Whether times are good, bad, uncertain or chaotic, it always makes sense to focus on fundamentals. And there’s nothing more fundamental than food.
In this episode, we visit with the CEO of an international investment company. He shares the path of discovery his firm and their clients explored in the wake of the 2008 financial crisis. The conclusions they came to and where those lead are the focus of our conversation. We found it fascinating and think you will too!
Planted in the studio and calling in from the field for this fulfilling episode of The Real Estate Guys™ radio show:
- Your host and cultivator of conversation, Robert Helms
- Your co-host and fertilizer of radio frequency, Russell Gray
- Special Guest, CEO of Liquid Investments, Anthony Archer
Even though the world is now in the “information” age, it didn’t abandon the industrial or agricultural age. It’s more like each age stacks on top of the other to create a bigger economy.
But when things get shaky, sometimes it’s safer to get closer to the base. This is our interpretation of Liquid Investments post-2008 investment strategy.
We know the stresses of the Great Recession compelled us to broaden our horizons and deepen our understanding of the macro-economic factors affecting real estate investors. In addition to our obsession the Fed and the bond, gold and oil market, our interest in both international real estate and farmland has been blossoming.
What makes agricultural investing so appetizing?
First of all, it’s real estate. So for all the reasons we like real estate, we like farmland. Except for depreciation. You can’t depreciate dirt. But you can appreciate it, and of course, we do.
After all, farmland is real. It serves an essential human need. And while they aren’t making any more real estate, apparently whatever it is that makes more people remains popular, and so the world’s population is growing. Of course, all those new people need food… no matter where they live.
Which brings us to a very important distinction between rental real estate and farmland…
Rental real estate, whether it’s residential, commercial or industrial, provides a service (the tenant gets to use the building) that is LOCAL. That’s why we do field trips and spend time studying the micro-economic factors supporting the people and businesses in any community where we’re considering investing in rental property.
But the product of farmland is a commodity (food) that can be sold ANYWHERE. So whether you’re growing coconuts or coffee beans, just like oil, gas and gold, these food commodities can be sold and shipped to consumers worldwide….even places like China, India or Russia. It doesn’t really matter where the people live, as long as they like to eat. So you can invest locally, but derive income globally. Yummy.
But wait! There’s more…
You may have heard about central banks (The Fed, the ECB, the Bank of Japan, etc.) practicing an economic rain dance called Quantitative Easing. The stated goal of this “easing” is to inflate prices. They allege this is desirable. We might beg to differ, but they’re not calling us for our opinion, so it is what it is. At last glance, the stock market seems to agree with the bankers – at least for the short term.
But along with the fruit of high stock prices come the weeds of soft employment and rising consumer prices. For folks that have enough money to get in on the rising stock market (and enough brains to get out before the next crash, er…”correction”) can offset their lost purchasing power with more capital gains. Good for them.
But the working class people…you know, the kind of people who live in your rental property…can’t afford to invest in the stock market, so they get squeezed between soft wages and rising prices. There’s no wealth effect in their portfolios to compensate them for the loss of purchasing power. This is one of the main reasons we focus on lower priced residential markets right now.
But we digress (shocker)…
The point is that while QE squeezes your tenants and puts downward pressure on residential rental income, it puts UPWARD pressure on commodity prices. So if you’re a producer of commodities (which you are as a farmland owner), you’re hedged against inflation, and diversified against local economic disruptions. That is if the cost of food goes up, so does your income.
Think about it. Food, in it’s most basic form, may end up in a lot of places. Cheese can end up in a cheap frozen pizza you grab at the market, on in a high end pasta dish prepared at a fancy restaurant. But when you trace it back to the root (or udder, in the case of cheese), it came from the farmland. So whether the economy is soft and more frozen pizzas are sold, or the economy is hot and more people eat out at fancy restaurants, the cheese producer gets the order.
But it gets even better….
Long time listeners to The Real Estate Guys™ radio show know that we’ve been longtime advocates of international diversification. There’s a whole crop of good reasons including privacy, asset protection, generating offshore income in a low tax jurisdiction (the same way Google, GE and other corporations do), and our personal favorite: having a business related reason to travel. We could go on, but you get the point.
Of course, as in all investing, there’s a lot to consider. What country? What crop? How do you find opportunities? How does it all work?
We knew you’d have more questions. So we got our British friend Anthony Archer on the line (it’s like talking to James Bond) because he’s been researching all of this for several years. And it isn’t just theory. Anthony and his team have been weeding out opportunities, cultivating relationships and growing their investors’ cash flows and equity by putting these principles into practice.
So listen in and harvest the benefit of Anthony’s experience. And to reward you for your diligence in listening through the whole episode, at the end, we tell you how to get his excellent free report on the topic. In fact, since you’ve made it all the way to the end of this post, your reward is you can go ahead and click here to get the report now. Good job! But remember to listen to the show too!
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