Wednesday, November 21, 2012

James Grant Says Buy Black Walnuts

Not exactly  Pssst... "Blue Horseshoe loves Anacot Steel" but ya play the cards you're dealt.
From the Daily Reckoning:

A Better Long Term Investment: The US or Nicaragua?
feature photo Buy Walnuts!

Juglans nigra vs. debitis gubernationis. The former produces nuts; the latter is produced by nuts.

In today's musing we compare black walnut trees to government bonds. This clever comparison springs from the mind of James Grant, editor of Grant's Interest Rate Observer. But we will not simply paraphrase Grant's thoughts on the topic, we'll add a couple more of our own...for better or worse.

Juglans nigra is a tree, of course, but it is also an investment. In fact, from Grant's perspective, it is a far better investment than debitis gubernationis.

Admittedly, growing Black Walnut trees is a very non-traditional investment. But we inhabit very non-traditional times. "Non- traditional" is, in fact, Fed Chairman, Ben Bernanke's go-to adjective for describing the array of money-printing schemes that he pursues. And he is so proud of these schemes — and the wonders they may or may not bestow — that he promises to continue them indefinitely.

But as it happens, open-ended money-printing is the sort of thing that promotes inflation. And inflation is the sort of thing that causes hard asset investments like timber to thrive, at least relative to soft assets like Treasury bonds.

That's why Grant's "Reason No. 1" to invest in black walnuts is that "a tree is a store of value, a tangible, or 'real,' asset..."

The second reason Grant takes up the cause of the Juglans nigra "is that the idea is so winningly contrary. It's the kind of idea that not one professional investor in 500 will be able to implement. The value proposition takes this form: Lock up your capital — the cost of land as well as that of seedlings, taxes, labor, etc. — to reap an uncertain reward in the year 2040...Truly," Grant concludes, "black-walnut farming ticks not on institutional box."...MORE
That was from Oct. 22, Here's something a little more recent, from CNBC, Tues. Nov. 20:

HT: Value Investing World
"...but the fiscal cliff does not really worry my next guest. he describes it as the y2k of the moment. joining me now to explain is a well-known fed critic jim grant. he's founder and editor of grant's interest rate observer. you say this is like y2k. no big deal. came and went. you're not worried about it. you say the markets aren't going to fret over it. i don't mean to be quite so dismissive. certainly my experience of problems that are most ventilated are the ones that are least menacing, in fact. the more you talk about something, the more it's likely to be discounted. we've done nothing but talk about the fiscal cliff. at the time all we did was talk about y2k. right. i'm thinking this is the not thing. so what we're not talking enough about is what the fed's stimulus policy has been. is this a bigger threat? is this a bigger worry for you? tell me what you're worried about. the fiscal cliff is the present value of these immense unfunded liabilities. numbers of $80 trillion and up. the question is whether there will be good dollars to pay back those who have lent against those liabilities. it seems a stretch to think there will be. but there's many years to come yet. so we have a fiscal problem. it requires growth and requires good money. it does not require skies full of paper dollars, such as a the confetti we're seeing from the fed. it's unbelievable to me. the demographics of this this country have changed so much. we're living longer. we're needing, you know, medicare longer. folks are even, you know, working longer. yet, these programs have not been changed in so many years, or ever. well, i think we might get around to doing this. but december 21st is not what it's going to happen. all the talk today and tomorrow will be about the fiscal cliff. that's not the thing. in the meantime, in the background, there's these very interesting assertions of what is and is not risky. the financial times had a piece observing that for the first time in 50 years british life insurance companies or pension funds held more bonds than stocks. it reminded me of the fact that fidelity is now managing more bonds than stocks. the world over there is a, if not a migration, then certainly a movement towards those assets certified as safe. it seems to me given the backdrop of what our central banks are doing, the assets certified as safe are almost ceriably unsafe. 145 years in operation, great franchise. so what is the risky asset? it seems to me that the world is set up for something that has nothing to do with the validation of this claim that bonds are safe. meanwhile, people are actually losing money by keeping their money in fixed income. you're not getting any return. today bernanke said at the economic club lunch that he didn't want to suggest that the economy is going to be troubled until 2015 just because he's keeping rates at low levels until 2015. what are the implications of keeping rates at those levels until 2015? what we have done in this election is not only re-elected the president but re-elected bernanke-ism. he'll leave or not in 2015. there will be someone to succeed him that will be as liberal or dubbish as he is. our economists dream up this formula that describe the path they say of economic activity. they provide the confetti or the money to f the path of growth or nongrowth. it is the triumph of a seat of the pants central banking. this is what the country has signed up for with bernanke and his evident successor. that, to me, is a substantial problem on the horizon. next to this, the fiscal cliff. this is the reality we face. so what do you do an as investor? we have institutions watching..."