Investing

Robert Shiller: ‘Neither Farmland Nor Housing Has Been A Great Place To Invest Money Over The Long Term’

Yale University Economics Professor Robert Shiller just torpedoed long-held notions about farmland and residential real estate in this country. The Nobel Prize winner, who correctly-called the dot-com and housing busts of the last decade, penned the following on The New York Times website on July 15:

Despite solid price increases over the last few years, land and homes have actually been disappointing investments. It’s worth considering why.

Let’s start by looking at the numbers. The best long-term data on land in the United States is for farmland, which is valuable in its own right and can also be considered a great reservoir that can be converted to housing and other purposes at opportune times.

Over the century from 1915 to 2015, though, the real value of American farmland (deflated by the Consumer Price Index) increased only 3.1 times, according to the Department of Agriculture. That comes to an average increase of only 1.1 percent a year– and with a growing population, that’s barely enough to keep per capita real land value unchanged.

According to my own data (relying on the S&P/Case-Shiller U.S. National Home Price Index, which I helped create), real home prices rose even more slowly over the same period — a total increase of 1.8 times, which comes to an average of only 0.6 percent a year.

What all that amounts to is that neither farmland nor housing has been a great place to invest money over the long term…

(Editor’s note: Bold added for emphasis)

“Neither farmland nor housing has been a great place to invest money over the long term”

Obviously, this goes contrary to what many Americans have believed all along.

However, the fact that farmland can produce income from crops should not be ignored.

Residential real estate may also offer benefits beyond property value. In my case, the single-family dwelling in the Chicago suburbs which my girlfriend and I own is a significant improvement in such areas as security and food production, for example, compared to our previous rental unit in a multi-family building on the city’s Northwest Side.

An interesting piece from Dr. Shiller, which you can read on the Times’ website here.

By Christopher E. Hill
Survival And Prosperity (www.survivalandprosperity.com)

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Jeremy Grantham: ‘Still No Signs Of An Equity Bubble About To Break’

Right before the weekend, Jeremy Grantham, the British-born investment strategist and founder/former chairman of Grantham, Mayo, Van Otterloo & Co. (currently overseeing $99 billion in client assets), penned an article on the Barron’s website entitled “Jeremy Grantham Warns on Immigration, Brexit.” As part of this piece Grantham, whose individual clients have included former U.S. Vice President Dick Cheney and U.S. Secretary of State John Kerry, talked about U.S. stock prices. He wrote:

Despite brutal and widespread asset overpricing, there are still no signs of an equity bubble about to break, indeed cash reserves and other signs of bearishness are weirdly high.

In my opinion, the economy still has some spare capacity to grow moderately for a while. All the great market declines of modern times- 1972, 2000, and 2007- that went down at least 50% were preceded by great optimism as well as high prices. We can have an ordinary bear market of 10% or 20% but a serious decline still seems unlikely in my opinion. Now if we could just have a breakout rally to over 2300 on the S&P 500 and a bit of towel throwing by the bears, things could change. (2300 is our statistical definition of a bubble threshold.) But for now I believe the best bet is still that the U.S. market will hang in or better, at least through the election

(Editor’s note: Bold added for emphasis)

“2300 is our statistical definition of a bubble threshold”

2,300 on the S&P 500 was the same bubble threshold Grantham indicated in his last quarterly investment newsletter contribution. He wrote in May:

2) that we are unlikely, given the beliefs and practices of the U.S. Fed, to end this cycle without a bubble in the U.S. equity market or, perish the thought, in a repeat of the U.S. housing bubble; 3) the threshold for a bubble level for the U.S. market is about 2300 on the S&P 500, about 10% above current levels, and would normally require a substantially more bullish tone on the part of both individual and institutional investors; 4) it continues to seem unlikely to me that this current equity cycle will top out before the election and perhaps it will last considerably longer…

As I type this Monday afternoon, the S&P 500 stands at 2,167.

An interesting article by Grantham, which you can read in its entirety here on the Barron’s website.

By the way, I noticed there’s a comment attached to that piece from “Christopher Hill.” That is not from me.

