Contrarian Hard Asset View.
SkyMan
Posts: 9,493 ✭✭✭✭✭
I was listening in to a talk today by a financial analyst who has done quite well by his clientele (including myself) over the last 25 years. He likes to buy things when they are not popular. Basically he said that while it appears that inflation is baked into the cake, that he thinks the appropriate spot for hard assets is NOT gold, which he feels is overvalued, but real estate. He showed a chart that went back to 1890 (the source was the Shiller-Case census NAR WGC) that showed the value of the MEDIAN house in the US in ounces of gold. In 1890 the cost was 100 oz. In 1975 and 1998 it was roughly 460 ounces. Today the cost is 107 ounces. Obviously I think that some gold bugs are going to say, "well there's still some more upward price potential given that gold is still below the 19th century norm". OTOH, given the historical norms of gold vs. homes in the 20th century, the analyst believed this 107 was overvaluing gold. What this analyst was recommending (as you might imagine, his clientele tend to be fairly well heeled) was buying real estate, and renting it out. He feels that given the tax breaks associated with mortgages AND also rental income (not to mention capital appreciation once inflation kicks in) that real estate is a much better buy than gold at current levels.
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Just like second and third derivatives in calculus, the numbers will reveal some interesting data that can be used, misused or abused.
Obviously, since this is a PM board, inserting cost of 1 oz silver into some of these indicators would really make it interesting. In 2005 an ounce of silver would buy how many gallons of gas? And last year? And today?
If you bought silver four years ago at $8 and it's now worth about 6 times that much, you could essentially buy a nice piece of real estate for 16.5 cents on the dollar.
Or to put it another way:
If you bought silver just four years ago at $8 an ounce, you could now buy a house selling for $200,000 (and remember it was probably $250,000 four years ago), outright, with no financing, with the amount of silver you paid $33,000 for.
That's an incredible amount of power, leverage, return, whatever you want to call it. Imagine an 80% off coupon on your dream home. Or better still, a solid rental property.
--Severian the Lame
that seems low...
Groucho Marx
I think the deal in real estate is crop land. If you need to sell, your neighbor is the buyer. It is net leasable. It is low involvement. It has at least a 5% cash yield. It is not in a bubble. Not a
sexy investment just basic fertile well located land with good topsoil.
20 acres near Bloomington/Normal, 100 grand with 5k ROI
20 acres where I am interested west of the Rockies, 40-50k with a 4-5k annual return. 1000 OZ silver in other words.
<< <i>I happen to agree--with caveats. Don't sell well-bought PMs to buy a bad choice in real estate, like our friend Gecko almost did
If you bought silver four years ago at $8 and it's now worth about 6 times that much, you could essentially buy a nice piece of real estate for 16.5 cents on the dollar.
Or to put it another way:
If you bought silver just four years ago at $8 an ounce, you could now buy a house selling for $200,000 (and remember it was probably $250,000 four years ago), outright, with no financing, with the amount of silver you paid $33,000 for.
That's an incredible amount of power, leverage, return, whatever you want to call it. Imagine an 80% off coupon on your dream home. Or better still, a solid rental property. >>
So how much taxes would you pay on the $167K profit? Could you sell 4175 ounces of silver at $48 an ounce without attracting attention? Would you do some kind of exchange?
However after taking a deeper look into home prices vs gold price and their ratios, you can see where in 1980 during the peak of gold prices an average house in the USA could be had for 55 ounces of gold and about 1000 ounces of silver.
So if the goal is to trade PMs for real estate it looks like the optimal time window is yet to come.
Groucho Marx
I knew it would happen.
<< <i>Excellent questions, Bajjerfan. >>
It all seems so simple. Is there similar upside the next few years for the guy who takes all of that $48 silver? Would he actually be better off taking the dollar equivalent and putting it in the market? I'm still kicking myself for dumping all of my cheap LVS and NetFlix so early.
