Here is another of Porter Martin’s articles reflecting on “it was the best of times, it was the worst of times; it was the age of wisdom…” . My good friend Porter, who I met years ago in the Realtors Land Institute, always finds the golden egg of hope and prosperity in his words. Looking back in history and understanding the ups and downs or cycles of our economy and global economy, helps us gain perspective. This perspective is vitally important as we traverse some very unsettling times. Like Porter reflects, I believe in land as a solid investment that will endure through the best and worst of times and will have no fear of bad news. I hope you enjoy his article as much as I.
Porter Martin , Spring 2008
“It was the best of times, it was the worst of times; it was the age of wisdom…
“… it was the age of foolishness; it was the spring of hope, it was the winter of despair…”
That famous opening line from Charles Dickens’ A Tale of Two Cities reflects the financial and political turmoil across England in 1859.
It also describes the U.S. in 2008.
Corn, soybeans and other ag futures prices are gyrating to “best of times” records (with limit-down jolts along the way). Speculative-fund buying of grain futures has grown so massive that some futures contracts have distorted their normal basis linkage with cash grain prices, making a hedge almost impractical.
U.S. debt and equity markets fear the “worst of times” as confidence skids toward panic points. Nobody’s sure the Federal Reserve can pump in enough fresh loans to offset rotten, nearly worthless debt securities.
I’ve found that there is one advantage to living through several booms and busts: It’s easier to keep a cool perspective if you’ve actually seen it happen before. I have seen how alternating waves of speculative greed and stampeding fear can infect the marketplace.
I survived the roller-coaster farmland market of 1971-86. But today, land values are setting new highs!
I endured the stock market crash of 1987. Our Spring 2000 Seasons anticipated the Nasdaq stock crash which started in April 2000 and wiped out 87% of peak values. But today, worldwide growth of internet firms is larger than anyone envisioned in 2000. There are more internet users in China than in America.
And American enterprise will endure that March fire sale of investment banking firm Bear Stearns. Wall Street has been there, done that.
In 1998, investment banks and the Fed propped up a hedge fund, Longterm Capital Management, when Russia defaulted on bonds. That staved off a forced dumping of about $100 bil. of bonds and other assets.
In 1987, stockbroker E. F. Hutton, hit with crippling losses in the 1987 stock crash, was absorbed by Shearson Lehman Brothers.
One of history’s most classic crashes is the 1634-37 Dutch speculative frenzy in rare tulips. At its height, a single bulb could buy a country estate. After the tulip-price crash and nationwide depression, a rare tulip bulb could be bought for the same price as a common onion.
Florida’s current real estate boom and bust is another in a long series. The most violent boom was in 1926, when development land quadrupled in less than a year. Then, panic selling crashed values below the starting point. That warning signal was ignored on Wall Street as a buying frenzy pushed stocks to their historic peak in September 1929.
My parents and grandparents drilled into me their remembrance of the 1920s commodity boom, the stock market crash of 1929 and the Great Depression of the 1930s. Their closing one-liner: “Farmers who held onto their land came out of it fine.”
That history will probably repeat itself as the world economic landscape tilts sharply away from paper assets (debt and equities expressed in U.S. dollars) and toward global commodities like corn and soybeans to feed a wealthier world populace that is approaching 8 billion people.
And it’s tilting toward farmland! I don’t know anyone who is sure of how high good farmland will go – or how far it’ll settle back when the probable correction comes.
I do know that today’s farmland buyers typically acquire land for investment goals measured in generations, not for speculative flipping.
Their confidence is anchored in long-term world population growth and expansion of open-market economies around the world.
They’re also aware that price cycles are a natural, even beneficial, part of the global marketplace.
One of the earliest analysts of longterm cyclical swings is Russian economist Nicolai Kondratieff, who began publishing his studies in the 1920s. His data showed a “long wave” of 50 to 60 years. Free-market economies expand debt and lift prices to an unsupportable point. Then, most of the debt implodes. The resulting depression redistributes assets for a new growth cycle.
Kondratieff argued that debt demolition and renewal kept free-market economies cleansed and energized.
That clashed with Marxist doctrine, and Kondratieff vanished into the Gulag sometime in 1938.
Seasons has repeatedly pointed out that U.S. public and private debt has soared by every rational measure since the 1950s. Household mortgage debt was less than 15% of GNP in 1950. It has climbed, in a parabolic uptrend, beyond 70% of GNP.
Federal Reserve Bank Chairman Ben Bernanke says the Fed caused the 1930s depression, and he will do all he can to avert another. But the Fed can’t control long-term interest rates or the world value of the dollar.
If I had to choose a most likely outcome, it’s this: Continued weakening of the U.S. dollar against commodities and other major currencies, using inflation as a long, bumpy alternative route to outright dollar debt default.
Bottom line: Agricultural land, and production of ag commodities, is the most secure financial base we can imagine for today’s turbulent times.
With family roots in farmland – and eternal roots in the message of Easter – I believe you’ll be able to affirm the Psalmist’s words in Ps. 112: “Even in darkness, light dawns for the righteous and compassionate man… He will have no fear of bad news.”