By Christopher E. Hill
Survival And Prosperity (www.survivalandprosperity.com)

(Editor’s notes: Info added to “Crash Prophets” page; a qualified professional should be consulted prior to making a financial decision based on material found in this weblog. If this recommended course of action is not pursued, then it must be understood that the decision is the reader’s and the reader’s alone. The creator/Editor of this blog is not responsible for any personal liability, loss, or risk incurred as a consequence of the use and application, either directly or indirectly, of any information contained herein.)

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Peter Schiff: ‘This Is A New Leg Of The Gold Bull Market’

Economist, financial broker/dealer, and author Peter Schiff was interviewed by Kitco News Editor-In-Chief Daniela Cambone last Friday out at FreedomFest in Las Vegas. Schiff, who correctly-called last decade’s housing crash and the global economic crisis, believes gold is entering a new phase in a secular bull market that began back around the turn of the millennium. He told viewers:

I think gold is not only going to re-test the highs from 2011 when it was close to $1,900, but it’s going to surpass those highs and move into much higher territory

I think this is a new leg of the gold bull market. I mean gold’s been in a secular bull market since 2000, 1999-2000. We had a cyclical bear market that I believe ended with the Fed hiked rates in December. And now we have the new leg of the bull market, which I think potentially could be an even bigger leg than the first leg, which saw gold go from sub-$300 to close to $2,000. So if this leg is bigger than that, you can just imagine how high the price might go.

(Editor’s note: Bold added for emphasis)


“We’ve Entered a New Leg of a Gold Bull Market”
YouTube Video

By Christopher E. Hill
Survival And Prosperity (www.survivalandprosperity.com)

(Editor’s notes: Info added to “Crash Prophets” page. A qualified professional should be consulted prior to making a financial decision based on material found in this weblog. If this recommended course of action is not pursued, then it must be understood that the decision is the reader’s and the reader’s alone. The creator/Editor of this blog is not responsible for any personal liability, loss, or risk incurred as a consequence of the use and application, either directly or indirectly, of any information contained herein.)

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Peter Schiff: ‘The Day Of Reckoning Is Getting Closer And Closer’

Economist, financial broker/dealer, and author Peter Schiff appeared on the Alex Jones Show last Friday. Schiff, who correctly-called last decade’s housing crash and recent global economic crisis, warned viewers of rising inflation, a U.S. dollar collapse, and civil unrest. The CEO of Euro Pacific Capital said:

Most people know there’s inflation. They don’t believe the government numbers or they don’t even know about the government numbers. All they know is that the cost of living is going up. Food is more expensive. Their utility bills are higher. Rent is going up. Health insurance premiums are going up. But Alex, we ain’t seen nothing yet. When it comes to inflation- this is just the beginning. The price increases that Americans have been enduring are only going to get much, much worse… But nobody is going to welcome a higher cost of living, and your best defense against that, as I said, is to protect yourself. To get out of your dollars. To diversify internationally

More and more people- mainstreaming people- I’m hearing people talk who now realize that this is the 9th inning of this thing, this whole experiment with Keynesianism and fiat money. It is very, very late in the game. Time is running out, right? The clock has been ticking and ticking. It is going to stop, and you can see that. The day of reckoning is getting closer and closer

The real drop is not just going to be in the pound, but in all the world’s fiat currencies. In particular, the U.S. dollar, which is at the center of this whole Frankenstein’s monster when it comes to a monetary system. And it is going to implode. And this dollar crisis is going to make the financial crisis of 2008 look like a Sunday school picnic, especially in the way it impacts people’s standards of living…

There is going to be, I think, rioting and looting. Especially when we have a currency collapse. Because I think then you’re going to have shortages. I think the government is going to impose price controls. And I think there is going to be a problem for people to get goods and services that are in short supply…

(Editor’s note: Bold added for emphasis)


“Bubble Ready to Implode. Massive QE Coming!”
YouTube Video

(Editor’s notes: Info added to “Crash Prophets” page. A qualified professional should be consulted prior to making a financial decision based on material found in this weblog. If this recommended course of action is not pursued, then it must be understood that the decision is the reader’s and the reader’s alone. The creator/Editor of this blog is not responsible for any personal liability, loss, or risk incurred as a consequence of the use and application, either directly or indirectly, of any information contained herein.)

