Boom times in Iowa!...
Boom times in Iowa!... $20,000-per-acre land... You might be dangerously "super-concentrated"... Sjuggerud's clever way to invest in money-printing…
Today's Digest is written by your editor in chief, Brian Hunt. I write this "under the deadline gun," so I must get it done quickly. So, I'll stick to things I know well.
First off, my inheritance is getting bigger...
Longtime Stansberry & Associates readers know I'm from a farm just outside Bedford, Iowa, where the economy is almost exclusively dependent on agriculture prices. According to the U.S. Grains Council, corn is the largest U.S. crop in terms of both value and volume. And Iowa is the largest corn-producing state. I tell people it's the "Saudi Arabia of Corn." When corn and other agricultural product prices are robust, so is Iowa's economy...
And unlike many of the depressed areas you read about in the news, things are booming back home. This just in from Reuters...
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Record-high prices for crops and livestock will lift U.S. farm income 19 percent this year, which for the first time will top $100 billion, the government estimated on Tuesday. Another buoyant year is also in sight in 2012 for an agricultural boom that started in 2006, according to the U.S. Department of Agriculture.
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Rising demand for food around the world, tight supplies, and favorable exchange rates have boosted U.S. commodity prices and attracted investors, both in futures markets and in farmland... |
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Growers in almost every region of the country will have higher incomes this year, thanks to the record-high prices for major crops and some livestock. |
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Farmland and building values are forecast to rise by an average 6.8 percent this year, following a 6.6 percent gain in 2010, said USDA. In two major regions, the rise is stratospheric – up 25 percent in the Great Plains and in the Midwest, according to the Federal Reserve bank surveys. |
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"The three most important factors driving higher asset values (including farm real estate) are higher expected income from production assets, favorable borrowing costs, and expected growth of future returns on these investments," said USDA. |
Like any bull market, the one in agriculture is starting to produce excesses. A farm in northwest Iowa just set an all-time high when someone paid $20,000 per acre for a 74-acre parcel. That's a "nosebleed" level for an acre of black earth. The U.S. Department of Agriculture reports that Iowa's cropland value soared 24% from late 2010 through late 2011.
I went back home for a holiday visit last week. My mother is urging me to pick up some land for myself. I told her, "Mom... I prefer to buy things after they've crashed in price... not after they've climbed to all-time highs. Plus, we are standing on the land I want. I'll eventually get you in a nursing home, have you declared senile, and take it."
Dark humor is common in the Hunt household.
On agriculture, don't forget an important idea I highlighted in Wednesday's DailyWealth Market Notes. It concerns what I worry are a lot of "super-concentrated" portfolios among our readers.
To recap, many people take a position in commodities like corn, cattle, copper, and crude oil with the idea that they are diversifying their portfolios. And this is often a sound idea. But in the past few years, the markets have become incredibly "correlated."
This means most stock sectors, stock indexes, and commodities are moving in lockstep. They are moving in the same up and down fashion at the same rate. The widespread use of exchange-traded funds (ETFs) is one culprit for this incredible correlation. People now buy baskets of stocks and commodities, rather than the individual issues themselves. Plus, the entire world is now floating on an ocean of liquidity produced by the Federal Reserve.
You can see this correlation at work in the chart below. It shows the performance of the popular agriculture fund DBA (which tracks "ag" prices like cattle, corn, and sugar) and the benchmark S&P 500 (the black line on the chart). As you can see, both assets are moving in a similar fashion... and sport virtually the same returns...
And consider the performance of copper (the orange line on the chart), which is one of the world's vital infrastructure ingredients, versus the performance of stocks (the black line on the chart) over the past two years. Again, the returns and broad "up and down" waves are the same...
Do yourself a favor this weekend. Go through your portfolio carefully. Note that a position in copper is pretty much the same as a position in agricultural assets... which is pretty much the same as owning a broad basket of stocks... which is pretty much the same as owning crude oil. If you're heavily weighted in this "risk on" trade, consider lightening up... and putting some additional funds in cash or gold.
I'm also a big proponent of keeping a portion of your money in a trading account to take advantage of one of the most amazing trading performances I've ever seen... which uses what is likely the most valuable financial transaction you'll ever learn. You can learn about this transaction and receive these trades with a subscription to Dr. David Eifrig's trading service, Retirement Trader.
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"Option-expiration day" is one week away. Right now, Doc is holding 14 winners out of 16 positions. If options expired today and he closed out all his trades, he'd book 61 out of 63 winners over the past 18 months running his service.