The guy who got me into appraising, Big Bob, once told me that you'll never see a watch dealer with a bad back. That has stuck with me. It means, in essence, that carrying costs, liquidity, etc, are higher with some things than with others.
I own no investment Real Estate. But my PMs, stocks, baseball cards, etc, could fit into a shoebox. Just food for thought.
As far as the big picture, those late to the metals game, that have little or no metals today are in a tough spot. It is difficult to chase something that is up 10x. There is always the risk of a top, or a severe correction or a longer term bear market that will punish all stackers. Dollar cost averaging, or steady accumulation, is what I have advocated as long as I have posted here, actually flips to becoming one of the worst plans to pursue if a market is in the bubble stage. In a bubble, there will not be enough time to buy. If this is a bubble, a DCA strategy will accumulate way too much during a long term bear move, and result in huge losses with no way out. I'm not saying that this is a bubble market or calling top by any means, but just telling folks that DCA is now becoming a risky strategy, instead of a safe one.
One final reminder, the fundamentals look best at the top of any major market top, so don't try and argue fundamentals. Don't rely on fundamentals to get you out, they won't.
sexy investment just basic fertile well located land with good topsoil.
20 acres near Bloomington/Normal, 100 grand with 5k ROI
20 acres where I am interested west of the Rockies, 40-50k with a 4-5k annual return>
This is out of my wheelhouse and I'm not well versed on this investment vehicle. Would you mind going deeper in detail? TIA. MJ
Fellas, leave the tight pants to the ladies. If I can count the coins in your pockets you better use them to call a tailor. Stay thirsty my friends......
<< <i><I think the deal in real estate is crop land. If you need to sell, your neighbor is the buyer. It is net leasable. It is low involvement. It has at least a 5% cash yield. It is not in a bubble. Not a
sexy investment just basic fertile well located land with good topsoil.
20 acres near Bloomington/Normal, 100 grand with 5k ROI
20 acres where I am interested west of the Rockies, 40-50k with a 4-5k annual return>
This is out of my wheelhouse and I'm not well versed on this investment vehicle. Would you mind going deeper in detail? TIA. MJ >>
Are you talking about 20 acres of Mary Jane?
Whereabout (generally) west of the Rockies?
Platinum is not up 10x and, in my opinion, is still chaseable.
My Adolph A. Weinman signature
<< <i><< As far as the big picture, those late to the metals game, that have little or no metals today are in a tough spot. It is difficult to chase something that is up 10x. >>
Platinum is not up 10x and, in my opinion, is still chaseable. >>
What do you see driving platinum higher? An auto market rebound? A rebound in Japan where platinum is favored? Technicals? Sentiment? I don't trade platinum, so I am curious about what is likely your more informed thinking.
In honor of the memory of Cpl. Michael E. Thompson
PMs will continue to make money and real estate will continue to drop. His advice will have it's day, but not today.
In time inflation and higher mortgage rates will increase the cost of real estate, but not it's value. Your PMs will continue to hold value and will buy more real estate later.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
<< <i>What do you see driving platinum higher? An auto market rebound? A rebound in Japan where platinum is favored? Technicals? Sentiment? I don't trade platinum, so I am curious about what is likely your more informed thinking. >>
Check out this link. Platinum fundamentals are discussed starting in paragraph 10, but the earlier paragraphs on physical accumulation are interesting also.
Edited to add: More on platinum fundamentals.
My Adolph A. Weinman signature
<< <i><I think the deal in real estate is crop land. If you need to sell, your neighbor is the buyer. It is net leasable. It is low involvement. It has at least a 5% cash yield. It is not in a bubble. Not a
sexy investment just basic fertile well located land with good topsoil.
20 acres near Bloomington/Normal, 100 grand with 5k ROI
20 acres where I am interested west of the Rockies, 40-50k with a 4-5k annual return>
This is out of my wheelhouse and I'm not well versed on this investment vehicle. Would you mind going deeper in detail? TIA. MJ >>
I am not a farmer. Just an investor. I'm in St. Charles at Bloomington Gold last july....remember July?---PM's were still sane.....