By Christopher E. Hill
Survival And Prosperity (www.survivalandprosperity.com)

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Jim Rogers Discusses His Investments Post-Brexit

Well-known investor, author, and financial commentator Jim Rogers recently spoke to James West, publisher/editor of the Midas Letter (“Emerging Public Company Research and Global Economic Commentary”) in the wake of the historic “Brexit” vote. During their exchange, the former investing partner of George Soros in the legendary Quantum Fund talked about his current investment holdings and warned about more financial volatility down the road. Rogers confided:

I’m short stocks in the United States, I’m long the United States dollar, I’m long agricultural commodities, I own some shares in China and a few other places. But basically I’m short the U.S. stock market and long the U.S. currency…

(Editor’s note: Bold added for emphasis)

When asked about the volatility of financial markets, the Singapore-based investor warned:

You think 2016 is bad. Wait ‘til 2017. It’s going to be worse

(Editor’s note: Bold added for emphasis)

The last time I blogged about Rogers, he told listeners of Jay Taylor (editor of J Taylor’s Gold & Technology Stocks newsletter) and his radio show Turning Hard Times into Good Times:

I urge people to get knowledgeable from listening to you and other people like you, because the world is facing some very complicated and difficult times. Once you become knowledgeable, you’re going to get very worried, which you should, and then you might get prepared, because not all of us are going to survive what’s coming in the next few years. I hope I survive, I hope everybody listening to this survives. But it’s going to be a very, very damaging and difficult time. So be worried. Be prepared

(Editor’s note: Bold added for emphasis)

You can listen to/read the entire conversation between Jim Rogers and James West here over on the Financial Post (Canada) website.

By Christopher E. Hill
Survival And Prosperity (www.survivalandprosperity.com)

(Editor’s notes: Info added to “Crash Prophets” page; a qualified professional should be consulted prior to making a financial decision based on material found in this weblog. If this recommended course of action is not pursued, then it must be understood that the decision is the reader’s and the reader’s alone. The creator/Editor of this blog is not responsible for any personal liability, loss, or risk incurred as a consequence of the use and application, either directly or indirectly, of any information contained herein.)

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Peter Schiff Sees ‘Enormous Round Of Quantitative Easing’ Ahead For U.S.

Euro Pacific Capital CEO Peter Schiff, who correctly-called the housing bust and economic crisis last decade, just published a new entry to his Peter Schiff’s Gold Videocast vlog on YouTube.com. Schiff talked about what’s behind the recent take-off in precious metal prices. From last Friday:

What’s really behind the metals rise is not what’s happening in Europe, but I believe what’s going to be happening here in the United States, because I believe the Federal Reserve is going to use the turmoil in the markets that followed that [“Brexit”] vote as the excuse that it’s been waiting for, not only not to raise rates, but to cut rates and to launch QE 4. In fact, that is the main reason, I believe, that the markets have recovered somewhat from their Brexit-related losses. Because if you look at the financial markets, they are now pricing in for the first time a higher probability that the next move by the Federal Reserve will be to cut rates, not to raise them. Now remember, I’ve been saying this the whole time. Ever since the Federal Reserve raised rates in December I was saying the likelihood was that the next move would be a cut and not another increase…

As we continue to get more weak economic data that continues to surprise all the bulls who are expecting strong data, it’s not going to be long before the talk of rate hikes is really replaced first by the talk of rate cuts, and then by actual cuts. And of course since there’s not a lot of room for the Fed to cut rates because it never really raised them, the real monetary stimulus is going to come from an enormous round of quantitative easing

The reason there was such a violent reaction in the financial markets to Brexit wasn’t because Brexit is so terrible, it just shows you how precarious the global financial system is. It’s all perched upon these props of cheap money and central banking. It’s all based on hype and hope and confidence. And when something shakes the confidence, you see the immediate result. The central bankers are going to do everything they can to keep this bubble from deflating. And that means more money printing not only here but around the world. And all the naysayers, all the guys that were saying “Oh, Peter Schiff was wrong,” “The Fed was right,” “Bernanke was right- he was the hero,” “Paul Krugman was right- there is no inflation.” All the people who had these premature victory laps are going to have a lot of egg on their face. But in the meantime, there isn’t a lot of time left for people to buy gold and silver while there are still people foolish enough to sell it