This kind of record is unheard of in the public newsletter business. We're so impressed with his success, we're considering raising the price next year and going forward. For current subscribers, we'll honor our initial deal and renewal rates, but don't delay if you're considering coming on board. To find out more, click here.
Speaking of the great ocean of liquidity our federal government has created, our own Steve Sjuggerud mentioned a novel way to invest in the global money-printing race to pay off giant and growing unfunded liabilities. Steve says, "Own the printer. Literally." Here's an excerpt from an e-mail Steve sent to me this morning...
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The most direct play on printing money is the company that actually prints most of the world's currencies. |
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De La Rue prints the money for more than 150 countries. If the eurozone wants more euros, or Britain wants more British pounds, they don't crank up their own printing presses... They call De La Rue to crank theirs up. |
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De La Rue has been printing the paper for British currency for three centuries. De La Rue has continued printing through wars and financial crises. |
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De La Rue's shares trade in London. It pays a 4.8% dividend. Its business should be a growth business in the coming years, as governments print more and more money. |
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I haven't done the full homework on it, so it's not a true buy recommendation at this point. But you asked me for the most direct play on government printing of money... And my answer is De La Rue. |
Of course, not everything is rosy in the Midwest. Earlier this week, the news media reported Michigan may have to step in and take over the finances of the failing city of Detroit, which would make it the largest state takeover in U.S. history.
According to the Associated Press:
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The governor has taken steps in that direction, proposing an unprecedented move that could give an appointed manager virtually unchecked power to gut union contracts, cut employee health insurance and slash services. |
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The emergency fiscal manager would also have the right to cut the pay of the mayor and city council. So of course, the people who have been sucking Detroit dry don't much like the idea. They're trying to block the takeover. |
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"This is our city," Mayor Dave Bing said. "Detroit needs to be run by Detroiters." |
The trouble with Bing's statement is that Detroiters have run the city into a wall.
According to the AP, the city "owns a small airport… has its own health services, regional water agency, and streetlight department… and uses city employees, not contractors, to pick up trash." That's a lot for a shrinking city to keep up. And it's part of what's crippling the city's finances...
The CBC, Canada's national public broadcaster, reports Detroit has a $200 million budget deficit... and is projected to run out of money in April 2012. All three rating agencies maintain below investment-grade ratings on Detroit. And you know they're always late to the party. If the emergency manager can't get things in order, the other option would be a default and bankruptcy proceedings.
Porter covered what went wrong with Detroit in detail two years ago... and how it's happening on a larger scale with our federal finances. It was one of the most controversial pieces we've ever published. We received more heated e-mails about that piece than anything we've published since. Some called us "racists," though everything we published was fact. Others agreed with our simple message... A socialist government is dangerous. You can read that essay here.
One final note on Porter and controversy...
If you're interested in some genuine controversial Porter commentary, don't miss his latest edition of Stansberry Radio. In Porter's latest program, he welcomes legendary resource investor Rick Rule.
While I'm always interested in what Rick has to say about life and investing – and there are some great "Rick moments" – the real gem from the program is Porter's take on the public school system in a certain East Coast city.
I'm sure some of our readers (who are hopefully now listeners) will stand up and cheer Porter's commentary. Others will spit up their coffee out of shock. The school commentary is toward the end of the program. Find out which group you belong in, and don't miss it. You can listen to it for free here. And to make sure you don't miss future episodes, you can subscribe to the show on iTunes by visiting www.StansberryRadio.com.
New 52-week highs (as of 12/8/11): McDonald's (MCD).
In today's mailbag... one subscriber suggests where MF Global may have misplaced billions of client dollars. As always... send all your comments and criticism to feedback@stansberryresearch.com.
"Just wanted to comment on Corzine. He's lying. He knows exactly what happened to that $1.2 billion. It's called re-hypothecation.
"Both U.S. and U.K. securities laws allow customer assets pledged as collateral (as in margin accounts) to be re-pledged by brokerage houses for their own accounts. U.S. law places a limit on the percentage of customer assets that can be re-hypothecated. However, U.K. law has no such limits. Therefore, most international brokerage houses transfer these pledged securities to their U.K. subsidiaries where they are used as collateral for loans to the brokerage house. By hypothecating, re-hypothecating, and re-re-hypothecating, etc., these securities get leveraged to about four times their value.
"MF Global pledged these securities to get loans to make their big Euro-bond bet. When that bet went sour, the securities were taken by the banks that made the loans to MF Global. All perfectly legal. But now, MF Global customers are just unsecured creditors to a bankrupt MF Global. The banksters win again." – Paid-up subscriber Ed
Regards,
Brian Hunt
Delray Beach, Florida
December 9, 2011