A friend comes up to our table in Harvest...Hazardous Walt is his name.....you'd have to know Walt to know why he's hazardous and after about 3 or 4 bottles of Cab. the SOB pulls out his money market statement and starts talking land with me, Tommie McKeever and Bobbie Shephard. We thought he was some country hick we had known for 15 years. Turns out that the SOB owns half of downstate Ill.
He explains to us how he buys land. Gawd I was almost awstruck by the simplicity in how he operates. He owns a big chunk---scattered here and there and he buys up more in 20-160 acre tracts and continually farms it. And he's going to buy more this year because of the price of beans. And the guy is about 45 years old. A stinking genius. He gets to walk to work in jeans and he doesn't owe anybody any money. He was PO'd because he 'had' to buy an adjoining 20 acre piece because he said if he didn't it might turn into homes and the newly crowned homeowners might object to his farming operation. That's about his biggest problem in life. So when I returned to my little slice of paradise here in SoCal...I thought about it all summer and fall and started looking around.
MJ, I have owned sexy investments. I've owned apartment buildings and office buildings. My dad loved industrial parks. I started off out of college after I sobered up selling buildings for Grubb & Ellis Commercial.
At the age of 58, I have come to the realization that nothing on the face of the earth beats good crop land. You don't leverage..which is good because I don't borrow money..so the land plan fits in to my anti stress plan. You buy more with either your lease payments or crop yield. I lease my small chunk to a dairy and they cut feed for the Jerseys. Plus my new truck is a partial write off.
You just take care of the land and it takes care of you.
I know not much but I know this, Land is CHEAP right now. I've watched wretched rocky soil in Napa Valley that is not good for much go from $3,000 an acre to well over $100,000 an acre and all the while it was still turning out cabernet and making money. Land is cheap right now like some coins are cheap. The difference is, people gotta eat.
regards
<< <i>
<< <i><I think the deal in real estate is crop land. If you need to sell, your neighbor is the buyer. It is net leasable. It is low involvement. It has at least a 5% cash yield. It is not in a bubble. Not a
sexy investment just basic fertile well located land with good topsoil.
20 acres near Bloomington/Normal, 100 grand with 5k ROI
20 acres where I am interested west of the Rockies, 40-50k with a 4-5k annual return>
This is out of my wheelhouse and I'm not well versed on this investment vehicle. Would you mind going deeper in detail? TIA. MJ >>
I am not a farmer. Just an investor. I'm in St. Charles at Bloomington Gold last july....remember July?---PM's were still sane.....
A friend comes up to our table in Harvest...Hazardous Walt is his name.....you'd have to know Walt to know why he's hazardous and after about 3 or 4 bottles of Cab. the SOB pulls out his money market statement and starts talking land with me, Tommie McKeever and Bobbie Shephard. We thought he was some country hick we had known for 15 years. Turns out that the SOB owns half of downstate Ill.
He explains to us how he buys land. Gawd I was almost awstruck by the simplicity in how he operates. He owns a big chunk---scattered here and there and he buys up more in 20-160 acre tracts and continually farms it. And he's going to buy more this year because of the price of beans. And the guy is about 45 years old. A stinking genius. He gets to walk to work in jeans and he doesn't owe anybody any money. He was PO'd because he 'had' to buy an adjoining 20 acre piece because he said if he didn't it might turn into homes and the newly crowned homeowners might object to his farming operation. That's about his biggest problem in life. So when I returned to my little slice of paradise here in SoCal...I thought about it all summer and fall and started looking around.
MJ, I have owned sexy investments. I've owned apartment buildings and office buildings. My dad loved industrial parks. I started off out of college after I sobered up selling buildings for Grubb & Ellis Commercial.