(Editor’s note: Bold added for emphasis)


“Silver Confirms Gold’s Breakout”
YouTube Video

By Christopher E. Hill
Survival And Prosperity (www.survivalandprosperity.com)

(Editor’s note: A qualified professional should be consulted prior to making a financial decision based on material found in this weblog. If this recommended course of action is not pursued, then it must be understood that the decision is the reader’s and the reader’s alone. The creator/Editor of this blog is not responsible for any personal liability, loss, or risk incurred as a consequence of the use and application, either directly or indirectly, of any information contained herein.)

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Jeremy Grantham Made Commander Of The Order Of The British Empire

Jeremy Grantham, the British-born investment strategist and founder/former chairman of Grantham, Mayo, Van Otterloo & Co. (currently oversees $99 billion in client assets), was recently made a Commander of the Most Excellent Order of the British Empire by Britain’s Queen Elizabeth II.

Grantham, whose individual clients have included former U.S. Vice President Dick Cheney and U.S. Secretary of State John Kerry, was awarded the CBE for his philanthropic service.

Regular readers may recall that the last time I blogged about the “crash prophet” (May 12), he warned about U.S. stock prices (“the threshold for a bubble level for the U.S. market is about 2300 on the S&P 500”) and housing prices (“in 12 to 24 months U.S. house prices – much more dangerous than inflated stock prices in my opinion – might beat the U.S. equity market in the race to cause the next financial crisis”).

Survival And Prosperity would like to congratulate Mr. Grantham on his CBE.

Christopher E. Hill
Editor

(Editor’s notes: A qualified professional should be consulted prior to making a financial decision based on material found in this weblog. If this recommended course of action is not pursued, then it must be understood that the decision is the reader’s and the reader’s alone. The creator/Editor of this blog is not responsible for any personal liability, loss, or risk incurred as a consequence of the use and application, either directly or indirectly, of any information contained herein.)

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Marc Faber: ‘Most Attractive Assets In My View Are Gold Shares And Oil And Gas Shares’

Swiss-born investment advisor/money manager Marc Faber was on the phone with the CNBC TV show Trading Nation last Wednesday. The publisher of the monthly investment newsletter The Gloom Boom & Doom Report talked investment strategy, and shared the following with viewers:

My view is that in June, [the Federal Reserve] will not move, that they will not increase rates. And that the market will begin to perceive that the Fed wants to support asset markets, which they have stated on numerous occasions before. And that in that environment, gold, which from now on may correct maybe 5 percent or so, will start to move up again. I think an investor should understand, we don’t know how far central banks will move around the world. We need to be diversified. To own some real estate makes sense. To own some equities makes sense. To own some cash and bonds probably makes sense. And to own some precious metals makes sense. The most attractive assets in my view are gold shares and oil and gas shares. I think they still have significant upside potential this year.

(Editor’s note: Bold added for emphasis)


“Marc Faber on investment strategy”
CNBC Video

Christopher E. Hill
Survival And Prosperity (www.survivalandprosperity.com)

(Editor’s notes: Info added to “Crash Prophets” page; a qualified professional should be consulted prior to making a financial decision based on material found in this weblog. If this recommended course of action is not pursued, then it must be understood that the decision is the reader’s and the reader’s alone. The creator/Editor of this blog is not responsible for any personal liability, loss, or risk incurred as a consequence of the use and application, either directly or indirectly, of any information contained herein.)

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Peter Schiff: Rising Gold Stock Prices ‘Just Getting Started’

Peter Schiff, the CEO of Euro Pacific Capital who correctly-called last decade’s housing crash and recent global economic crisis, was on the Fox Business Network yesterday. Chatting with Liz Claman about the recent terrific performance of gold mining stocks, Schiff told viewers:

But this is just getting started. These gold stocks are just recovering ground they never should have lost. I don’t know why anybody’s surprised at these bad numbers coming out of Macy’s. The retailers have been reporting horrible sales all year. The consumer is broke. We are back in recession. That’s why Trump is a nominee. That’s why Bernie Sanders is beating Hillary Clinton in all these primaries. Because the voters know how awful this economy is. They don’t have any money left to spend…


“Retail Tanking, Gold Stocks Doubling”
YouTube Video

Christopher E. Hill
Survival And Prosperity (www.survivalandprosperity.com)

(Editor’s notes: Info added to “Crash Prophets” page; a qualified professional should be consulted prior to making a financial decision based on material found in this weblog. If this recommended course of action is not pursued, then it must be understood that the decision is the reader’s and the reader’s alone. The creator/Editor of this blog is not responsible for any personal liability, loss, or risk incurred as a consequence of the use and application, either directly or indirectly, of any information contained herein.)

