  Bubbles are always a lot easier to recognize after the bubble bursts.  But to avoid the pain associated with a burst bubble, it would be very helpful to be able to recognize a bubble before it bursts. Dr. Kindelberger’s easy standard is that whenever an asset doubles in price in 12 months, that asset is going through a valuation bubble.  His analysis was that demand never doubles in a year and supply is never cut in half in a year. But, we have all seen assets burst without doubling in value.  There are markets that are relatively small and therefore can be manipulated or distorted relatively easily.  One of those is the gold market. In late August of this year, the gold market declined significantly in just a couple of days after reaching a record price.  While it is too soon to know if the gold market bubble has burst, it could easily have done so. During highly liquid markets, investors and speculators herd together and all chase the same assets looking for “yield”.  In Kindelberger’s book, that mental condition is wonderfully described and the resulting cycle is vividly recounted. But wise investing requires not following the herd.  As another 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 recommended investment 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, timber and timberland values long term tend to exceed the rate of inflation. 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 gold....

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Investing in an Uncertain World – Stagflation is Ugly

Posted by on Sep 28, 2011 in Ned Massie, Perspective | 0 comments

The “Perfect Storm” that we are experiencing is the result of a combination of bad political decisions.  Previously we reviewed the trigger of this Perfect Storm, the Asian financial crisis of 1997 – 1998. In the Clinton Administration, the decision was made to change our tax code to encourage Information Technology business investments.  Since manufacturing jobs was not our future according to our political leaders, the tax code changes put American manufacturers at a disadvantage.  Our political leader’s vision was that all Americans were going to be IT professionals.  Oops. Someone forgot that manufacturing is the basic creation of wealth.  In manufacturing, a variety of parts are assembled and sold when a profit can be made doing so.  By definition, less valued parts are combined into something of greater value than the cost of assembling them, hence wealth is created. Unfortunately, the Clinton Administration was distracted … Monica Lewinsky, impeachment, etc. all apparently were more important to Washington than the economic future of Americans.  Remember the party the Democrats had in the Rose Garden immediately after the vote to impeach Clinton?  Does that seem more like a fraternity act than a serious effort at governing a country? When the 1997-98 Asian financial crisis occurred and those countries devalued their currencies by 80%, their manufacturing costs plummeted as did the price of their finished goods.  American manufacturers could not compete if their manufacturing plants and employees remained based in the USA. The outflow of American manufacturing to Asia, especially China, began in 1999 and accelerated.  The hollowing out of America happened very quickly.  The resulting pain is easy to see today. To date I have not heard a single national political leader voice the fact that we need to return the incentives to the tax code that encouraged American manufacturing in the USA.  But without those jobs, we are destined to continued economic decline. Worse, we are doomed to a stagnant economy and inflation.  That is a condition called “Stagflation” last experienced under another failed President – Jimmy Carter. In “Stagflation” the economy struggles and job growth is almost non-existent but the cost of everything goes up because the buying power of the dollar is reduced due to inflation.  Does that sound familiar?  Hold on, more is coming. So the key question is “How should one invest to combat stagflation?”  The answer is to focus on the effects of inflation and buy hard assets such as land, gold, commodities that will protect your buying power even as the value of the dollar declines. Of those alternatives, land shines.  Give us a call.  We would love to help you...

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Investing in an Uncertain World – Devaluation Feels Good… Initially

Posted by on Sep 22, 2011 in Ned Massie, Perspective | 0 comments

Our perspective is that we are experiencing a perfect storm caused by the combination of several missteps that occurred in 1996-2000.  Here we can only look at one but will address the others in future articles. One of the major forces and the genesis of the current economic crisis occurred in 1997 when the collapse of the banks in Thailand led to a global bond market crisis.  The crisis ricocheted around the world as various countries, including Mexico, Brazil and Russia defaulted on loans. The epicenter of the problem was in Asia.  Their solution was that almost all of the Asian countries devalued their currencies by 80% in 1998. As a result, the goods Americans paid $5 for in 1997 we could pay $1 for by the end of 1998.  American consumers were ecstatic and the Asian economies soared.  However, our American manufacturers were unable to compete. Hence, American manufacturing moved to Asia, primarily China.  Referred to as the Wal-Mart Effect, China became the place to manufacture products, much of which entered the American economy from a Wal-Mart shelf. The hollowing out of America happened very quickly.  The resulting pain is easy to see today.  But, less obvious are the facts that: If the currency exchange rate is like water in a u-shaped tube, the water will ultimately seek its level on both sides of the u-shaped tube; Manufacturing leads to innovation where the manufacturing occurs. Does that mean we will have inflation of about 500% in order to be equal to where we were in 1997?  This analysis is not attempting to be more than generally accurate and is not intended to be a precise forecast of the future. But I believe a review of the forces suggests both potential challenges and solutions.  On the challenge side, I believe it does illustrate the magnitude of the force for potential inflation. Investing your dollars to combat inflation of this magnitude is critical to your financial future.  After the inflation arrives is too late to start.  The investments need to be made now during the trough of this Great Recession. Call us.  We welcome the opportunity to assist you in buying a quality tract of land to maximize your protection against inflation.  Not all land is created equal and we can help you understand the differences....

