The Financial Times recently published an article saying farmland is entering bubble territory... Midwestern U.S. farmland – the premium stuff – is up 15% in the first quarter year on year.
The article quotes a real estate portfolio manager for the state of Utah saying, "We're trying to decide if this [price rise in farmland] is a cyclical thing or is it permanent."
The prices of farmland have become totally untethered with any kind of sustainability. I (Porter) have seen deals close on farmland where the projected crop production is only worth 3% of the price paid for the property.
I've written volumes about the danger of the dollar losing its status as the world's reserve currency – a phenomenon I've called the "End of America." In one of my earliest reports on this, I named farmland as the best asset to hold during a currency crisis like the one I've predicted.
I'm very nervous about telling people to go into debt at this point in the cycle. Not because I don't understand "carry" (borrowing money at a low rate and buying something that pays higher interest)… and not because I don't understand that inflation is higher than the fixed interest rates. But I do not believe the rules of the game will be upheld. I've seen far too many times where countries are in the same situation we're in... And they will "dollarize"... They will inflate away your savings while not allowing your debts to be inflated away.
So I would just be very cautious about going into debt. Instead, I would use the hedge I discussed in yesterday's Digest Premium... Raise liquidity over the next several months. And I would define liquidity as 50% in 90-day Treasury bills and 50% in gold.
"Buyers who have been on the sidelines for six years are jumping in," Douglas Yearley, CEO of luxury homebuilder Toll Brothers, said on the company's earnings announcement.
"Low interest rates, improved customer confidence, a strong stock market, rising home prices, and a reawakening economy are stoking the demand that is fueling our luxury market."
Toll Brothers' second-quarter earnings jumped 46% to $24.7 million (including a $16.3 million income tax expense). Revenue jumped 38% to $516 million.
The average price of homes Toll Brothers delivered in the quarter jumped 3.6% to $577,000. Net signed contracts jumped 57% to $1.19 billion. The stock jumped 7%-plus to new highs on the news.
Steve recommended the iShares Home Construction Fund in True Wealth back in February 2011. The fund holds a number of the biggest homebuilders in the country. (Toll Brothers is a top five holding.) Steve's readers are up 95% since then.
Across the U.S., sales of previously owned homes rose in April to an annual rate of nearly 5 million – the most since November 2009 – according to the National Association of Realtors.
And the median price of existing homes climbed 11%, from around $174,000 last year to $192,800 last month – the highest price since August 2008.
Rising home prices for existing homes have lessened fears by builders to raise prices on their new homes (which could spook buyers out of the market), Yearley said. In fact, in many markets, price increases have caused a sense of urgency as demand continues to rise.
Regular Digest readers know Steve is bullish on housing... He's been advising his readers for years to get a 30-year fixed mortgage (at record-low rates) and buy a house. And despite rising prices, Steve is still bullish.
At his presentation this morning at our Spring Editors' Conference at the Greenbrier in White Sulphur Springs, West Virginia, Steve discussed housing. He pointed out that in the 1970s, home prices tripled... going from $20,000 to $60,000.
And Steve believes regular folks with modest, salaried jobs can become millionaires today, thanks to inflation and leverage.
At today's prices, Steve says houses would have to rise by $82,000 on average just to reach "fair value."
Steve also pointed out that housing returned 680% to people who made a 20% down payment. And we have the same conditions today... "It's a trade Mom and Pop America can do," Steve concluded.
Of course, you always want to be careful about debt and make sure you're not over-leveraged and that it's a mortgage you can afford.
"Inflation, leverage, and the right timing can make you very rich," Steve said in his presentation. "Now is the time."
And legendary investor Warren Buffett agrees... Earlier this month on Fox News, Buffett said, "Anybody who's borrowing money should borrow out for a long period of time. And if you ever want to get a mortgage, today is the day to get a mortgage."
Buffett took his own advice a few days after his Fox appearance... His holding company, Berkshire Hathaway, issued $1 billion of debt at record-low yields.
Taking out a mortgage is a way to short the dollar. And you don't want to be in cash today with the government's money-printing activities.
Earlier this month, at Berkshire's annual shareholder meeting – which Dan Ferris attended – Buffett said he felt sorry for people holding on to fixed-dollar investments. He said holding cash and Treasurys has been "brutal."
On Sunday, Americans got a glimpse of the latest technologies used by governments and corporations to track them.
The CBS news program 60 Minutes investigated the spread of "facial recognition" software – a trend that's growing, thanks to the billions of pictures that are publicly available on social-networking sites like Facebook.
Reporter Lesley Stahl told viewers about the huge improvements in facial-recognition software over the past few years. In short, scientists and software developers can build systems able to identify you based on pictures stored in a database.
The technology is still a work in progress... But it's clear where things are heading. Cameras in airports and shopping centers aren't just looking for would-be terrorists. Companies are busy developing systems that can identify someone walking in a public place, then match them to the information they've posted online. For example, future billboards will scan passersby, then tailor the advertisement based on their age, gender, and even the person's publicly listed interests on Facebook.
You can watch the 60 Minutes segment for free by clicking here.
New 52-week highs (as of 5/21/13): Activision Blizzard (ATVI), Brookfield Property Partners (BPY), Chicago Bridge & Iron (CBI), Chevron (CVX), DCP Midstream Partners (DPM), WisdomTree Japan Hedged Equity (DXJ), Enterprise Products Partners (EPD), Energy Transfer Partners (ETP), iShares Germany Fund (EWG), Fidelity Select Medical Equipment & Systems Fund (FSXMEX), Chart Industries (GTLS), Johnson & Johnson (JNJ), KBR (KBR), Medtronic (MDT), 3M (MMM), Allianz Equity & Convertible Income Fund (NIE), ProShares Ultra S&P 500 Fund (SSO), Teekay LNG Partners (TGP), Target (TGT), Targacept (TRGT), V.F. Corp (VFC), Walgreens (WAG), Wells Fargo (WFC), WPX Energy (WPX), and Washington Real Estate Investment Trust (WRE).
We received lots of feedback regarding Dan's comments on Apple's tax problems. We'll have Dan address those issues in tomorrow's Digest. Send your e-mails to feedback@stansberryresearch.com.
"As a Michigan resident and thus a constituent of Senator Carl Levin, I am on his mailing list. Today I got an email from him bragging about going after Apple. In it he says Apple's shenanigans "raise the tax burdens for working American families, add to the federal deficit and ought to be closed." In light of his comments, I would submit that Apple is small potatoes as compared to Levin and the rest of Washington..." – Paid-up subscriber Ric Barta
Regards,
Sean Goldsmith
White Sulphur Springs, West Virginia
May 22, 2013