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Jeremy Grantham: U.S. House Prices ‘Might Beat The U.S. Equity Market In The Race To Cause The Next Financial Crisis’

Last night I finally got the chance to read the latest quarterly investment letter from “crash prophet” Jeremy Grantham, the British-born investment strategist and founder/former chairman of Grantham, Mayo, Van Otterloo & Co. (currently oversees $99 billion in client assets). Grantham divided up May’s installment (covering the first quarter of 2016) into two parts. Part I, “Always Cry Over Spilt Milk,” was a recap of a paper he wrote six months ago. Part II was entitled “Updates,” in which Grantham provided these investing nuggets:

The tone of the market commentators back in January, when I was writing my last quarterly letter, seemed much too pessimistic on global stock markets, particularly the U.S. market, and I said so.

This relative optimism was an unusual position for me and the snapback in these markets has validated, to a modest degree, my thinking at the time. I still believe the following: 1) that we did not then, and do not today, have the necessary conditions to say that today’s world has a bubble in any of the most important asset classes; 2) that we are unlikely, given the beliefs and practices of the U.S. Fed, to end this cycle without a bubble in the U.S. equity market or, perish the thought, in a repeat of the U.S. housing bubble; 3) the threshold for a bubble level for the U.S. market is about 2300 on the S&P 500, about 10% above current levels, and would normally require a substantially more bullish tone on the part of both individual and institutional investors; 4) it continues to seem unlikely to me that this current equity cycle will top out before the election and perhaps it will last considerably longer; and 5) the U.S. housing market, although well below 2006 highs, is nonetheless approaching a one and one-half-sigma level based on its previous history. Given the intensity of the pain we felt so recently, we might expect that such a bubble would be psychologically impossible, but the data in Exhibit 1 speaks for itself. This is a classic echo bubble – i.e., driven partly by the feeling that the substantially higher prices in 2006 (with its three-sigma bubble) somehow justify today’s merely one and one-half-sigma prices. Prices have been rising rapidly recently and at this rate will reach one and three-quarters-sigma this summer. Thus, unlikely as it may sound, in 12 to 24 months U.S. house prices – much more dangerous than inflated stock prices in my opinion – might beat the U.S. equity market in the race to cause the next financial crisis

(Editor’s note: Bold added for emphasis)

Note that bit about “the threshold for a bubble level for the U.S. market is about 2300 on the S&P 500.” 2,300 remains the same threshold from the last time I blogged about Jeremy Grantham on Survival And Prosperity (it had been 2,250 prior to this). As I type this, the S&P 500 is at 2,064.

In addition to U.S. stock and housing prices, Grantham talked about crude oil. From the newsletter:

My belief remains that a multi-year clearing price for oil would be the cost of finding a material amount of new oil. This appears to be about $65 a barrel today, and costs are drifting steadily higher as the cheapest old oil is pumped. My guess is that the price of oil will indeed be as high as $100 a barrel again within five years

(Editor’s note: Bold added for emphasis)

Once again, another insightful installment from the British “crash prophet.”

You can read the entire piece on GMO’s website here (.pdf format)

Christopher E. Hill
Survival And Prosperity (www.survivalandprosperity.com)

(Editor’s notes: Info added to “Crash Prophets” page; a qualified professional should be consulted prior to making a financial decision based on material found in this weblog. If this recommended course of action is not pursued, then it must be understood that the decision is the reader’s and the reader’s alone. The creator/Editor of this blog is not responsible for any personal liability, loss, or risk incurred as a consequence of the use and application, either directly or indirectly, of any information contained herein.)

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Survival And Prosperity
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