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Twelve Reasons to Buy Virginia Timberland as an Investment – Reason Number 12

Posted by on Oct 15, 2012 in Ned Massie, Perspective | 0 comments

Selecting Your Timberland Investment/Timberland Management By now you should realize some of the benefits that make timberland an excellent investment.  The combination of increased demand for wood fiber and stable supply are your friends. The ability of a tract of land to actually grow trees is a critical consideration.  Like any other crop, the soils located on a tract of land can predetermine the volume of timber that can grow and the speed with which it will grow.  This is often referred to as the site index of a tract of land. When you are ready to make a timberland investment, we have the soil maps and other information available in our office so that we can help you find a tract of land that has a very good site index, which will improve your return on your investment.  As a timberland investor, you benefit from that. Additionally, professionally managed timberland is of great benefit to the timberland investor.  Un-managed timberland might be just a marginal investment.  How does one manage timberland? Often we talk with folks whose view is that “all dirt is dirt and all trees are trees”.  However, there is a remarkable difference.  Not all soils are BEST suited for timberland.  Likewise, some timber is pretty but worthless and other tracts of timber have tremendous value.  But even with the very best of soils and a good planting of loblolly pine seedlings, professional management can greatly enhance the return on the investment. We hope that the information we have shared in this series has been beneficial to you in making the decision to invest in timberland.  We believe doing so will make you look brilliant over the next 10 years.  Call us, at Grant Massie Land Company, we love helping our clients look brilliant....

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Investing in an Uncertain World – The Measurement of Fear

Posted by on Sep 9, 2011 in Ned Massie, Perspective | 0 comments

Turmoil in Africa and the Middle East easily confirms that the world in which we live is amazingly unstable. All Americans are tired of our country being the world’s sheriff, but now we see that in the absence of a sheriff … chaos rules. If someone had told me 10 years ago that in 2011 we would have a Federal Funds rate of 25 basis points, a prime interest rate of approximately 3%, mortgage rates in the 4% range, and a low inflation rate, I would have replied that the speaker was smoking some illegal substance. However, those conditions do exist.  Additionally, the Federal Reserve will continue to encourage people with money to invest that money.  Over the last few years, the Federal Reserve in general and Dr. Bernanke in particular, have taken a tremendous amount of abuse over their activities in 2008 through 2011. However, I happen to believe that Secretary Henry Paulsen and Dr. Bernanke will be judged by history as having saved western civilization from complete economic collapse in the fall of 2008.  The only mistake I saw them make was to get Congress involved in September of 2008 via TARP. Unfortunately, the current administration in Washington and the previous Congress seem to follow a playbook entitled “How to Discourage Business from Expanding in the United States”.  If one made a list of tasks needed to DISCOURAGE business expansion in the USA, this administration has demonstrated their superior ability to accomplish everything on the list in an amazingly short period of time. Two and one-half years after taking office, it is possible to quantify the fear that exists in the market place today.  Please consider the following: Quantifying the Value of Fear: In a “normal” American economy, at any one moment there is approximately 2T in money market or other savings type facilities; Since the fall of 2008, that number has been hovering around $9 Trillion; Therefore, the value of the fear in the American economy is equal to about $7 Trillion. The Trend of Fear:  Recently one financial media article reported that a survey was taken in March of 2009 (the depth of the stock market collapse) and in July of this year.  The results showed that the percentage of Americans worried about their financial future has INCREASED from 53% in March of 2009 to 76% in July 2011. To Solve the Crisis – Acknowledge and Understand Two items are needed in order to solve a crisis.  The first step is to acknowledge that a crisis exists.  Sounds easy, but the current administration and apparently a lot of folks in Congress think no real problem exists. The second item is the need to understand the origin of the crisis.  Sounds basic, but again, our political leaders  (an oxymoron) seem unable to grasp this concept.  Maybe it is because they would have to admit that they were wrong.  I have no patience with either. Our perspective is that we are experiencing a perfect storm caused by the combination of several missteps that occurred in 1996-2000. That is why we have created this series on “investing in an uncertain world”.  We look forward to sharing our thoughts with you over the coming weeks. Our hope is that this will help you know how to invest your dollars...

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Land Investment vs. Stocks

Posted by on Aug 18, 2011 in Bill Grant, Perspective | 0 comments

After seeing the free-fall in the stock market over the last several weeks, many people are wondering where the safest place to invest their money is.  Many pension funds and other investment groups have become heavily invested in land to offset the wild fluctuations in their stock portfolios. Farmland and Timberland have become a favorite “safe haven” for many investors that want to get away from the fluctuations that the stock market has been going through and are looking for a long-term investment.  In the last several years, most land prices have dropped, as has the stock market, but land remains a very stable investment. A well-managed timber stand can give a long-term annual return of 4-7%, in addition to increased value of the land over the long-term.  Strategically located land can increase in value significantly, particularly if the highest and best use changes from timberland to a different use. Cropland values are becoming more and more related to commodity pricing.  Speculation in this area can increase values significantly; however, they can also fall if the “commodities bubble” pops.  This is more evident with large farms in the “farm belt”.  Smaller farms that have both farmland and timberland seem to have less fluctuation in value with swings in commodity and timber prices. Income from land varies over time depending on whether it is producing crops or timber, making it more of a long-term investment.  Crops and timber are both renewable resources.  The return from farms has put many children through college and continues to produce for the next generation leaving the land value to increase as a hedge against inflation and increase as uses change.  Best of all, you can see it, walk on it and enjoy it for its recreation and beauty. Making a good land investment takes knowledge of the potential for each parcel of land.  Each one is unique and has different attributes and needs to be looked at separately.  Grant Massie Land Company can assist you in this process, helping you to acquire land that best meets your...

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