Market Perspective

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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How a 1031 Exchange Can Increase the Return on the Sale and Purchase of Investment Property

Posted by on Jun 29, 2011 in Bill Grant, Perspective | 0 comments

Most people have heard the term “1031 Exchange” mentioned, but many are unclear on how they can benefit from it.  Some think that it is only used by multi-million dollar investors.  Others think that you can only exchange a tract of land for a tract of land or an office building for an office building, etc., but both of these assumptions are untrue.  It is a tool that can be used by both large and small investors to increase their return on their investment.  Land can be exchanged for land, but it can also be exchanged for an office building, a rental house, or a retail building just as long as it is real property and held for investment.  Another common misconception is that you can exchange a personal residence for investment property.  It can only be investment property for investment property. One of the main benefits of a 1031 Exchange is that it defers capital gains tax.  If you have a property that you may have owned for a long time and it has a very low “basis”, a 1031 Exchange could be of great benefit to you if you plan on moving that investment to another type of real estate, such as land to office building or office building to land or even development land to timberland.  The 1031 Exchange allows you to transfer the original “basis” in the presently owned property to the new property deferring the need to pay capital gains tax on the difference between the “basis” value and the value transferred.  This allows you to transfer capital gain equity from one property to the next on a dollar for dollar basis, rather than having to deduct for the capital gains that you would have to pay on your sale. How can I do a 1031 Exchange?  Very few exchanges are “direct”, one property for another property.  Most are three party exchanges or non-simultaneous exchanges.  However, the IRS has very specific rules that must be followed to qualify and should only be done with the advice of knowledgeable professionals. The following is an illustration of the process of a 1031 Exchange: The Seller puts their property on the market with the intention of doing a 1031 Exchange. When a contract to purchase is received, a contingency is included in the contract that the Seller wants to achieve a 1031 Exchange at no additional expense to the purchaser. As settlement approaches, the Seller must arrange with a Qualified Intermediary (QI) and a knowledgeable tax attorney to prepare the paperwork to transfer the proceeds of the sale into a trust to be held for the purchase of the replacement property.  The Seller must not receive the proceeds from the sale.  If he does receive the proceeds, he will no longer qualify for the 1031 Exchange. After the settlement on the Seller’s property, he has 45 days to identify potential replacement properties that may be acquired for him by the QI. Settlement on the replacement property must occur within 180 days of the settlement of the sale of the Seller’s original property.  The proceeds in the trust are used to complete the purchase of the replacement property. The values of the properties involved in the exchange do not have to be the same.  Money may be taken...

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Buyers Set Values – Not Sellers

Posted by on May 17, 2011 in Bill Grant, Perspective | 0 comments

Property Is Only Worth What Someone Is Willing To Pay From an appraiser’s standpoint, value expresses an economic concept.  Appraisals are never a fact, but always an opinion of worth of a property at a given time in accordance with a specific definition of value.  In appraisals, there are a number of different types of value such as market value, liquidation value, investment value, tax value, and so forth.  The most often used of these is market value.  An abbreviated definition of market value is:  The most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably and assuming that the price is not affected by undue stimulus. A Broker or Appraiser can only give an opinion of value.  The one who ultimately decides value is the person that is willing to take the risk and put his money into it.  Value is affected by many factors.  Each property is unique unto itself.  There is no other property that is exactly like it.  Two properties that are side by side may be affected by different outside stimuli making the values different for each of them. Factors That Affect Market Value: We will list some of the factors that most often affect a property’s market value. Location: Location, location, location is what we most often hear in the valuing of a property.  The property may be on the busiest city block in town or it could be the most remote rural area.  These properties may be worth the same thing, but the rural parcel may be 150 acres and the city parcel may be one-quarter of an acre. Demand and Availability of Financing: As we have seen in recent years, increased demand can have a dramatic effect on value.  The lack of demand can also have a dramatic effect on value.  If nobody wants a property, what is it worth?  It is only worth what someone is willing to pay. Availability of money at a reasonable rate is also key.  As banks tighten their requirements for loans, fewer people are in the marketplace. Return on Investment: This means different things to different people.  It could be the personal satisfaction of owning a parcel of land to some people and to others, a specific rate of return on money invested from timber, crops, leases on land or improvements or expected return from projected appreciation of the property. Utilities: The availability of utilities to a particular property has a tremendous influence on its value.  It could influence the type and density of development that may be allowed. Environmental Regulations: Such things as the Clean Water Act (better known as Wetlands Regulations), the Chesapeake Bay Act, and Hazardous Waste Regulations can all influence the value of property.  Many properties have wetlands on them which take away from an area that could be used.  The presence of hazardous waste could lead to an expensive endeavor when clean-up is necessary, thus also affecting value. State and Local Regulations: Regulations by municipalities and states can affect the type of development that can be done on a particular piece of land, which in turn affects value.  Municipalities will often control density of development through their regulations.  If...

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