At the age of 58, I have come to the realization that nothing on the face of the earth beats good crop land. You don't leverage..which is good because I don't borrow money..so the land plan fits in to my anti stress plan. You buy more with either your lease payments or crop yield. I lease my small chunk to a dairy and they cut feed for the Jerseys. Plus my new truck is a partial write off.
You just take care of the land and it takes care of you.
I know not much but I know this, Land is CHEAP right now. I've watched wretched rocky soil in Napa Valley that is not good for much go from $3,000 an acre to well over $100,000 an acre and all the while it was still turning out cabernet and making money. Land is cheap right now like some coins are cheap. The difference is, people gotta eat.
regards >>
Where then, would someone completely unfamiliar with crop land, and the investing in of such, turn for a basic (or should I say preliminary) education? Trying to learn about any sort of investing from scratch ends up being wading through a minefield of junk, sales pitches, and total BS............and all on a good day. I have to imagine trying to learning about owning farm land, how to buy it, what to do with it, etc, is next to impossible for your average city kid. Instead of just assuming though.....I'll ask. Where I can read up on some of this stuff? I'd appreciate it a point in a helpful direction.
<< <i>Farmland is Iowa is through the roof right now. 7K, even 10K per acre. Crazy prices. >>
I agree.... seems to be the same here in Nebraska. Not sure that I would call farmland cheap.... seems to me to be in a bubble. I know prices of commodities are going up.... but find it hard to believe that warrants what some farmland is bringing. With the higher prices for farmland comes higher taxes, etc... seems it would be very difficult to make it pay.
Regarding Iowa & Midwest farmland prices, they are about double what they were 10 years ago, give or take. Silver is about double what it was a year ago, give or take. Seems like a potentially good trade. Of course, taxes are definitely a consideration. Unless I'm way off base, taxes on unimproved farmland aren't high, yet. Correct? And that could change in this environment. In the depression, people were losing their farms because they couldn't pay the taxes. You would want some financial reserve, no doubt.
The thing about 20 acres of productive farmland is that you could actually move there and use it on a personal level if necessary, but there would obviously be setup time and other costs involved. The other thing is that in the country, you aren't as subject to the close-range intrusions that can happen in town. You can see'um comin'. A fence and dogs are helpful, too.
I knew it would happen.
<< <i>One final reminder, the fundamentals look best at the top of any major market top, so don't try and argue fundamentals. Don't rely on fundamentals to get you out, they won't. >>
This is absolutely a critical point to remember. Just when things look best/worst.....
I didn't buy land in ILL. Hazardous Walt bought that parcel. His neighbor offered it to him.
I do not care for humidity...I'm a western boy. The deal I stumbled onto was arranged by a customer/friend that knew I was scouting. From my experience I've learned that sellers almost always shop income property to nearby owners first before it's gets 'on the market'. I got lucky, but my friend knew I was looking.
I live by my dads philosophy....son, "Dad, where do you find the deals you get?". dad, "Son, I don't find them, they find me. Just have some money, the deals will end up in your lap."
If you have to go hunt down a RE deal, it ain't no deal. If some sharpie is pitching you, listen well and thank him/her. Don't say another word. If you know the market, it will hit you if it's right for you.
regards, el grande donkey in the mulebarn.
<< <i>
<< <i>Farmland is Iowa is through the roof right now. 7K, even 10K per acre. Crazy prices. >>
I agree.... seems to be the same here in Nebraska. Not sure that I would call farmland cheap.... seems to me to be in a bubble. I know prices of commodities are going up.... but find it hard to believe that warrants what some farmland is bringing. With the higher prices for farmland comes higher taxes, etc... seems it would be very difficult to make it pay. >>
Especially since there is a limit to its productivity. If $5K per acre ground produces 210 bushel corn, $10K per acre ground will still produce 210 bushel corn. I guess one better hope that corn hits $14 per bushel or Unka Sugar increases his subsidy payments.
in the dirt behind my ears. Might try to plant a small crop, ifen the
dirt is still there.
Camelot
I knew it would happen.